<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 March 31, 1999
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)
<TABLE>
<S> <C>
Ohio 38-1054690
- -------------------------------------------------------------- ------------------------------------
(State or other jurisdiction of incorporation or organization) (I.R.S. Employer Identification No.)
2400 East Ganson Street, Jackson, Michigan 49202
------------------------------------------ --------
(Address of principal executive offices) (Zip Code)
</TABLE>
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, 1999 was 7,828,090.
1
<PAGE> 2
SPARTON CORPORATION
INDEX
<TABLE>
<CAPTION>
Financial Statements: Page No.
--------
<S> <C>
Condensed Consolidated Balance Sheet - March 31, 1999 and June 30, 1998 3
Condensed Consolidated Statement of Operations - Three-month and Nine-month
Periods ended March 31, 1999 and 1998 4
Condensed Consolidated Statement of Cash Flows - Nine-month Periods ended
March 31, 1999 and 1998 5
Notes to Condensed Consolidated Financial Statements 6
Management's Discussion and Analysis of Financial Condition and Results of Operations 10
Other Information 16
Signatures 19
</TABLE>
2
<PAGE> 3
SPARTON CORPORATION AND SUBSIDIARIES
Condensed Consolidated Balance Sheet (Unaudited)
March 31, 1999 and June 30, 1998
<TABLE>
<CAPTION>
March 31,1999 June 30,1998
------------ ------------
ASSETS (Note 5)
Current assets:
<S> <C> <C>
Cash and cash equivalents $ 5,759,298 $ 4,083,273
Investment securities 22,446,847 23,653,129
Income taxes recoverable 812,905 --
Accounts receivable 17,718,121 24,617,302
Inventories and costs on contracts in progress, less progress
payments of $2,302,000 at March 31 ($2,646,000 at June 30) 36,005,113 31,743,407
Prepaid expenses 4,509,680 4,340,455
Current assets of discontinued automotive operations-net (Note 5) - . 2,901,847
------------ ------------
Total current assets 87,251,964 91,339,413
Other assets 5,403,619 5,464,007
Property, plant and equipment - net 11,501,395 11,567,856
Noncurrent assets, principally property, plant and equipment, of
discontinued automotive operations - net (Note 5) 623,798 2,750,059
------------ ------------
Total assets $104,780,776 $111,121,335
============ ============
LIABILITIES AND SHAREOWNERS' EQUITY
Current liabilities:
Accounts payable $ 5,012,231 $ 11,390,801
Taxes on income - 504,451
Accrued liabilities 9,989,059 8,325,766
Current liabilities of discontinued automotive operations-net (Note 5) 746,127 -
------------ ------------
Total current liabilities 15,747,417 20,221,018
Deferred income taxes 2,531,500 2,531,500
Shareowners' equity:
Common stock - 7,828,090 shares outstanding at March 31,1999
and June 30, 1998 after deducting 106,622 shares in treasury 9,785,113 9,785,113
Capital in excess of par value 494,427 494,427
Retained earnings (Note 3) 76,222,319 78,089,277
------------ ------------
Total shareowners' equity 86,501,859 88,368,817
------------ ------------
Total liabilities and shareowners' equity $104,780,776 $111,121,335
============ ============
</TABLE>
See accompanying notes.
3
<PAGE> 4
SPARTON CORPORATION AND SUBSIDIARIES
Condensed Consolidated Statement of Operations (Unaudited)
For the Three-month and Nine-month Periods ended March 31, 1999 and 1998
<TABLE>
<CAPTION>
Three-month Periods Nine-month Periods
------------------------------ ------------------------------
1999 1998 1999 1998
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Net sales $ 26,981,204 $ 41,901,535 $ 98,405,090 $ 109,133,276
Costs and expenses 28,397,490 40,423,070 98,474,041 107,249,361
------------- ------------- ------------- -------------
(1,416,286) 1,478,465 (68,951) 1,883,915
Other income (expense):
Interest and investment income 414,009 433,486 1,169,214 1,367,037
Interest expense - - (416) (720)
Other - net (1,082) (2,486) (7,805) 556,075
------------- ------------- ------------- -------------
Income (loss) from continuing operations
before income taxes (1,003,359) 1,909,465 1,092,042 3,806,307
Provision (credit) for income taxes (371,000) 706,000 404,000 1,408,000
------------- ------------- ------------- -------------
Income (loss) from continuing operations (632,359) 1,203,465 688,042 2,398,307
Discontinued operations:
Loss from discontinued automotive
operations, net of applicable income
tax credit of $1,480,000 (2,520,000) - . (2,520,000) - .
------------- ------------- ------------- -------------
Net income (loss) $ (3,152,359) $ 1,203,465 $ (1,831,958) $ 2,398,307
============= ============= ============= =============
Basic and diluted earnings per share:
Continuing operations $(0.08) $0.15 $ 0.09 $0.30
Discontinued operations (0.32) 0.00 (0.32) 0.00
------ ------ ------ ------
Net income (loss) $(0.40) $0.15 $(0.23) $0.30
====== ====== ====== ======
Dividends per share of common stock $-0- $-0- $-0- $-0-
====== ====== ====== ======
</TABLE>
See accompanying notes.
4
<PAGE> 5
SPARTON CORPORATION AND SUBSIDIARIES
Condensed Consolidated Statement of Cash Flows (Unaudited)
For the Nine-month Periods ended March 31, 1999 and 1998
<TABLE>
<CAPTION>
1999 1998
------------ ------------
<S> <C> <C>
Cash flows provided (used) by operating activities:
Income from continuing operations $ 688,042 $ 2,398,307
Add non-cash items affecting continuing operations:
Depreciation 1 ,586,126 1,355,995
------------ ------------
2,274,168 3,754,302
Add (deduct) changes in operating assets and liabilities:
Accounts receivable 6,899,181 7,133,158
Other 1,459,068 487,276
Taxes on income (504,451) (1,217,579)
Income taxes recoverable (812,905) - .
