UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-Q/A
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT
OF 1934
For the quarterly period ended March 31, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ____________ to ____________
Commission File Number 1-1000
SPARTON CORPORATION
(Exact name of registrant as specified in its charter)
Ohio 38-1054690
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
2400 East Ganson Street, Jackson, Michigan 49202
(Address of principal executive offices) (Zip Code)
517-787-8600
(Registrant's telephone number, including area code)
Indicate by checkmark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes __X__ No _____
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date. The number of shares of
common stock outstanding as of April 30, 1996 was 7,811,370.
This Form 10-Q/A amends in its entirety Management's Discussion and Analysis
of Financial Condition and Results of Operations.
<PAGE>
SPARTON CORPORATION
INDEX
Page No.
Financial Statements:
Consolidated Condensed Balance Sheet - March 31, 1996
and June 30, 1995 3
Consolidated Condensed Statement of Operations -
Three-Month and Nine-Month Periods ended
March 31, 1996 and 1995 4
Consolidated Condensed Statement of Cash Flows -
Nine-Month Periods ended March 31, 1996 and 1995 5
Notes to Consolidated Condensed Financial Statements 6
Management's Discussion and Analysis of Results of
Operations and Financial Condition 8
Other Information and Signatures 12
<PAGE>
<TABLE>
<CAPTION>
SPARTON CORPORATION AND SUBSIDIARIES
Consolidated Condensed Balance Sheet (Unaudited)
March 31, 1996 and June 30, 1995
March 31 June 30
Assets 1996 1995
---------------------------- ---------- ----------
<S> <C> <C>
Current assets:
Cash and cash equivalents $830,954 $1,203,184
Income taxes recoverable 3,346,447 2,283,646
Accounts receivable 32,017,594 36,987,676
Inventories and costs on contracts in
progress, less progress payments of
$9,145,000 at March 31 ($1,025,000
at June 30) 43,263,715 39,608,812
Prepaid expenses 6,422,114 3,746,705
----------- -----------
Total current assets 85,880,824 83,830,023
Other receivables and assets 4,068,049 4,276,130
Property, plant and equipment - net 22,465,517 22,548,619
----------- -----------
Total assets $112,414,390 $110,654,772
============ ============
Liabilities and Shareowners' Equity
---------------------------------------
Current liabilities:
Notes payable - due within one year $29,189,549 $25,580,740
Accounts payable 17,630,540 16,170,576
Taxes on income 275,477 596,006
Accrued liabilities 9,916,465 8,294,926
----------- -----------
Total current liabilities 57,012,031 50,642,248
Deferred income taxes 1,959,500 1,959,500
Deferred compensation 2,129,008 1,976,593
Long-term obligations, net of current maturities 327,430 466,368
Shareowners' equity:
Common stock - 7,811,370 share 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 40,819,141 45,442,783
----------- ----------
Total shareowners' equity 50,986,421 55,610,063
----------- ----------
Total liabilities & shareowners'
equity $112,414,390 $110,654,772
============ ============
See accompanying notes.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
SPARTON CORPORATION AND SUBSIDIARIES
Consolidated Condensed Statement of Operations (Unaudited)
For the Three-Month and Nine-Month Periods Ended March 31, 1996 and 1995
Three-Month Periods Nine-Month Periods
1996 1995 1996 1995
<S> <C> <C> <C> <C>
Net sales $54,001,091 $56,328,180 $151,184,056 $154,870,664
Costs and expenses 54,803,810 56,632,022 157,160,996 159,539,093
----------- ----------- ------------ ------------
(802,719) (303,842) (5,976,940) (4,668,429)
Other income (expense):
Interest (507,782) (476,630) (1,627,902) (1,147,178)
Other - net 34,226 60,696 380,200 113,612
----------- ----------- ------------ -----------
Income (loss) before
income taxes (1,276,275) (719,776) (7,224,642) (5,701,995)
Provision (credit) for
income taxes (460,000) (259,000) (2,601,000) (2,053,000)
----------- ------------ ----------- -----------
Net income (loss) ($816,275) ($460,776) ($4,623,642) ($3,648,995)
=========== ============ =========== ===========
Information per share of
common stock:
Net income (loss) $(.10) $(.06) $(.59) $(.47)
=========== ============ =========== ===========
Dividends $-0- $-0- $-0- $-0-
=========== ============ =========== ===========
See accompanying notes.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
SPARTON CORPORATION AND SUBSIDIARIES
Consolidated Condensed Statement of Cash Flows (Unaudited)
For the Nine-Month Periods Ended March 31, 1996 and 1995
1996 1995
<S> <C> <C>
Operating activities:
Net income (loss) ($4,623,642) ($3,648,995)
Add non-cash items charged to operations:
Depreciation 3,426,699 3,033,301
Deferred compensation 152,415 135,150
----------- ----------
(1,044,528) (480,544)
Add (deduct) changes in operating assets
and liabilities:
Accounts receivable 4,970,082 (1,801,479)
Accounts payable 1,459,964 237,803
Inventories (3,654,903) 6,562,291
Income taxes recoverable (1,062,801) 538,000
Taxes on income (320,529) (212,741)
Other (primarily customer tooling) (1,054,248) (2,009,697)
----------- ----------
