<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 December 31, 1994
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ________ to ________
Commission File Number 1-1000
SPARTON CORPORATION
------------------------------------------------------
(Exact name of registrant as specified in its charter)
Ohio 38-1054690
------------------------------- -----------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
2400 East Ganson Street, Jackson, Michigan 49202
- ------------------------------------------ ----------
(Address of principal executive offices) (Zip Code)
517-787-8600
----------------------------------------------------
(Registrant's telephone number, including area code)
Indicate by checkmark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
----- -----
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date. The number of shares of
common stock outstanding as of January 31, 1995 was 7,811,370.
1
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SPARTON CORPORATION
INDEX
Page No.
Financial Statements: -------
Consolidated Condensed Balance Sheet - December 31 and June 30, 1994 3
Consolidated Condensed Statement of Operations - Three-Month and Six-Month
Periods ended December 31, 1994 and 1993 4
Consolidated Condensed Statement of Cash Flows - Six-Month Periods ended
December 31, 1994 and 1993 5
Notes to Consolidated Condensed Financial Statements 6
Management's Discussion and Analysis of Financial Condition and Results of
Operations 7
Other Information and Signatures 10
2
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<TABLE>
SPARTON CORPORATION AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEET (UNAUDITED)
DECEMBER 31 AND JUNE 30, 1994
<CAPTION>
December 31 June 30
Assets 1994 1994
------ ------------ ------------
<S> <C> <C>
Current assets:
Cash and cash equivalents $3,701,115 $1,713,718
Income taxes recoverable 1,794,000 2,591,000
Accounts receivable 31,002,566 31,933,179
Inventories and costs on contracts in progress,
less progress payments of $2,976,000 at
December 31 ($5,627,000 at June 30) 39,387,994 45,835,914
Prepaid expenses 4,589,821 2,434,109
------------ ------------
Total current assets 80,475,496 84,507,920
Miscellaneous receivables and other assets 2,971,051 3,060,062
Property, plant and equipment - net 21,877,131 21,153,958
------------ ------------
Total assets $105,323,678 $108,721,940
============ ============
Liabilities and Shareowners' Equity
-----------------------------------
Current liabilities:
Notes payable - due within one year $23,200,000 $20,614,550
Accounts payable 9,900,075 12,872,286
Taxes on income 254,878 446,331
Accrued liabilities 8,829,086 8,370,212
------------ ------------
Total current liabilities 42,184,039 42,303,379
Deferred income taxes 1,809,500 1,809,500
Deferred compensation 1,938,791 1,912,265
Long-term obligations, net of current maturities 508,783 626,012
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 48,715,285 51,903,504
------------ ------------
Total shareowners' equity 58,882,565 62,070,784
------------ ------------
Total liabilities & shareowners' equity $105,323,678 $108,721,940
============ ============
See accompanying notes.
</TABLE>
3
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<TABLE>
SPARTON CORPORATION AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENT OF OPERATIONS (UNAUDITED)
FOR THE THREE-MONTH AND SIX-MONTH PERIODS ENDED DECEMBER 31, 1994 AND 1993
<CAPTION>
Three-month Periods Six-month Periods
----------- ----------- ----------- -----------
1993
As Restated
1994 1993 1994 (Note 2)
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Net sales $48,262,461 $47,898,718 $98,542,484 $89,291,320
Costs and expenses 50,974,532 47,440,041 102,907,071 89,922,205
----------- ----------- ----------- -----------
(2,712,071) 458,677 (4,364,587) (630,885)
Other income (expense):
Interest (344,560) (138,384) (670,548) (196,749)
Other - net 29,630 (15,062) 52,916 14,894
----------- ----------- ----------- -----------
Income (loss) before income taxes (3,027,001) 305,231 (4,982,219) (812,740)
Provision (credit) for income taxes (1,090,000) 109,000 (1,794,000) (293,000)
----------- ----------- ----------- -----------
Net income (loss) ($1,937,001) $196,231 ($3,188,219) ($519,740)
=========== =========== =========== ===========
Information per share of common stock:
Net income (loss) $(.25) $ .03 $(.41) $(.06)
=========== =========== =========== ===========
Dividends $-0- $-0- $-0- $-0-
=========== =========== =========== ===========
See accompanying notes.