Inventories (4,261,706) 2,325,166
Accounts payable (6,378,570) (5,219,211)
------------ ------------
Net cash provided (used) by continuing operations (1,325,215) 7,263,112
Cash flow provided (used) by discontinued operations 1,391,574 (878,537)
------------ ------------
66,359 6,384,575
Cash flows provided (used) by investing activities:
Sales (purchases) of investment securities-net 1,206,282 (576,177)
Purchases of property, plant and equipment-net (1,519,665) (3,037,155)
Noncurrent other assets 60,388 96,122
Discontinued operations, principally related to property, plant and
equipment-net 1,862,661 (432,904)
------------ ------------
1,609,666 (3,950,114)
Cash flows provided (used) by financing activities:
Common stock transactions principally from exercise of stock options - . 66,249
Discontinued operations, changes in long-term obligations - . (28,838)
------------ ------------
- . 37,411
Increase in cash and cash equivalents 1,676,025 2,471,872
Cash and cash equivalents at beginning of period 4,083,273 8,021,620
------------ ------------
Cash and cash equivalents at end of period $ 5,759,298 $ 10,493,492
============ ============
Supplemental disclosures of cash paid (refunded) during the period for:
Interest expense $ 400 $ 1,000
============ ============
Income taxes $ 239,000 $ 3,157,000
============ ============
</TABLE>
See accompanying notes.
5
<PAGE> 6
SPARTON CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. The accompanying condensed consolidated balance sheet at March 31, 1999, and
the related condensed consolidated statements of operations for the three-month
and nine-month periods ended March 31, 1999 and 1998 and cash flows for the
nine-month periods ended March 31, 1999 and 1998 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 periods ended March 31, 1999 are not necessarily
indicative of the results that may be expected for the full fiscal year.
2. Basic earnings per share were computed using the weighted average number of
shares outstanding. For the three-month periods, average shares outstanding were
7,828,090 in both 1999 and 1998; for the nine-month periods, 7,828,090 in 1999
and 7,826,423 in 1998. Differences in the weighted average number of shares
outstanding for purposes of computing diluted earnings per share were due to the
inclusion of the dilutive effect of employee incentive stock options previously
granted of 191,777 for the three months ended March 31, 1998, and 31,870 and
152,636 for the nine months ended March 31, 1999 and 1998, respectively. These
differences in the weighted average number of shares outstanding for the
calculation of basic and diluted earnings per share were not material and
resulted in no differences between basic and diluted earnings per share.
Outstanding options to purchase 189,000 shares of common stock at $8.375 per
share for the three months and nine months ended March 31, 1999, and 32,000
shares at $6.625 for the three months ended March 31, 1999, were not included in
the computation of diluted earnings per share because the options exercise price
was greater than the average market price of the common shares and therefore,
the effect would be anti-dilutive.
3. The Company has adopted Statement of Financial Accounting Standards (SFAS)
No. 130, "Reporting Comprehensive Income". SFAS No. 130 requires disclosure of
total non-stockholder changes in equity in interim periods and additional
disclosures of the components of non-stockholder changes in equity on an annual
basis. Total non-stockholder changes in equity includes all changes in equity
during a period except those resulting from investments by and distributions to
stockholders. Total comprehensive income for the three-month and nine-month
periods March 31, 1999 and 1998 is as follows:
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
------------------ -----------------
1999 1998 1999 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net income (loss) $(3,152,359) $ 1,203,465 $(1,831,958) $ 2,398,307
Other Comprehensive Income:
Unrealized gains (losses) on investment securities (58,000) (35,000) (35,000) 33,000
----------- ----------- ----------- -----------
Comprehensive income (loss) $(3,210,359) $ 1,168,465 $(1,866,958) $ 2,431,307
=========== =========== =========== ===========
</TABLE>
Retained earnings includes accumulated other comprehensive income (loss) of
($20,000) and $15,000 at March 31, 1999 and June 30, 1998, respectively, which
relates to unrealized gains (losses) on investments.
4. Cash and cash equivalents consist of demand deposits and other highly liquid
investments with an original maturity date of less than three months. A large
majority of the investment portfolio has an original maturity date of less than
two years and a daily market exists for all the investment securities. The
Company believes that the impact of fluctuations in interest rates on its
investment portfolio should not have a material impact on financial position or
results of operations. It is the Company's intention to use these investment
securities to provide working capital and to otherwise fund the expansion of its
business.
At March 31, 1999, the Company had net unrealized losses of $32,000. At that
date, the net after-tax effect of these losses was $20,000 and included with
equity. For the nine months ended March 31, the Company had gross
6
<PAGE> 7
purchases and sales of investment securities totaling $7,534,000 and $8,430,000
for 1999, and $8,974,000 and $7,955,000 for 1998, respectively.
5. In August 1996, the Company formalized its decision to offer for sale its
automotive operations. Accordingly, related operating results have been reported
as discontinued operations. In December 1996, the Company sold substantially all
of the net assets and operations of the Sparton Engineered Products, Inc.-KPI
Group (KPI) which comprised approximately 80% of the automotive operations of
the Company. This sale did not include the net assets and operations of the
remaining automotive unit, Sparton Engineered Products, Inc.-Flora Group
(Flora). The Company has pursued the sale of the Flora operations since the
August 1996 decision was made. During this protracted period, a number of events
occurred that negatively impacted the potential value of the Flora Group
including continued unplanned operating losses, loss of personnel, tornado
damage to the plant on April 15, 1998 and loss of a major customer. In April
1998, the Company abandoned attempts to finalize a sale/purchase agreement with
a party with whom negotiations had been ongoing for some 16 months. At June 30,
1998, based upon then available information, the Company adjusted its recorded
reserve for discontinued operations by an additional charge for losses
anticipated in the disposal of these businesses.
At its meeting on August 28, 1998, the Board of Directors approved the closing
of the Flora operation and an orderly liquidation of its assets. In December
1998, all production ceased. An auction of inventory and equipment was held in
January 1999. Both inventory and equipment was expected to be sold in groupings
by product lines thereby maximizing the value received. It was expected that 75%
or more of the book value of inventory and equipment would be recovered.
However, anticipated sales of various product lines did not materialize as
expected. At auction individual items were sold essentially for scrap value. As
a result, a pre-tax loss of $4,000,000 was recorded in the third quarter of
fiscal 1999. An auction in February 1999 did not generate sufficient interest in
the Flora real property, and the property will be placed for sale with a real
estate broker. At March 31, 1999, approximately $1,021,000 is accrued for the
costs associated with the sale of the remaining assets and other open issues
associated with the discontinued automotive operations, and is included in
current liabilities shown below of $1,194,279.