Net cash provided (used) by operating
activities (706,963) 2,833,633
Investing activities:
Purchases of property, plant and equipment-net (3,343,597) (4,707,391)
Other 208,081 (428,223)
----------- ----------
Net cash (used) by investing activities (3,135,516) (5,135,614)
Financing activities:
Increase in notes payable 3,608,809 2,283,252
Changes in long-term obligations, including
current maturities thereof (138,560) (138,069)
----------- ----------
Net cash provided by operating activities 3,470,249 2,145,183
----------- ----------
Increase (decrease) in cash and cash
equivalents (372,230) (156,798)
Cash and cash equivalents at beginning of
period 1,203,184 1,713,718
----------- ----------
Cash and cash equivalents at end of period $830,954 $1,556,920
=========== ==========
Cash paid (refunded) during the period for:
Interest $1,708,000 $1,090,000
=========== ==========
Income taxes (refund) ($1,458,000) ($2,524,000)
=========== ==========
See accompanying notes.
</TABLE>
<PAGE>
SPARTON CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
1) The accompanying consolidated condensed balance sheet at March 31,
1996, and the related consolidated condensed statements of operations for the
three-month and nine-month periods ended March 31, 1996 and 1995 and cash
flows for the nine-month periods ended March 31, 1996 and 1995 are unaudited,
but include all adjustments (consisting only of normal recurring accruals)
which the Company considers necessary for a fair presentation of such
financial statements. The results of operations for the nine-month period
ended March 31, 1996 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 as follows: For the three-month periods, 7,811,370 in
both 1996 and 1995. For the nine-month periods, 7,811,370 in both 1996 and
1995.
3) In December 1995, the Company entered into a revolving credit
facility (the Agreement) with a group of three banks which provides for
borrowings of up to $34,000,000 through October 1996. This Agreement replaced
unsecured, informal lines of credit totaling $33,000,000. Interest is payable
at least quarterly and at the Company's option, is subject to several interest
rate structures involving the prime and LIBOR based rates. The Agreement also
provides for a commitment fee of 1/2% per annum on the unused portion of the
credit facility. At March 31, 1996, the weighted average interest rate was
7.70% on borrowings outstanding under the Agreement. Borrowings under this
formal revolving credit facility are secured by substantially all non real
estate assets owned by the Company. In addition, the Company is subject to
loan covenant restrictions related to additional indebtedness, the acquisition
and disposition of assets and the maintenance of defined minimum net worth
and working capital levels.
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 and municipal environmental regulatory
agencies.
The Company has been involved in an environmental investigation
and clean-up effort at Sparton Technology's Coors Road facility in
Albuquerque, New Mexico since 1983. Costs incurred totaled $151,000 for the
current nine-month period compared to $135,000 for the corresponding period
last year. These costs were charged against a reserve initiated in 1991 to
cover estimated future minimum costs. As of March 31, 1996, the remaining
reserve for future minimum costs totaled $328,000. In December 1995, the
United States Environmental Protection Agency (EPA) published a Statement of
Basis describing various remedial alternatives for the facility. Several of
the listed alternatives, which are subject to administrative review, include
remediation tasks which the Company believes are either unnecessary or
technically impractical. The Company supports an alternative that is cost
effective and technically practicable. If a remedy is forced on Sparton,
other than one proposed by the Company, the ultimate investigation and
clean-up costs for the facility may significantly increase from this minimum
estimate. The Company is presently pursuing recoveries concerning this
clean-up effort that may be available under existing insurance policies, but
the ultimate amounts to be recovered, if any, are unknown at this time.
<PAGE>
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 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.
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following is management's discussion and analysis of certain significant
events affecting the Company's earnings and financial condition during the
periods included in the accompanying financial statements.
RESULTS OF OPERATIONS
Nine-Month Periods
Sales for the nine-month period ended March 31, 1996 were $151,184,000, a
decrease of $3,687,000 (2%) from the corresponding period last year and below
expectations. The Electronics segment's sales declined $2,264,000. Sales at
Sparton Electronics were $4,345,000 (8%) lower than last year. In particular,
defense sales declined $7,547,000 as start up on a new production sonobuoy
contract was slower than expected. Commercial sales increased 10%. Sales
increased 20% at Sparton Technology but still were below anticipated levels.