</TABLE>
4
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<TABLE>
SPARTON CORPORATION AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENT OF CASH FLOWS (UNAUDITED)
FOR THE SIX-MONTH PERIODS ENDED DECEMBER 31, 1994 AND 1993
<CAPTION>
1993
As Restated
1994 (Note 2)
-------------- -------------
<S> <C> <C>
Operating activities:
Net income (loss) ($3,188,219) ($519,740)
Add non-cash items charged to operations:
Depreciation 1,955,407 1,826,975
Deferred compensation 86,526 72,829
Deferred income taxes -- (210,000)
-------------- -------------
(1,146,286) 1,170,064
Add (deduct) changes in operating assets
and liabilities:
Income taxes recoverable 797,000 (452,000)
Accounts receivable 930,613 (1,845,426)
Inventories 6,447,920 (1,364,440)
Accounts payable (2,972,211) (4,378,401)
Taxes on income (191,453) (813,885)
Other (1,697,062) (813,662)
-------------- -------------
Net cash provided (used) by operating activities 2,168,521 (8,497,750)
Investing activities:
Purchases of property, plant and equipment-net (2,678,580) (1,686,411)
Other 29,011 130,583
-------------- -------------
Net cash (used) by investing activities (2,649,569) (1,555,828)
Financing activities:
Increase in notes payable 2,585,450 11,120,000
Changes in long-term obligations, including
current maturities thereof (117,005) (116,612)
-------------- -------------
Net cash provided by financing activities 2,468,445 11,003,388
-------------- -------------
Increase in cash and cash equivalents 1,987,397 949,810
Cash and cash equivalents at beginning of period 1,713,718 2,560,566
-------------- -------------
Cash and cash equivalents at end of period $3,701,115 $3,510,376
============== =============
Cash paid (received) during the period for:
Interest $608,000 $168,000
============== ============
Income taxes (refunded) ($2,590,000) $720,000
============== =============
See accompanying notes.
</TABLE>
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SPARTON CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
1) The accompanying consolidated condensed balance sheet at
December 31, 1994, and the related consolidated condensed statements of
operations for the three-month and six-month periods ended December 31, 1994
and 1993 and cash flows for the six-month periods ended December 31, 1994 and
1993 are unaudited, but include all adjustments (consisting only of normal
recurring accruals) which the Company considers necessary for a fair
presentation of such financial statements. The results of operations for the
six-month period ended December 31, 1994 are not necessarily indicative of the
results that may be expected for the full fiscal year.
2) Effective the first quarter of fiscal 1994, the Company adopted
Statement of Financial Accounting Standards (SFAS) No. 109, "Accounting for
Income Taxes." 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 fiscal 1994, the Company elected to early adopt SFAS
No. 112, "Employers' Accounting for Postemployment Benefits," retroactively as
of July 1, 1993. The cumulative effect of this accounting change was to
increase the net loss for the first quarter of fiscal 1994 by $264,000 ($.03
per share), net of income taxes of $149,000. The effect of this postemployment
benefits accounting change on fiscal 1994 operations was not material. Both
accounting changes, when taken together, offset each other for the first
quarter of fiscal 1994, as restated.
The net loss and net loss per common share for the six months
ended December 31, 1993 have also been restated to reflect the retroactive
application of SFAS No. 112 as discussed above. This restatement increased the
net loss reported at December 31, 1993 by $264,000 ($.03 per share) from
amounts previously reported.
3) Earnings per share are computed using the weighted average
number of shares outstanding as follows: For the three-month periods,
7,811,370 in 1994 and 7,810,370 in 1993. For the six-month periods, 7,811,370
in 1994 and 7,810,370 in 1993.
4) There are various legal proceedings pending against the Company.
In many cases, these proceedings involve ordinary and routine claims incidental
to the business of the Company. In others, they represent allegations that are
non-routine. The 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 related to this clean-up effort.
As of December 31, 1994, the remaining reserve for these future costs at this
facility, principally ongoing monitoring, totaled $584,000. The Company has
previously recovered all known amounts available under insurance policies
concerning this clean-up effort.
The ultimate legal and financial liability of the Company with
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.
6
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following is management's discussion and analysis of certain significant
events affecting the Company's earnings and financial condition during the
periods included in the accompanying financial statements.
RESULTS OF OPERATIONS
- ---------------------
Six-Month Periods
- -----------------
Sales for the six-month period ended December 31, 1994 were $98,542,000, an
increase of $9,251,000 (10%) from the corresponding period last year.
Revenues, however, were below internal expectations. Sales at Sparton
Electronics were substantially below anticipated levels and at the same level
as last year. Certain commercial revenues did not materialize as expected.