For purposes of balance sheet presentation, the current and noncurrent assets
and liabilities of discontinued operations have been netted. The presentation at
June 30, 1998 has been reclassified to conform to the March 31, 1999 amounts.
The detail balances for the discontinued operations are as follows:
<TABLE>
<CAPTION>
March 31 June 30
-------- -------
<S> <C> <C>
Current assets $ 448,152 $ 7,036,482
Current liabilities (1,194,279) (4,134,635)
----------- -----------
NET $ (746,127) $ 2,901,847
=========== ===========
Noncurrent assets $ 623,798 $ 2,808,360
Noncurrent liabilities -- (58,301)
----------- -----------
NET $ 623,798 $ 2,750,059
=========== ===========
</TABLE>
6. One of Sparton's facilities, located in New Mexico, has been the subject of
ongoing investigations conducted with the EPA under the Resource Conservation
and Recovery Act ("RCRA"). This EPA compliance issue is related to continuing
operations, but involves a largely idled facility. In June 1996, the EPA issued
its final decision selecting a corrective action at the site, different from
what Sparton had proposed. The EPA estimated that the present value cost of its
remedies would range from between $15,000,000 and $26,400,000 based on a
thirty-(30) year time frame. In Sparton's judgment, the remedies proposed by the
EPA were either unnecessary or technically impracticable and Sparton vigorously
challenged the EPA's remedy selection.
7
<PAGE> 8
Since June of 1996 the parties have been in negotiations regarding workplans
describing corrective action at the site. At the current time, all litigation
has been stayed to allow the parties to continue settlement discussions on
remaining workplans until May 17, 1999. As a result of these discussions, the
Company believes the EPA's estimate of $15,000,000 to $26,400,000 is now
outdated. The Company is currently updating its cost estimates. It is believed
that the initial cost of the corrective measures called for in these plans is
not expected to be materially different from the cost estimate the Company has
previously accrued. There is no assurance that additional corrective measures,
involving increased expenditures, may not be required.
The proposed workplans provide for the installation of an off-site containment
well (already completed and operating), an on-site containment well and an
enhancement to an on-site soil vapor extraction system. The purpose of the
containment wells is to restrict further migration of impacted groundwater. The
soil vapor extraction system removes solvents in the on-site soil above the
groundwater. The installation and operation of the two containment wells and the
enhanced soil vapor extraction system are dependent upon various permits,
licenses and approvals from regulatory agencies and third parties. It's
anticipated that these remediation activities will operate for a period of time
during which the Company and the regulatory agencies will analyze their
effectiveness. The Company believes that it will take at least three to five
years before the effectiveness of the groundwater extraction wells can be
established. Until then, in the Company's judgement, no definitive conclusion
can be reached on whether additional remediation activities may be required.
At March 31, 1999, Sparton has accrued $1,980,000 as its estimate of the future
undiscounted minimum obligation with respect to this matter. This reflects the
minimum range of the amount Sparton expects to incur over the next five years.
This amount includes equipment and operating and maintenance costs. In many
cases, new technologies become available over time, which result in modified
costs for environmental remediation. The Company's estimate of cost is based on
the existing methodology and excludes legal and related consulting costs. For
further discussion of legal activities, see page 16 regarding litigation.
Uncertainties associated with environmental remediation contingencies are
pervasive and often result in wide ranges of reasonably possible estimates.
Estimates developed in the early stages of remediation can vary significantly.
Normally, a finite estimate of cost does not become fixed and determinable at a
specific point in time. Rather, the costs associated with environmental
remediation become estimable over a continuum of events and activities that help
to frame and define a liability. Amounts charged to operations, principally
legal and consulting, for the nine months ended March 31, 1999 and 1998 were
$1,199,000 and $750,000, respectively. It is reasonably possible that Sparton's
recorded estimate of this liability may change. If a remedy is imposed on
Sparton, other than in the anticipated workplans described above, the ultimate
cleanup costs could increase significantly. There is no assurance that
additional costs greater than the amount accrued will not be incurred or that
changes in environmental laws or their interpretation will not require that
additional amounts be spent.
On June 17, 1998, Sparton Corporation and Sparton Technology, Inc. filed a
complaint in the Circuit Court of Cook County, Illinois, against Lumbermens
Mutual Casualty Company and American Manufactures Mutual Insurance Company
demanding reimbursement of expenses incurred in connection with its remediation
efforts at the Coors Road facility based on various primary and excess
comprehensive general liability policies in effect between 1959 and 1975.
On February 11, 1998, Sparton Technology, Inc. commenced litigation in the
United States Court of Federal Claims alleging that the Department of Energy
(DOE), acting through its contractors, Sandia Corporation and Allied Signal,
Inc., is liable for reimbursement of Sparton's costs incurred in defending
against and complying with Federal and state regulatory requirements. DOE
proscribed certain mandatory performance requirements that were then imposed
upon Sparton through its agreements with Sandia Corporation and Allied Signal,
Inc. On February 9, 1999 the Court of Federal Claims dismissed Sparton's
complaint based on its determination that an agency relationship did not exist
between Sandia Corporation and Allied Signal, Inc. and the United States for
8
<PAGE> 9
purposes of reimbursing costs incurred during litigation. Sparton believes that
the court erred in its decision and filed its notice of appeal on April 9, 1999.
Sparton Technology, Inc. filed a complaint on September 21, 1998, against Allied
Signal, Inc. in U.S. District Court in Kansas City seeking to recover costs
incurred to investigate and remediate impacts to the environment at its Coors
Road facility.
At this time, the Company is unable to predict the amount of recovery, if any,
that may result in the pursuit of these before-mentioned three claims.
7. In June 1997 SFAS No. 131, "Disclosures about Segments of an Enterprise and
Related Information", was issued. SFAS No. 131 establishes standards for the way
that a public enterprise reports information about operating segments in annual
financial statements and requires that those enterprises report selected
information about operating segments in interim financial reports issued to
stockholders, but not for interim periods in the initial year of adoption. SFAS
No. 131 is effective for fiscal years beginning after December 15, 1997. Since
SFAS No. 131 is not required for interim reporting in the year of adoption, the
Company plans to address this standard in the preparation of its annual
financial statements for the year ended June 30, 1999.