Revenues at Sparton Canada were flat compared to last year. The Automotive
and Industrial Products segment had an aggregate sales decline of $1,282,000
(2%) for the nine-month period compared to the same period last year. This
decrease was due primarily to lower than expected OEM passenger car sales at
both the Ford Motor Company and General Motors Corporation.
An operating loss of $5,977,000 was reported for the nine-month period ended
March 31, 1996 compared to an operating loss of $4,668,000 last year. These
results were below expectations. The Electronics segment incurred an
operating loss of $3,038,000 compared to an operating loss of $1,433,000 last
year. Sparton Electronics operated at a loss for the nine-month period
primarily due to multiple commercial program startups, delays in product
acceptance on a defense program and continuous unfavorable capacity variances.
Sparton Technology reported an operating profit above expectations and higher
than the operating profit reported for the same period last year. These
results were primarily due to the higher sales volume and a favorable product
mix. Sparton of Canada incurred an operating loss due to low sales volume.
The Automotive and Industrial Products segment incurred an operating loss for
the current nine-month period. The loss was higher than anticipated but
lower than last year. Factors contributing to this loss included continuing
efficiency issues, overly aggressive product pricing by certain customers,
start-up costs associated with several new programs, and an unanticipated
drop in product shipments. Progress continues to be made in resolving some
of these problems. Pricing and continuing cost reductions will be significant
issues in this business segment for the foreseeable future. In late November
1995, a consolidation of two of the three automotive units was announced,
effective January 1, 1996. The consolidation of Sparton Engineered Products,
Inc. - Lake Odessa Group and Sparton Engineered Products, Inc. - KPI Group
was initiated to achieve economies of scale and to lower overall
administrative costs. This action resulted in the closing of the Kentwood,
Michigan Administrative and Technical Center and a reduction in personnel.
To date, the merger is proceeding as expected.
Interest expense increased $481,000 to $1,628,000 principally due to higher
average borrowings and higher borrowing costs. As detailed in Note 3 to
these financial statements, in December the Company replaced its informal
unsecured lines of credit totaling $33,000,000 with a secured revolving credit
facility totaling $34,000,000. Nonoperating income increased $266,000 to
$380,000 due to the gain realized on the sale of equipment. After provision
for applicable income tax credits, the Company's net loss for <PAGE> the
nine-month period ended March 31, 1996 was $4,624,000 ($.59 per share)
compared to a net loss of $3,649,000 ($.49 per share) for the corresponding
period last year.
Three-Month Periods
Sales for the three-month period ended March 31, 1996 were $54,001,000, a
decrease of $2,327,000 (4%) from the corresponding period last year. The
Electronics segment's revenue increased $723,000 for the three-month period,
but was still below anticipated levels. Sales at Sparton Electronics were
$974,000 (4%) lower primarily due to delays in several commercial and defense
programs. Revenues increased at both Sparton Technology and Sparton of
Canada. The Automotive and Industrial Products segment had a decrease in
revenues of $2,895,000 (9%) for the three-month period compared to last year.
This sales level was below expectations and due principally to the previously
mentioned soft demand for products from two of the Big Three automobile
manufacturers.
An operating loss of $803,000 was reported for the three months ended
March 31, 1996 compared to an operating loss of $304,000 for the same period
last year. A small operating profit for the current three-month period was
anticipated. The Electronics segment incurred an operating loss of $508,000
compared to an operating loss of $80,000 last year. Sparton Electronics
operated at a loss for the current three-month period due to the previously
mentioned problems of multiple program startups, product acceptance delays
on one defense program, and continued capacity variances. Sparton Technology
reported an operating profit for the three-month period due to a favorable
product mix and strong sales volume. The Canadian unit incurred an operating
loss principally due to low sales volume. The Automotive and Industrial
Products segment reported an operating loss for the three-month period similar
to the operating loss incurred last year. The loss was primarily due to the
previously mentioned efficiency issues, product pricing, start-up costs
associated with new programs, and the decrease in sales volume. As described
earlier, two of the three units that comprise this business segment merged on
January 1, 1996 and the former administrative and technical headquarters of
Sparton Engineered Products, Inc. - Lake Odessa Group closed.
Higher borrowing costs during the current three-month period resulted in an
increase in interest costs of $31,000 to $508,000. After provision for
applicable income tax credits, the Company's net loss for the three-month
period ended March 31, 1996 was $816,000 ($.10 per share) compared to a net
loss of $461,000 ($.06 per share) last year.
