<PAGE> 1
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-Q
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended September 30, 1995
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
-------- --------
Commission File Number 1-1000
SPARTON CORPORATION
-----------------------------------------------------
(Exact name of registrant as specified in its charter)
Ohio 38-1054690
-------------------------------- ---------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
2400 East Ganson Street, Jackson, Michigan 49202
- ------------------------------------------ ---------
(Address of principal executive offices) (Zip Code)
517-787-8600
---------------------------------------------------
(Registrant's telephone number, including area code)
Indicate by checkmark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
----- -----
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date. The number of shares of
common stock outstanding as of October 31, 1995 was 7,811,370.
1
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SPARTON CORPORATION
INDEX
Page No.
--------
Financial Statements:
[S]
Consolidated Condensed Balance Sheet - September 30 and June 30, 1995 3
Consolidated Condensed Statement of Operations - Three-Month Periods
ended September 30, 1995 and 1994 4
Consolidated Condensed Statement of Cash Flows - Three-Month Periods
ended September 30, 1995 and 1994 5
Notes to Consolidated Condensed Financial Statements 6
Management's Discussion and Analysis of Financial Condition and Results
of Operations 7
Other Information and Signatures 9
2
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SPARTON CORPORATION AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEET (UNAUDITED)
SEPTEMBER 30 AND JUNE 30, 1995
<TABLE>
<CAPTION>
September 30 June 30
Assets 1995 1995
------------- -------------
<S> <C> <C>
Current assets:
Cash and cash equivalents $994,856 $1,203,184
Income taxes recoverable 2,132,954 2,283,646
Accounts receivable 31,912,349 36,987,676
Inventories and costs on contracts in progress,
less progress payments of $5,628,000 at
September 30 ($1,025,000 at June 30) 38,684,696 39,608,812
Prepaid expenses 5,148,877 3,746,705
------------- -------------
Total current assets 78,873,732 83,830,023
Miscellaneous receivables and other assets 4,093,579 4,276,130
Property, plant and equipment - net 23,909,257 22,548,619
------------- -------------
Total assets $106,876,568 $110,654,772
============ =============
Liabilities and Shareowners' Equity
Current liabilities:
Notes payable - due within one year $26,508,519 $25,580,740
Accounts payable 15,076,742 16,170,576
Taxes on income 219,984 596,006
Accrued liabilities 7,774,633 8,294,926
------------- ------------
Total current liabilities 49,579,878 50,642,248
Deferred income taxes 1,959,500 1,959,500
Deferred compensation 2,026,421 1,976,593
Long-term obligations, net of current maturities 370,098 466,368
Shareowners' equity:
Common stock - 7,811,370 shares outstanding
after deducting 123,342 shares in treasury 9,764,213 9,764,213
Capital in excess of par value 403,067 403,067
Retained earnings 42,773,391 45,442,783
------------ ------------
Total shareowners' equity 52,940,671 55,610,063
------------ ------------
Total liabilities & shareowners' equity $106,876,568 $110,654,772
============ ============
</TABLE>
See accompanying notes.
3
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SPARTON CORPORATION AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENT OF OPERATIONS (UNAUDITED)
FOR THE THREE-MONTH PERIODS ENDED SEPTEMBER 30, 1995 AND 1994
<TABLE>
<CAPTION>
1995 1994
------------ -----------
<S> <C> <C>
Net sales $44,569,948 $50,280,023
Costs and expenses 48,619,033 51,932,539
------------ -----------
(4,049,085) (1,652,516)
Other income (expense):
Interest (386,022) (325,988)
Other - net 263,715 23,286
------------ -----------
Income (loss) before income taxes (4,171,392) (1,955,218)
Provision (credit) for income taxes (1,502,000) (704,000)
------------ -----------
Net income (loss) ($2,669,392) ($1,251,218)
============ ===========
Information per share of common stock:
Net income (loss) $(.34) $(.16)
============ ===========
Dividends $-0- $-0-
============ ===========
</TABLE>
See accompanying notes.