9
<PAGE> 10
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. The Company's
continuing operations are in one line of business, namely the design,
development and/or manufacture of electronic parts and assemblies for both
government and commercial customers worldwide. In August 1996, the Company
formalized its plan to offer for sale its automotive operations. Accordingly,
these operations, formerly classified as the Automotive and Industrial Products
segment, were reclassified and reported as discontinued operations.
The Private Securities Litigation Reform Act of 1995 reflects Congress'
determination that the disclosures of forward-looking information is desirable
for investors and encourages such disclosure by providing a safe harbor for
forward-looking statements by corporate management. The Company's financial
statements, SEC filings and shareholder's reports contain forward-looking
statements that involve risk and uncertainty. The Company notes that a variety
of factors could cause the actual results to differ materially from anticipated
results or other expectations expressed in the Company's forward-looking
statements. The risks and uncertainties that may affect the operations,
performance, growth forecasts and results include, but are not limited to,
fluctuations in U. S. and/or world economies, the ability of Sparton and its
customers and vendors to address effectively Year 2000 issues, competition in
the overall electronic manufacturing services (EMS) business, Congressional
budget outlays for sonobuoy development and production, Congressional
legislation, changes in the interpretation of environmental laws, the
uncertainties of environmental litigation and the availability of materials,
production labor and management services under terms acceptable to the Company.
Management cautions readers not to place undue reliance on forward-looking
statements, which are subject to influence by the named risk factors and
unanticipated future events.
RESULTS OF OPERATIONS
- ---------------------
Nine-month Periods
- ------------------
Sales for the nine-month period ended March 31, 1999 were $98,405,000, a
decrease of $10,728,000 (10%) from the corresponding nine-month period last
year. Sales were also below expectations. Government sales declined $11,645,000,
while all other EMS sales increased $917,000. Sales decreased $12,288,000 (14%)
to $80,924,000 at Sparton Electronics. The majority of the short fall was due to
Q-62 sonobuoy sales that were $12,000,000 below the level of prior year and some
$6,000,000 below plan. There was an interruption in production and shipments
upon the completion of the current Q-62 contract and startup on the succeeding
contact as described later. Revenues at Sparton Technology increased $2,037,000
(15%) to $15,840,000. This was primarily due to the start-up of a new program as
well as additional business with several existing customers including a contract
with the U.S. Department of Immigration and Naturalization Services. These
sales, however, were below management's expectations due to the continued delays
on two major programs. Revenues at Sparton of Canada totaled $1,903,000, a
decrease from the same period last year and below expectations, due to continued
customer design issues on a major program. Additionally, Canada continues to be
challenged in replacing government defense sales.
An operating loss of $69,000 was reported for the nine-month period ended March
31, 1999 compared to an operating profit of $1,884,000 for the same period last
year. Included in the fiscal 1999 operating results were adverse capacity
variances of $3,353,000 caused by underutilized capacity at various production
facilities. Sparton Electronics reported an operating profit of $2,151,000 for
the current period compared to $3,919,000 for the same period last year. These
declines in operating results reflect decreased government sales. Sparton
Technology reported an operating profit of $38,000 compared to an operating
profit of $60,000 last year. Included within these
10
<PAGE> 11
results were charges, principally legal and consulting, totaling $1,199,000 this
year and $750,000 last year, related to the ongoing environmental claims more
fully discussed in Note 6 to the Condensed Consolidated Financial Statements. Of
the total $1,199,000, $570,000 was recorded in March 1999, to cover some costs
incurred in excess of previous estimates on several off-site containment
expenditures, as well as additional expected costs for management and electrical
power over the next five years. After consideration of the effects of
environmental costs, operating results were still below expectations due to the
lower sales volumes. The Canadian unit incurred an operating loss of $984,000
compared to a loss of $402,000 last year. These results were below management's
expectations as low sales volume continues to impact operations. Underutilized
manufacturing capacity resulted in a current charge of $391,000 to the Canadian
operations.
Interest and Investment Income decreased $198,000 to $1,169,000 for the
nine-month period ended March 31, 1999 due to lower average investments and a
decline in interest rates. The Company has no long or short-term debt. Other
Expense-Net was $8,000 for the current nine-month period compared to Other
Income-Net of $556,000 last year. Included in last years Income was a gain of
$511,000 from the sale of equipment and other assets at the Canadian operating
unit. After provision for applicable income taxes, the Company reported income
from continuing operations of $688,000, $0.09 per share, for the nine-month
period ended March 31, 1999 compared to $2,398,000, $0.30 per share, for the
same period last year.
Three-Month Periods
- -------------------
Sales for the three-month period ended March 31, 1999 were $26,981,000, a
decline of $14,920,000 (36%) compared to the third quarter last year. Overall,
government sales decreased $14,009,000, and all other EMS sales declined
$911,000 from the same quarter last year. Revenues at Sparton Electronics were
$21,033,000, down $14,688,000 (41%) from the same period last year and below
forecast. This decline was due to the decrease in government sales, principally
the Q-62 sonobuoys. During the quarter, one contract was completed. Due to
design changes, startup was unexpectedly delayed pending governmental approval
of the new design. Such design changes have now been approved and production has
commenced on the next production contract. Revenues at Sparton Technology were
$5,076,000, up $396,000 (8%). At the Canadian unit, revenues were $922,000
compared to $1,794,000 for the same period last year. Canada continues to be
challenged in replacing government defense sales.
An operating loss of $1,416,000 was reported for the three months ended March
31, 1999 compared to an operating profit of $1,478,000 for the same period last
year. These current operating results were below expectations. Included in the
current three-month results were adverse capacity variances of $1,379,000 caused
by underutilized capacity at various production facilities. Sparton Electronics
reported an operating loss of $15,000 for the current three-month period,
compared to an operating profit of $1,826,000 last year. These results were
primarily impacted by the previously mentioned decreased government sales.