FINANCIAL POSITION
For the nine-month period ended March 31, 1996, cash and cash equivalents
decreased $372,000 to $831,000. Operating activities used $707,000 in net
cash flows. The primary sources of cash flows from operating activities were
a decline in accounts receivable and an increase in accounts payable. Primary
uses included the operating loss, increased inventories, and increased in-
process customer tooling. Cash flows used by investing activities were
$3,136,000, primarily for the purchase of property and equipment within the
Electronics segment. Financing activities provided $3,470,000 in cash flows
as the Company increased its short-term borrowings. No dividends were
declared in any of the periods presented. At March 31, 1996, the Company had
$50,986,000 ($6.53 per share) of recorded shareowners' equity, $28,869,000 of
working capital, and a 1.51:1.00 working capital ratio. As previously
mentioned, the Company has entered into a formal secured revolving credit
facility with three banks through October 31, 1996.
<PAGE>
OTHER
The Company has been involved in an environmental investigation and clean-up
effort at Sparton Technology's Coors Road facility in Albuquerque, New Mexico
since 1983. Costs incurred totaled $151,000 for the current nine-month period
compared to $135,000 for the corresponding period last year. These costs were
charged against a reserve initiated in 1991 to cover estimated future minimum
costs. As of March 31, 1996, the remaining reserve for future minimum costs
totaled $328,000. In December 1995, the United States Environmental
Protection Agency (EPA) published a Statement of Basis describing various
remedial alternatives for the facility. Several of the listed alternatives,
which are subject to administrative review, include remediation tasks which
the Company believes are either unnecessary or technically impractical. The
Company supports an alternative that is cost effective and technically
practicable. If a remedy is forced on Sparton, other than one proposed by
the Company, the ultimate clean-up costs for the facility may significantly
increase from this minimum estimate.
The ultimate financial liability of the Company with respect to this
environmental investigation and 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 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 has recognized writedowns in the fourth quarters of 1994 and 1995
that are related to its electronic pager program. Since inception, pager
revenues through March 31, 1996 have totaled $1,111,000. The pager program
is unique within the Company's electronic contracting manufacturing (ECM)
business in that it unexpectedly evolved into the Company's direct involvement
in marketing a commercial/consumer product. Normally, ECM programs do not
require the Company's direct involvement in product marketing. No other ECM
contract has had this direct marketing requirement nor is it anticipated that
any existing or future ECM contracts will involve such a requirement.
In the fourth quarter of 1994, the Company's gross margin was decreased by
$4,600,000 due to a writedown of $3,300,000 of development costs associated
with its electronic pager program and a $1,300,000 writedown in carrying value
of certain government and commercial electronics inventories (none of which
related to the electronic pager). The initial contract for the pager was
signed in 1992 and structured as a typical ECM program. Until the fourth
quarter of 1994, the Company anticipated recovery of pager-related costs,
including $1,120,000 of engineering costs incurred in 1994, to resolve
technical problems with the pager, based upon binding agreements with a
customer. When it became apparent to the Company in May 1994 that the
customer was not financially viable, failed to develop a communications
network for the domestic pager market, and that the Company could not recover
contract-related costs from this customer, the Company wrote off certain
contract-related costs and discontinued accounting for the electronic pager
under the contract method. The remaining pager inventories at June 30, 1994
amounted to approximately $5,846,000. The Company expected to recover these
amounts through its own marketing efforts for the pager in selected markets.
Such expectations were based on the Company's analysis of the markets,
including the Company's then current position relative to its competitors.
Based upon information then known to Company management and into the fourth
quarter of 1995, it was management's continued assessment that the
recoverability of the pager inventories was not uncertain. In the fourth
quarter of 1995, the Company's gross margins were decreased by approximately
$5,500,000 due to the writedown in carrying value of electronic pager-related
inventories. The adjustment resulted from a competitor's actions in the
Company's principal anticipated markets. Remaining pager related inventories
were valued at $1,783,000 at June 30, 1995 and were based on negotiations
with a potential customer for unassembled pager kits. Pager marketing and
development expenditures were not material to segment operating results in
1995.
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
anticipation of this decline, the Company has been developing commercial
electronics opportunities which will utilize its existing technological and
manufacturing capabilities, largely in the North American electronic contract
manufacturing markets. The Company's experience to date indicates that
significant commercial electronics opportunities exist. Because of the many
new customers and markets involved, management continues to struggle with the
ability to forecast near-term sales and margins with accuracy. 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.
<PAGE>
PART II
Item 6 - Exhibits and Reports on Form 10-K and Form 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 Third Quarter of Fiscal 1996: None
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this amended report to be signed on its behalf
by the undersigned thereunto duly authorized.
SPARTON CORPORATION
Registrant
Date: /s/ July 8, 1996 /s/John J. Smith
John J. Smith, Chairman of the Board of
Directors and Chief Executive Officer
Date: /s/ July 8, 1996 /s/ Richard Langley
Richard Langley, Vice President-
Treasurer & Principal Financial Officer