4
<PAGE> 5
SPARTON CORPORATION AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENT OF CASH FLOWS (UNAUDITED)
FOR THE THREE-MONTH PERIODS ENDED SEPTEMBER 30, 1995 AND 1994
<TABLE>
<CAPTION>
1995 1994
------------- ------------
<S> <C> <C>
Cash flows provided (used) by operating activities:
Net income (loss) ($2,669,392) ($1,251,218)
Add non-cash items charged to operations:
Depreciation 1,129,756 929,826
Deferred compensation 49,828 41,917
------------- ------------
(1,489,808) (279,475)
Add (deduct) changes in operating assets
and liabilities:
Accounts receivable 5,075,327 2,913,132
Inventories 924,116 5,935,100
Income taxes recoverable 150,692 1,887,000
Accounts payable (1,093,834) (4,065,800)
Taxes on income (376,022) (59,804)
Other (1,922,590) (693,646)
------------- ------------
Net cash provided by operations 1,267,881 5,636,507
Cash flows provided (used) by investing activities:
Purchases of property, plant and equipment-net (2,490,394) (1,978,179)
Other 182,551 61,040
------------- ------------
(2,307,843) (1,917,139)
Cash flows provided (used) by financing activities:
Increase (decrease) in notes payable 927,779 (3,264,550)
Changes in long-term obligations, including
current maturities thereof (96,145) (95,982)
------------- ------------
831,634 (3,360,532)
------------- ------------
(Decrease) increase in cash and cash equivalents (208,328) 358,836
Cash and cash equivalents at beginning of period 1,203,184 1,713,718
------------- ------------
Cash and cash equivalents at end of period $994,856 $2,072,554
============= ============
Cash paid (refunded) during the period for:
Interest $400,000 $255,000
============= ============
Income taxes ($1,503,000) ($2,590,000)
============= ============
</TABLE>
See accompanying notes.
5
<PAGE> 6
SPARTON CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
1) The accompanying consolidated condensed balance sheet at
September 30, 1995, and the related consolidated condensed statements of
operations and cash flows for the three-month periods ended September 30, 1995
and 1994 are unaudited, but include all adjustments (consisting only of normal
recurring accruals) which the Company considers necessary for a fair
presentation of such financial statements. The results of operations for the
three-month period ended September 30, 1995 are not necessarily indicative of
the results that may be expected for the full fiscal year.
2) Earnings per share are computed using the weighted average
number of shares outstanding of 7,811,370 in both 1995 and 1994.
3) 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 (EPA) 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 September 30, 1995, the remaining reserve for
these future costs at this facility, principally ongoing monitoring, totaled
$452,000. In August 1995, the EPA announced its preferred remedy for the site.
The EPA's proposed remedy, which is subject to public comment and
administrative review, includes remediation tasks which the Company believes
are either unnecessary or technically impractical. The Company is challenging
the EPA's proposed remedy selection. These additional tasks would add
significantly to the ultimate clean-up costs for the facility. The Company has
previously recovered all amounts known to be available under insurance policies
concerning this clean-up effort.
The ultimate financial liability of the Company with respect to these various
legal 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 position and cash flow. The impact in any one year,
however, could be material to the consolidated results of operations.
6
<PAGE> 7
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following is management's discussion and analysis of certain significant
events affecting the Company's earnings and financial condition during the
periods included in the accompanying financial statements.
RESULTS OF OPERATIONS
- ---------------------
Sales for the three-month period ended September 30, 1995 were $44,570,000, a
decrease of $5,710,000 (11%) from the corresponding period last year. Revenues
in total were below internal expectations. The Electronics segment's sales
declined $6,719,000. Backlog increased over $13,500,000 during the current
three-month period to $103,000,000 with most of this increased backlog
occurring at Sparton Electronics. Sales declined $6,694,000 (32%) at Sparton
Electronics. Both commercial and defense revenues did not materialize as
planned, the former primarily due to customer-driven program delays. Sales
were flat at both Sparton Technology and the Canadian unit. Expected sales
increases at Sparton Technology did not occur primarily due to delays in
several programs. The Automotive and Industrial Products segment had an
aggregate sales increase of $1,009,000 (4%) for the current three-month period
compared to the same period last year with this growth consistent with internal
expectations. A majority of this sales growth occurred at one of the three
units that comprise this business segment. The growth in sales was due to
several new product programs.
An operating loss of $4,049,000 was reported for the three months ended
September 30, 1995 compared to an operating loss of $1,653,000 last year.
These results were below management's expectations. The Electronics segment
incurred an operating loss of $2,015,000 this year compared to an operating
loss of $379,000 last year. Sparton Electronics operated at a loss for the
current period primarily due to higher material costs, unanticipated customer
scheduling changes and higher administrative marketing costs. Both Sparton
Technology and the Canadian unit incurred operating losses for the current
three-month period. Sparton Technology's loss was primarily due to low sales
volume as several major programs scheduled to start in the period were delayed.
The Automotive and Industrial Products segment incurred an operating loss for
the current three-month period. The loss was higher than that reported last
year and higher than anticipated. Factors contributing to this loss included
continuing efficiency issues, predatory product pricing by certain customers
and start-up costs associated with several new programs. Progress continues to
be made in resolving some of these problems, although two of the three units
are still operating at unprofitable levels. Pricing and continuing cost
reductions will be significant issues in this business segment for the
foreseeable future.
Interest expense increased $60,000 to $386,000 primarily due to higher average
borrowings. Other income increased $241,000 to $264,000 due to several gains
on the sale of equipment. After provision for applicable income taxes, the
Company's net loss for the three-month period ended September 30, 1995 was
$2,669,000 ($.34 per share) compared to $1,215,000 ($.16 per share) for the
corresponding period last year.