Commercial sales volume continues to expand, but not at a level sufficient to
offset the decline in defense-related revenues. Sales increased significantly
at the Canadian unit over the depressed levels of the prior year. Revenues
also increased at Sparton Technology, primarily due to expanding foreign and
proprietary product sales. The Automotive and Industrial Products segment
continues to expand with an aggregate sales increase of $6,883,000 (15%) for
the current six-month period compared to the same period last year. This sales
growth exceeded expectations and reflects both increased customer demand for
existing products as well as new product shipments.
An operating loss of $4,365,000 was reported for the six-month period ended
December 31, 1994 compared to an operating loss of $631,000 last year. Sparton
Electronics operated at an unanticipated loss for the period. Profit margins
continue to be adversely impacted by increased costs associated with lower
overall sales volumes, unexpected production delays, and multiple program
launches. The transition from being primarily a defense-related supplier to
that of a commercial manufacturer continues, particularly in the administrative
and materials management areas. The Canadian unit incurred a loss for the
current six-month period compared to a much larger loss last year. Sparton
Technology reported a modest operating profit this period compared to an
operating loss last year. These improved operating results at both Canada and
Sparton Technology were primarily due to higher sales volume, a favorable
product mix, and cost-cutting measures instituted this past year. The
Automotive and Industrial Products segment incurred a significant operating
loss for the current six-month period compared to a small loss last year. A
modest operating profit for the current period was anticipated. Factors
contributing to this loss included continuing productivity and efficiency
issues, capacity problems at certain facilities, difficulties in achieving
customer quality demands, and an inability to adjust certain prices due to
competitive pressures. The Hartford City, Indiana facility purchased last
fiscal year was placed into production early in this current six-month period.
Price increases on several product lines have been requested, but with only
limited success thus far. Efforts to obtain price increases continue.
Interest expense increased $474,000 to $671,000 due to higher average
borrowings and substantially higher interest rates. Effective July 1, 1993,
the Company adopted Statement of Financial Accounting Standards (SFAS) No. 109,
"Accounting for Income Taxes." 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 fiscal
7
<PAGE> 8
1994, the Company elected to early adopt SFAS No. 112, "Employers' Accounting
for Postemployment Benefits," retroactively as of July 1, 1993. The cumulative
effect of the accounting change was to increase the net loss for the first
quarter of fiscal 1994 by $264,000 ($.03 per share), net of income taxes of
$149,000. The effect of this postemployment benefit accounting change on
fiscal 1994 operations was not material. Both accounting changes, when taken
together, offset each other for the first quarter of fiscal 1994, as restated.
The loss and loss per common share for the six months ended December 31, 1993
have also been restated to reflect the retroactive application of SFAS No. 112.
This restatement increased the net loss reported at December 31, 1993 by
$264,000 ($.03 per share) from amounts previously reported. After provision
for applicable income taxes, the Company's net loss for the six-month period
ended December 31, 1994 was $3,188,000 ($.41 per share) compared to a net loss
of $520,000 ($.06 per share), as restated, for the corresponding period last
year.
Three-Month Periods
- -------------------
Sales for the three-month period ended December 31, 1994 were $48,262,000,
virtually the same as the $47,899,000 level from the corresponding period last
year. At Sparton Electronics, sales declined $3,727,000 (19%) from the levels
of the prior year and were below internal expectations as certain commercial
revenues did not materialize as planned. Sales more than doubled at the
Canadian unit compared to last year, but still remain at historically reduced
levels. Revenues at Sparton Technology increased 35% from the low levels of
last year primarily due to the previously mentioned expanding foreign and
proprietary product sales. The Automotive and Industrial Products segment
reported an increase of $2,853,000 (11%) in overall sales compared to the same
period last year. All three of the operating units that comprise this segment
had higher sales during this period principally due to increases in both
customer demand for existing products as well as new product shipments.
An operating loss of $2,712,000 was reported for the three months ended
December 31, 1994 compared to operating income of $459,000 in the same period
last year. Sparton Electronics operated at loss compared to a small profit
last year and significantly below internal expectations due to the previously
mentioned problems of lower overall sales volumes, unexpected production
delays, and multiple program launches. The Canadian unit operated at a loss
principally due to low sales volume. Sparton Technology operated at a profit
for the current period due to higher sales volume and the previously mentioned
cost-cutting measures implemented last year. The Automotive and Industrial
Products segment operated at a loss for the current three-month period compared
to a small profit last year and significantly below anticipated results. This
decline was attributable to the previously mentioned productivity and
efficiency issues, capacity problems at certain facilities, difficulties in
achieving customer quality demands, and product pricing.