Sparton Technology had an operating loss of $698,000 for the current three-month
period compared to an operating profit of $89,000 last year. The loss includes a
charge to the EPA costs and expenses of $570,000 in March to cover current
overruns on several off-site containment expenditures and the accrual of
additional expected costs for management and electric power over the next five
years. Sparton of Canada incurred an operating loss of $268,000. Continued low
revenue levels at the Canadian unit were responsible for the operating loss.
Interest and Investment Income decreased to $414,000 for the three-month period
ended March 31, 1999 compared to $433,000 last year due to the previously
discussed declines in amount of investments and interest rates. There was no
significant Interest Expense or Other Income (Expense) - net for either the
current or same period last year. After provision for applicable income taxes,
the Company reported a loss from continuing operations of $632,000, ($0.08) per
share, for the three-month period ended March 31, 1999, compared to operating
income of $1,203,000, $0.15 per share, for the corresponding period last year.
11
<PAGE> 12
Discontinued Operations
- -----------------------
In August 1996, the Company formalized its plans to sell its automotive
operations and accordingly reclassified and reported related operating results
as discontinued operations. As more fully described in Note 5 to the financial
statements, in December 1996, the Company sold substantially all of the net
assets and operations of the Sparton Engineered Products, Inc.-KPI Group (KPI)
which comprised approximately 80% of its automotive operations. This sale did
not include the net assets and operations of the remaining automotive unit,
Sparton Engineered Products, Inc.-Flora Group (Flora). After extensive efforts
to sell the Flora operations proved unsuccessful, the Board of Directors
approved the closing of the facility in August 1998. In December 1998, Flora
production ceased. An auction of inventory and equipment was held in January
1999. Both inventory and equipment was expected to be sold in groupings by
product line thereby maximizing the value received for both inventory and
equipment. 75% or more of the book value of inventory and equipment was expected
to be recovered through sales by product line. However, the sales of various
product lines did not materialize. At auction individual items were sold
essentially for scrap value. As a result, a pre-tax loss of $4,000,000
($2,520,000 after-tax) was recognized in the third quarter of fiscal 1999. The
net affect of recording the pre-tax loss of $4,000,000 on earnings per share is
a loss of $(0.32) per share for the three-months and nine-months ended March 31,
1999. An auction in February 1999, did not generate sufficient interest in the
Flora real property, and the property will be placed for sale with a real estate
broker. At March 31, 1999, approximately $1,021,000 is accrued for the costs
associated with the disposal of the remaining assets and selected other issues
related to the discontinued automotive operations.
The Company reported net income (loss) of $(3,152,000), $(0.40) per share, and
$1,203,000, $0.15 per share for the three-months, and $(1,832,000), $(0.23) per
share, and $2,398,000, $0.30 per share, for the nine-months ended March 31, 1999
and 1998, respectively.
FINANCIAL POSITION
- ------------------
For the nine-month period ended March 31, 1999, Cash and Cash Equivalents
increased $1,676,000 to $5,759,000. Operating activities provided $66,000 in net
cash flows. Principal sources of cash flows from operating activities included
decreases in accounts receivable, increases in accrued liabilities, and income
from continuing operations. Principal uses were a decrease in accounts payable,
an increase in inventories, and a change in income tax assets and liabilities.
The decrease in accounts payable was due primarily to higher than normal
payables at year-end. The increase in inventory is due to expected higher fourth
quarter sales. Cash flows provided by investing activities were $1,610,000,
principally from the sale of investment securities. The Company will continue to
strategically invest in additional property, plant and equipment to accommodate
growth in the EMS business. Two additional production lines, with a cost of
approximately $5 million, were obtained through a five-year operating lease in
fiscal 1999.
Investments will continue to be made in high quality marketable securities. The
resulting interest and investment income, combined with a lack of interest
expense, should favorably impact the Company's operations. It is uncertain,
however, how long and to what extent this favorable non-operating income trend
will continue. This trend is dependent upon how quickly the Company's commercial
EMS business develops as well as the emergence of alternate uses for these
proceeds. The Company's market risk exposure to foreign currency exchange and
interest rates are not considered to be material due to principally short term
investments and minimal foreign currency designated receivables and payables.
At March 31, 1999 and June 30, 1998, the aggregate backlog from continuing
operations was approximately $95 million and $103 million, respectively.
No dividends were declared in either period presented. At March 31, 1999, the
Company had $86,502,000 in shareowners' equity (11.05 per share), $71,505,000 in
working capital, and a 5.5:1.00 working capital ratio.
12
<PAGE> 13
OTHER
- -----
One of Sparton's facilities, located in New Mexico, has been the subject of
ongoing investigations conducted with the EPA under the Resource Conservation
and Recovery Act ("RCRA"). This EPA compliance issue is related to continuing
operations, but involves a largely idled facility. In June 1996, the EPA issued
its final decision selecting a corrective action at the site, different from
what Sparton had proposed. The EPA estimated that the present value cost of its
remedies would range from between $15,000,000 and $26,400,000 based on a
thirty-(30) year time frame. In Sparton's judgment, the remedies proposed by the
EPA were either unnecessary or technically impracticable and Sparton vigorously
challenged the EPA's remedy selection.
Since June of 1996 the parties have been in negotiations regarding workplans
describing corrective action at the site. At the current time, all litigation
has been stayed to allow the parties to continue settlement discussions on
remaining workplans until May 17, 1999. As a result of these discussions, the
Company believes the EPA's estimate of $15,000,000 to $26,400,000 is now
outdated. The Company is currently updating its cost estimates. It is believed
that the initial cost of the corrective measures called for in these plans is
not expected to be materially different from the cost estimate the Company has
previously accrued. There is no assurance that additional corrective measures,
involving increased expenditures, may not be required.
The proposed workplans provide for the installation of an off-site containment
well (already completed and operating), an on-site containment well and an
enhancement to an on-site soil vapor extraction system. The purpose of the
containment wells is to restrict further migration of impacted groundwater. The
soil vapor extraction system removes solvents in the on-site soil above the
groundwater. The installation and operation of the two containment wells and the
enhanced soil vapor extraction system are dependent upon various permits,
licenses and approvals from regulatory agencies and third parties. It's
anticipated that these remediation activities will operate for a period of time
during which the Company and the regulatory agencies will analyze their
effectiveness. The Company believes that it will take at least three to five
years before the effectiveness of the groundwater extraction wells can be
established. Until then, in the Company's judgement, no definitive conclusion
can be reached on whether additional remediation activities may be required.