FINANCIAL POSITION
- ------------------
For the three-month period ended September 30, 1995, cash and cash equivalents
decreased $208,000 to $995,000. Operating activities provided $1,268,000 in
net cash flows.
7
<PAGE> 8
Principal sources of cash flows from operating activities included decreases in
accounts receivable and inventories. Primary uses included the operating loss,
increases in prepaid expenses, and decreases in accounts payable. Cash flows
used by investing activities were $2,308,000, primarily for the purchase of
property and equipment within the Electronics segment. Financing activities
used $832,000 in cash flows as the Company increased its short-term borrowings.
No dividends were declared in either period presented. At September 30, 1995,
the Company had $52,941,000 ($6.78 per share) of recorded shareowners' equity,
$29,294,000 of working capital, and a 1.59:1.00 working capital ratio.
OTHER
- -----
The Company has been involved in an environmental clean-up effort at Sparton
Technology's Coors Road facility since 1983. Costs incurred totalled $27,000
for the current three-month period compared to $46,000 for the corresponding
period last year. These costs were charged against a reserve initiated in 1991
to cover estimated future minimum costs. As of September 30, 1995, the
remaining reserve for future minimum costs totalled $452,000. The Company has
previously recovered all amounts known to be available under insurance policies
concerning this clean-up effort. In August 1995, the United States
Environmental Protection Agency (EPA) published its preferred remedial action
plan. The EPA's proposed remedy, which is subject to public comment and
administrative review, includes remediation tasks which the Company believes
are either unnecessary or technically impractical. The Company is challenging
the EPA's proposed remedy selection. These additional steps would add
significantly to the ultimate clean-up costs for the facility. In addition,
the Company is involved in several related issues with State of New Mexico
environmental agencies.
The ultimate financial liability of the Company with respect to this
environmental clean-up effort 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 position and cash flow. The impact in any one year,
however, could be material to the consolidated results of operations.
The Company's sales of sonobuoys, principally to the U.S. Navy, have declined
dramatically from $151,024,000 in 1992 to $34,663,000 in 1995. In response,
the Company is developing commercial opportunities which will utilize its
existing technological and manufacturing capabilities, largely in the
electronic contract manufacturing markets. As with any change of this
magnitude, unanticipated problems can be reasonably expected to occur.
Investors should be aware of this uncertainty and make their own independent
evaluation.
8
<PAGE> 9
OTHER INFORMATION
PART II
- -------
Item 6 - Exhibits and Reports on Form 10-K and 10-Q
- ---------------------------------------------------
(a) Exhibits
3 & 4 Instruments defining the rights of security holders have been
previously filed as follows:
Articles of Incorporation of the Registrant were filed on Form 10-K
for the year ended June 30, 1981 and an amendment thereto was filed
on Form 10-Q for the three-month period ended September 30, 1983 and
are incorporated herein by reference.
By-laws of the Registrant were filed on Form 10-K for the year ended
June 30, 1981 and are incorporated herein by reference.
Code of Regulation of the Registrant was filed on Form 10-K for the
year ended June 30, 1981 and an amendment thereto was filed on
Form 10-Q for the three-month period ended September 30, 1982 and are
incorporated herein by reference.
27 Submitted to the Securities and Exchange Commission for its
information.
(b) Reports on Form 8-K Filed in the First Quarter of Fiscal 1996: None
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on its behalf by
the undersigned thereunto duly authorized.
SPARTON CORPORATION
-------------------
Registrant
Date: November 9, 1995 /s/ John J. Smith
----------------- ------------------------------------
John J. Smith, Chairman of the Board
and Chief Executive Officer
Date: November 9, 1995 /s/ Richard Langley
----------------- ------------------------------------
Richard Langley, Vice President-
Treasurer & Principal
Financial Officer
9
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUN-30-1996
<PERIOD-START> JUL-01-1995
<PERIOD-END> SEP-30-1995
<CASH> 994,856
<SECURITIES> 0
<RECEIVABLES> 31,912,349
<ALLOWANCES> 0
<INVENTORY> 38,684,696
<CURRENT-ASSETS> 78,873,732
<PP&E> 23,909,257
<DEPRECIATION> 0
<TOTAL-ASSETS> 106,876,568
<CURRENT-LIABILITIES> 49,579,878
<BONDS> 370,098
<COMMON> 9,764,213
0
0
<OTHER-SE> 43,176,458
<TOTAL-LIABILITY-AND-EQUITY> 106,876,568
<SALES> 44,569,948
<TOTAL-REVENUES> 44,569,948
<CGS> 48,619,033
<TOTAL-COSTS> 48,619,033
<OTHER-EXPENSES> 263,715
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 386,022
<INCOME-PRETAX> (4,171,392)
<INCOME-TAX> (1,502,000)
<INCOME-CONTINUING> (2,669,392)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (2,669,392)
<EPS-PRIMARY> (.34)
<EPS-DILUTED> (.34)
</TABLE>