Higher average borrowings and significantly higher borrowing costs during the
three-month period resulted in an increase in interest costs of $207,000 to
$345,000. After provision for applicable income taxes, the Company's net loss
for the three-month period ended December 31, 1994 was $1,937,000 ($.25 per
share) compared to net income of $196,000 ($.03 per share) last year.
FINANCIAL POSITION
- ------------------
For the six-month period ended December 31, 1994, cash and cash equivalents
increased $1,987,000 to $3,701,000. Operating activities provided $2,169,000
in net cash flows. Principal sources of cash flows from operating activities
included decreases in inventories and accounts receivable. Primary uses
included the operating loss, a
8
<PAGE> 9
reduction in accounts payable, and an increase in prepaid customer tooling.
Cash flows used by investing activities were $2,650,000, primarily for the
purchase of property plant and equipment within the Automotive and Industrial
Products segment. Financing activities provided $2,468,000 in cash flows as
the Company increased its short term borrowings. Late in the second quarter,
the Canadian unit replaced its $723,000 credit facility with a $5,000,000
unsecured line of credit to be used for working capital purposes. The credit
facility, expiring in October 1995, is subject to a favorable interest rate
structure and is guaranteed by the parent company. No dividends were declared
or paid in any of the periods presented. At December 31, 1994, the Company had
$58,883,000 ($7.54 per share) in recorded shareowners' equity, $38,291,000 in
working capital, and a 1.91:1 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 $79,000
for the current six-month period compared to $32,000 for the corresponding
period last year. These costs were charged against a reserve initiated in 1991
to cover estimated future minimum costs. As of December 31, 1994, the
remaining reserve for future minimum costs totalled $584,000. 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 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 fiscal 1992 to $47,645,000 in fiscal 1994.
Based on currently available information, it is expected that the U.S. Navy's
budget for production sonobuoys for the foreseeable future will continue at
reduced levels. The U.S. Navy's procurement practices at these reduced budget
levels may also change. 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, if any, 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, unanticipated delays in new
program start-ups and their associated cost impact can reasonably be expected
to occur. Investors should be aware of this uncertainty and make their own
independent evaluation.
<PAGE> 10
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 ending September 30, 1983
and are incorporated herein by reference.
By-laws of the Registrant were filed on Form 10-K for the year
ended June 30, 1981 and are incorporated herein by reference.
Code of Regulations of the Registrant was filed on Form 10-K for the
year ended June 30, 1981 and an amendment thereto was filed on Form
10-Q for the three-month period ended September 30, 1982 and are
incorporated herein by reference.
10 The employment agreement with John. J. Smith was filed on Form 10-Q
for the three month period ended September 30, 1994 and is
incorporated herein by reference.
27 Submitted to the Securities and Exchange Commission for its
information.
b) Reports on Form 8-K Filed in the Second Quarter of Fiscal 1995: 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:/s/ February 13, 1995 /s/ David W. Hockenbrocht
--------------------- -------------------------------
David W. Hockenbrocht, President
Date:/s/ February 13, 1995 /s/ Richard Langley
--------------------- -------------------------------
Richard Langley, Vice President-
Treasurer & Principal Financial
Officer
10
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JUN-30-1995
<PERIOD-START> JUL-01-1994
<PERIOD-END> DEC-31-1994
<CASH> 3,701,115
<SECURITIES> 0
<RECEIVABLES> 31,002,566
<ALLOWANCES> 0
<INVENTORY> 39,387,994
<CURRENT-ASSETS> 80,475,496
<PP&E> 21,877,131
<DEPRECIATION> 0
<TOTAL-ASSETS> 105,323,678
<CURRENT-LIABILITIES> 42,184,039
<BONDS> 508,783
<COMMON> 9,764,213
0
0
<OTHER-SE> 49,118,352
<TOTAL-LIABILITY-AND-EQUITY> 105,323,678
<SALES> 98,542,484
<TOTAL-REVENUES> 98,542,484
<CGS> 102,907,071
<TOTAL-COSTS> 102,907,071
<OTHER-EXPENSES> (52,916)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 670,548
<INCOME-PRETAX> (4,982,219)
<INCOME-TAX> (1,794,000)
<INCOME-CONTINUING> (3,188,219)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (3,188,219)
<EPS-PRIMARY> (.41)
<EPS-DILUTED> (.41)
</TABLE>