At March 31, 1999, Sparton has accrued $1,980,000 as its estimate of the future
undiscounted minimum obligation with respect to this matter. This reflects the
minimum range of the amount Sparton expects to incur over the next five years.
This amount includes equipment and operating and maintenance costs. In many
cases, new technologies become available over time, which result in modified
costs for environmental remediation. The Company's estimate of cost is based on
the existing methodology and excludes legal and related consulting costs. For
further discussion of legal activities, see page 16 regarding litigation.
Uncertainties associated with environmental remediation contingencies are
pervasive and often result in wide ranges of reasonably possible estimates.
Estimates developed in the early stages of remediation can vary significantly.
Normally, a finite estimate of cost does not become fixed and determinable at a
specific point in time. Rather, the costs associated with environmental
remediation become estimable over a continuum of events and activities that help
to frame and define a liability. Amounts charged to operations, principally
legal and consulting, for the nine months ended March 31, 1999 and 1998 were
$1,199,000 and $750,000, respectively. It is reasonably possible that Sparton's
recorded estimate of this liability may change. If a remedy is imposed on
Sparton, other than in the anticipated workplans described above, the ultimate
cleanup costs could increase significantly. There is no assurance that
additional costs greater than the amount accrued will not be incurred or that
changes in environmental laws or their interpretation will not require that
additional amounts be spent.
On June 17, 1998, Sparton Corporation and Sparton Technology, Inc. filed a
complaint in the Circuit Court of Cook County, Illinois, against Lumbermens
Mutual Casualty Company and American Manufactures Mutual Insurance Company
demanding reimbursement of expenses incurred in connection with its remediation
efforts at
13
<PAGE> 14
the Coors Road facility based on various primary and excess comprehensive
general liability policies in effect between 1959 and 1975.
On February 11, 1998, Sparton Technology, Inc. commenced litigation in the
United States Court of Federal Claims alleging that the Department of Energy
(DOE), acting through its contractors, Sandia Corporation and Allied Signal,
Inc. is liable for reimbursement of Sparton's costs incurred in defending
against and complying with Federal and state regulatory requirements. DOE
proscribed certain mandatory performance requirements that were then imposed
upon Sparton through its agreements with Sandia Corporation and Allied Signal,
Inc. On February 9, 1999 the Court of Federal Claims dismissed Sparton's
complaint based on its determination that an agency relationship did not exist
between Sandia Corporation and Allied Signal, Inc. and the United States for
purposes of reimbursing costs incurred during litigation. Sparton believes that
the court erred in its decision and filed its notice of appeal on April 9, 1999.
Sparton Technology, Inc. filed a complaint on September 21, 1998, against Allied
Signal, Inc. in U.S. District Court in Kansas City seeking to recover costs
incurred to investigate and remediate impacts to the environment at its Coors
Road facility.
At this time, the Company is unable to predict the amount of recovery, if any,
that may result in the pursuit of these before-mentioned three claims.
New Accounting Standards
- ------------------------
As more fully described in notes to the financial statements the Company has
adopted SFAS No.130 "Reporting Comprehensive Income". SFAS No.131 "Disclosures
About Segments Of An Enterprise and Related Information" appears in footnote 7.
Impact of Year 2000
- -------------------
The Year 2000 problem results from the fact that many older computer programs
were written using two digits rather than four to define the applicable year. A
computer program that has time-sensitive software may recognize a date using
"00" as the year 1900 rather than the year 2000. This could result in a system
failure or miscalculations causing disruptions of operations, including, among
other things, a temporary inability to process transactions, send invoices, or
engage in normal business activities.
Sparton Electronics implemented a new business information system in the summer
of 1997, to further enhance the Company's competitive position. This system,
called Manufacturing Total Management System (MTMS), will enable information to
be shared between all of Sparton's manufacturing locations. This information
system has been implemented throughout the Company with the exception of Sparton
Technology. Technology's initial implementation was completed the end of April
1999. The timing of the decision to purchase and implement MTMS was independent
of the Year 2000 issue. Based upon representation from the manufacturer and our
independent testing the Company believes that implementation of MTMS will render
all of its significant internal information systems Year 2000 compliant, with no
disruptions in operations. As the majority of software and hardware was upgraded
to accommodate the implementation of MTMS, expenditures have been minimal to
date for Year 2000 compliance. Additional expenditures to complete our Year 2000
program are not expected to exceed $100,000.
Sparton's readiness plan encompasses both information technology systems and
computer chip embedded functions, these include such things as elevators,
security systems, factory floor machines, and building heating and cooling.
Substantially all the locations have completed their assessments of information
technology (IT) system's, other than MTMS which was discussed earlier, and have
begun the modification and upgrading process of these systems, completion is
expected by the end of fiscal 1999. In addition, formal reviews of production
14
<PAGE> 15
facilities, test and production equipment have began with remediation or
replacement scheduled as necessary. Teams have been put in place at each Company
to oversee inventorying, assessing, upgrading, and replacing non-compliant items
as needed to ensure completion of Sparton's Year 2000 program by year end.
Additionally, the Company is discussing and monitoring Year 2000 compliance
issues with its major suppliers, customers, and other third parties. With
respect to suppliers and customers software being Year 2000 compliant, the
Company does not believe that there is sufficient integration and/or dependency
upon such software to potentially have any material impact on the Company's
business operating systems or processes.
Certain of the Company's EMS revenues involve products built to contract
specifications dictated by the customer using a customer-owned design. As these
products are non-proprietary in nature, the Company believes that potential Year
2000 problems, if any, associated with these products are the customer's
responsibility. Regarding proprietary products, the Company has completed an
assessment of both current and past products. Corrective measures for current
products have been completed where applicable. Corrective measures for past
products have been identified, where applicable, and affected customers
notified.
The Company does not anticipate that internal Year 2000 conversion issues will
materially affect operations or operating results. However, if all Year 2000
issues are not properly identified, assessed and corrected as required in a
timely manner, there can be no assurance that the Year 2000 issue will not
materially adversely impact the Company's results of operation or adversely
affect the Company's relationships with customers, suppliers and others. Sparton
believes the actions it is taking should reduce the risks posed by Year 2000
challenges to its own systems. Management recognizes, however, that unforeseen
circumstances could arise both within its own systems and with the systems of
external entities and can give no assurances that if such circumstances arose
they would not adversely affect the corporation's Year 2000 compliance efforts.
Further, management cannot determine the impact that any adverse affect might
have on the corporation's operations, financial position or cash flows.
The Company has not yet developed a comprehensive contingency plan to address
situations that may result if the Company, or any of the third parties upon
which the Company is dependent, are unable to achieve Year 2000 readiness.
However, the Company's Year 2000 compliance program is ongoing and will continue
to be reevaluated.
Year 2000 Forward-Looking Statements
- ------------------------------------
The foregoing Year 2000 discussion contains "forward-looking statements" within
the meaning of the Private Securities Litigation Reform Act of 1995. Such
statements, including without limitation, expected financial impact and the
dates by which the Company expects to complete certain actions, are based on
management's best estimates at this time, which were derived utilizing numerous
assumptions about future events, including the continued availability of certain
resources, representations received from third parties and other factors.
However, there can be no guarantee that these estimates will be achieved, and
actual results could differ materially from those anticipated. Specific factors
that might cause such material differences include, but are not limited to, the
ability to identify and remediate all relevant IT and non-IT systems, results of
Year 2000 testing, adequate resolution of Year 2000 Issues by businesses and
other third parties who are service providers, suppliers or customers of the
Company, unanticipated system costs, the adequacy of and ability to develop and
implement contingency plans and similar uncertainties. The "forward-looking
statements" made in the foregoing Year 2000 discussion are only as of the date
on which such statements are made, and the Company undertakes no obligation to
update on less than a quarterly basis.
15
<PAGE> 16
OTHER INFORMATION
Part II - Other Information
- ---------------------------
Item 1 - Legal Proceedings
- --------------------------
Litigation
- ----------
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 (EPA) and various state agencies,
including being named as a potentially responsible party at several sites.
Potentially responsible parties (PRP's) 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 relatively small
amounts of materials or waste to a specific site relative to other PRP's, its
ultimate share of any cleanup costs has been minor. Based upon available
information, the Company believes it has contributed only small amounts to those
sites in which it is currently viewed a potentially responsible party.
Environmental compliance issues involving either the discontinued oil and gas
operations, which were sold in fiscal 1991, or the discontinued automotive
operations, are not material.
One of Sparton's facilities, located in New Mexico, has been the subject of
ongoing investigations conducted with the Environmental Protection Agency
("EPA") under the Resource Conservation and Recovery Act ("RCRA"). This EPA
compliance issue is related to continuing operations, but involves a largely
idled facility. The investigation began in the early 1980's and involved a
review of on-site and off-site environmental impacts. In 1988, an administrative
order on consent ("AOC") was executed with EPA related to further investigation
and proposing a means of dealing with quantified impacts.
The remedial investigation called for in the AOC has been completed and
approved. In May 1996, Sparton submitted to the EPA a final corrective measure
study, based on the results of its investigations, as required in the AOC. In
June 1996, the EPA issued its final decision selecting a corrective action at
the site, different from what Sparton had proposed. The EPA estimated that the
present value cost of its remedies would range from between $15,000,000 and
$26,400,000 based on a thirty-(30) year time frame. In Sparton's judgment, the
remedies proposed by the EPA are either unnecessary or technically
impracticable. Sparton vigorously challenged the EPA's remedy selection and
filed suit in Federal District Court in Dallas asserting that the EPA's decision
on remedy selection violated the AOC.
In September 1996, the EPA issued an initial administrative order under RCRA
ordering Sparton to undertake additional testing to justify the implementation
of the remedy selected by the agency in June 1996, and then implementing that
remedy. Sparton vigorously contested that order administratively, but on
February 10, 1998, EPA issued a Final Administrative Order that in all material
respects followed the initial administrative order issued in September 1996.
Sparton has refused to implement those portions of that order that it believes
are unjustified.
In February 1997, three lawsuits were filed against Sparton in Federal District
Court in Albuquerque, one by the United States on behalf of the EPA, the second
by the State of New Mexico and the third by the City of Albuquerque and the
County of Bernalillo. All three actions allege that the impacts to soil and
groundwater associated with Sparton's Coors Road facility present an imminent
and substantial threat to human health or the environment. Through these
lawsuits, the plaintiffs seek to compel Sparton to undertake additional testing
and to implement the same remedy selected by the EPA in June of 1996, now
incorporated in the Final Administrative Order, and referred to in the preceding
paragraph. In March 1997, the plaintiffs in these three lawsuits filed a
16
<PAGE> 17
motion for preliminary injunction and in July of 1997, the action in Dallas was
transferred to Federal District Court in Albuquerque and consolidated with the
three lawsuits filed in February 1997.
A pretrial schedule has been established for the consolidated actions, but no
trial date set. Limited discovery, involving interrogatories and requests for
production, has been undertaken by the plaintiffs. The plaintiffs have sought to
amend their lawsuit to compel Sparton to implement the Final Administrative
Order, and seeking civil penalties for alleged noncompliance. Sparton has
opposed this request and no decision has been made by the court on the
plaintiffs' request to amend.
In March 1998, a hearing was held on the plaintiffs' request for a preliminary
injunction. After two days of testimony, the federal district judge indicated he
had tentatively concluded he might issue a preliminary injunction. The parties
subsequently entered into settlement discussions that culminated in an agreed
workplan for the installation of certain off-site monitoring, observation, and
containment wells, in exchange for plaintiffs withdrawing their request for a
preliminary injunction. An order withdrawing that request and approving this
off-site workplan was signed on July 7, 1998.
At the current time, all litigation has been stayed to allow the parties to
continue settlement discussions. The most recent stay will expire May 17, 1999.
It is anticipated that implementation of these workplans will relieve the
Company of its obligations under the February 10, 1998 Final Administrative
Order. As a result of these developments the company is currently updating its
cost estimates. It is believed the initial cost of the corrective measures
called for in these plans is not expected to be materially different from the
cost estimates the Company has previously accrued. There is no assurance that
additional corrective measures, involving increased expenditures, may not be
required.
The proposed workplans provide for the installation of an off-site containment
well (already completed and operating), an on-site containment well and an
enhancement to an on-site soil vapor extraction system. The purpose of the
containment wells is to restrict further migration of impacted groundwater. The
soil vapor extraction system removes solvents in the on-site soil above the
groundwater. The installation and operation of the two containment wells and the
enhanced soil vapor extraction system are dependent upon various permits,
licenses and approvals from regulatory agencies and third parties. It's
anticipated that these remediation activities will operate for a period of time
during which the Company and the regulatory agencies will analyze their
effectiveness. The Company believes that it will take at least three to five
years before the effectiveness of the groundwater extraction wells can be
established. Until then, in the Company's judgement, no definitive conclusion
can be reached on whether additional remediation activities may be required.
At March 31, 1999, Sparton has accrued $1,980,000 as its estimate of the future
undiscounted minimum obligation with respect to this matter. This reflects the
minimum range of the amount Sparton expects to incur over the next five years.
This amount includes equipment and operating and maintenance costs. In many
cases, new technologies become available over time, which result in modified
costs for environmental remediation. The Company's estimate of cost is based on
the existing methodology and excludes legal and related consulting costs. The
estimate includes the minimum range of activity expected to occur in the next
five years including on-site and off-site pump and treat containment systems, a
soil vapor extraction program and continued on-site/off-site monitoring. Beyond
five years, while additional expenditures are probable, Sparton does not believe
such expenditures are reasonably estimable based on available information.
Factors causing the uncertainty include, but are not limited to, effectiveness
of the currently proposed programs to achieve targeted results and decisions
made by regulating agencies regarding future proposals and reports of Sparton.
Sparton routinely refines and revises the estimate of its environmental efforts
as additional information becomes available.
Uncertainties associated with environmental remediation contingencies are
pervasive and often result in wide ranges of reasonably possible estimates.
Estimates developed in the early stages of remediation can vary significantly.
Normally, a finite estimate of cost does not become fixed and determinable at a
specific point in
17
<PAGE> 18
time. Rather, the costs associated with environmental remediation become
estimable over a continuum of events and activities that help to frame and
define a liability. Amounts charged to operations, principally legal and
consulting, for the nine months ended March 31, 1999 and 1998 were $1,199,000
and $750,000, respectively. It is reasonably possible that Sparton's recorded
estimate of this liability may change. If a remedy is imposed on Sparton, other
than in the anticipated workplans described above, the ultimate cleanup costs
could increase significantly. There is no assurance that additional costs
greater than the amount accrued will not be incurred or that changes in
environmental laws or their interpretation will not require that additional
amounts be spent.
On June 17, 1998, Sparton Corporation and Sparton Technology, Inc. filed a
complaint in the Circuit Court of Cook County, Illinois, against Lumbermens
Mutual Casualty Company and American Manufactures Mutual Insurance Company
demanding reimbursement of expenses incurred in connection with its remediation
efforts at the Coors Road facility based on various primary and excess
comprehensive general liability policies in effect between 1959 and 1975.
On February 11, 1998, Sparton Technology, Inc. commenced litigation in the
United States Court of Federal Claims alleging that the Department of Energy
(DOE), acting through its contractors, Sandia Corporation and Allied Signal,
Inc., is liable for reimbursement of Sparton's costs incurred in defending
against and complying with Federal and state regulatory requirements. DOE
proscribed certain mandatory performance requirements that were then imposed
upon Sparton through its agreements with Sandia Corporation and Allied Signal,
Inc. On February 9, 1999 the Court of Federal Claims dismissed Sparton's
complaint based on its determination that an agency relationship did not exist
between Sandia Corporation and Allied Signal, Inc. and the United States for
purposes of reimbursing costs incurred during litigation. Sparton believes that
the court erred in its decision and filed its notice of appeal on April 9, 1999.
Sparton Technology, Inc. filed a complaint on September 21, 1998, against Allied
Signal, Inc. in U.S. District Court in Kansas City seeking to recover costs
incurred to investigate and remediate impacts to the environment at its Coors
Road facility.
At this time, the Company is unable to predict the amount of recovery, if any,
that may result in the pursuit of these before-mentioned three claims.
18
<PAGE> 19
PART II - Other Information - (continued)
- -----------------------------------------
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 March
31, 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 March 31,
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 Third Quarter of Fiscal 1999 - 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.
<TABLE>
<CAPTION>
SPARTON CORPORATION
-------------------
Registrant
<S> <C>
Date: May 10, 1999 /s/ John J. Smith
--------------------------- ---------------------------------------------
John J. Smith, Chairman of the Board of
Directors and Chief Executive Officer
Date: May 10, 1999 /s/ Richard Langley
--------------------------- ---------------------------------------------
Richard Langley, Vice President/Treasurer and
Principal Financial Officer
</TABLE>
19
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JUN-30-1999
<PERIOD-START> JUL-01-1998
<PERIOD-END> MAR-31-1999
<EXCHANGE-RATE> 1
<CASH> 5,759,298
<SECURITIES> 22,446,847
<RECEIVABLES> 17,718,121
<ALLOWANCES> 0
<INVENTORY> 36,005,113
<CURRENT-ASSETS> 87,251,964
<PP&E> 11,501,395
<DEPRECIATION> 0
<TOTAL-ASSETS> 104,780,776
<CURRENT-LIABILITIES> 15,747,417
<BONDS> 0
0
0
<COMMON> 9,785,113
<OTHER-SE> 76,716,746
<TOTAL-LIABILITY-AND-EQUITY> 104,780,776
<SALES> 98,405,090
<TOTAL-REVENUES> 98,405,090
<CGS> 98,474,041
<TOTAL-COSTS> 98,474,041
<OTHER-EXPENSES> 7,805
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 416
<INCOME-PRETAX> 1,092,042
<INCOME-TAX> 404,000
<INCOME-CONTINUING> 688,042
<DISCONTINUED> 2,520,000
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,831,958)
<EPS-PRIMARY> (.23)
<EPS-DILUTED> (.23)
</TABLE>
