Sparton (SPA) 10-Q 8 Nov 16 2017 Q1 Quarterly report Financial data

Document and Entity Information

Document and Entity Information - shares	3 Months Ended
	Oct. 02, 2016	Nov. 04, 2016
Document And Entity Information [Abstract]
Entity Registrant Name	Sparton Corp.
Entity Central Index Key	92,679
Current Fiscal Year End Date	--06-30
Entity Filer Category	Accelerated Filer
Document Type	10-Q
Document Period End Date	Oct. 2, 2016
Document Fiscal Year Focus	2,017
Document Fiscal Period Focus	Q1
Amendment Flag	false
Entity Common Stock, Shares Outstanding		9,818,730

CONSOLIDATED BALANCE SHEETS

CONSOLIDATED BALANCE SHEETS - USD ($) $ in Thousands	Oct. 02, 2016	Jul. 03, 2016
Current Assets:
Cash and cash equivalents	$ 718	$ 132
Accounts receivable, net of allowance for doubtful accounts of $401 and $407, respectively	48,206	46,759
Inventories and cost of contracts in progress, net	67,771	77,871
Prepaid expenses and other current assets	5,905	5,844
Total current assets	122,600	130,606
Property, plant and equipment, net	32,939	33,320
Goodwill	12,663	12,663
Other intangible assets, net	34,714	36,933
Deferred income taxes	25,765	25,784
Other non-current assets	6,129	6,692
Total assets	234,810	245,998
Current Liabilities:
Accounts payable	34,689	38,290
Accrued salaries and benefits	8,956	11,512
Current portion of capital lease obligations	267	217
Other accrued expenses	8,550	12,420
Total current liabilities	52,462	62,439
Credit facility	95,775	97,206
Capital lease obligations, less current portion	369	332
Environmental remediation	5,847	6,117
Pension liability	1,276	1,276
Total liabilities	155,729	167,370
Commitments and contingencies
Shareholders’ Equity:
Preferred stock, no par value; 200,000 shares authorized, none issued	0	0
Common stock, $1.25 par value; 15,000,000 shares authorized, 9,818,730 and 9,845,469 shares issued and outstanding, respectively	12,274	12,307
Capital in excess of par value	16,750	16,407
Retained earnings	51,759	51,650
Accumulated other comprehensive loss	(1,702)	(1,736)
Total shareholders’ equity	79,081	78,628
Total liabilities and shareholders’ equity	$ 234,810	$ 245,998

CONDENSED CONSOLIDATED BALANCE

CONDENSED CONSOLIDATED BALANCE SHEETS (Parenthetical) - USD ($) $ in Thousands	Oct. 02, 2016	Jul. 03, 2016
Statement of Financial Position [Abstract]
Accounts receivable, allowance for doubtful accounts	$ 401	$ 407
Preferred stock, shares authorized	200,000	200,000
Preferred stock, shares issued	0	0
Common stock, par value (usd per share)	$ 1.25	$ 1.25
Common stock, shares authorized	15,000,000	15,000,000
Common stock, shares issued	9,818,730	9,845,469
Common stock, shares outstanding	9,818,730	9,845,469

CONSOLIDATED STATEMENTS OF INCO

CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED) - USD ($) $ in Thousands	3 Months Ended
	Oct. 02, 2016	Sep. 27, 2015
Income Statement [Abstract]
Net sales	$ 100,367	$ 106,691
Cost of goods sold	83,082	85,553
Gross profit	17,285	21,138
Operating Expense:
Selling and administrative expenses	13,383	13,624
Internal research and development expenses	351	513
Amortization of intangible assets	2,219	2,503
Total operating expense	15,953	16,640
Operating income	1,332	4,498
Other income (expense)
Interest expense, net	(1,185)	(883)
Other, net	20	68
Total other expense, net	(1,165)	(815)
Income before income taxes	167	3,683
Income taxes	59	1,289
Net income	$ 108	$ 2,394
Income per share of common stock:
Basic (in dollars per share)	$ 0.01	$ 0.24
Diluted (in dollars per share)	$ 0.01	$ 0.24
Weighted average shares of common stock outstanding:
Basic (in shares)	9,792,818	9,780,274
Diluted (in shares)	9,792,818	9,780,274

CONSOLIDATED STATEMENTS OF COMP

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (UNAUDITED) - USD ($) $ in Thousands	3 Months Ended
	Oct. 02, 2016	Sep. 27, 2015
Statement of Comprehensive Income [Abstract]
Net income	$ 108	$ 2,394
Other comprehensive income, net:
Pension amortization of unrecognized net actuarial loss, net of tax	35	7
Unrecognized loss on marketable equity securities, net of tax	0	(71)
Other comprehensive income (loss), net	35	(64)
Comprehensive income	$ 143	$ 2,330

CONSOLIDATED STATEMENTS OF CASH

CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) - USD ($) $ in Thousands	3 Months Ended
	Oct. 02, 2016	Sep. 27, 2015
Cash Flows from Operating Activities:
Net income	$ 108	$ 2,394
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation	1,500	1,192
Amortization of intangible assets	2,219	2,503
Deferred income taxes	19	(125)
Stock-based compensation expense	309	432
Amortization of deferred financing costs	124	70
Excess tax benefit from stock-based compensation	0	(161)
Changes in operating assets and liabilities (net of acquisitions):
Accounts receivable	(1,447)	11,047
Inventories and cost of contracts in progress	10,100	(7,086)
Prepaid expenses and other assets	202	(1,898)
Performance based payments on customer contracts	280	(1,756)
Accounts payable and accrued expenses	(10,202)	(2,179)
Net cash provided by operating activities	3,212	4,433
Cash Flows from Investing Activity:
Purchases of property, plant and equipment	(1,119)	(1,480)
Net cash used in investing activity	(1,119)	(1,480)
Cash Flows from Financing Activities:
Borrowings from credit facility	28,404	18,000
Repayments against credit facility	(29,835)	(33,700)
Payments under capital lease agreements	(61)	0
Payment of debt financing costs	(15)	0
Repurchase of stock	0	(141)
Excess tax benefit from stock-based compensation	0	161
Net cash used in financing activities	(1,507)	(15,680)
Net increase (decrease) in cash and cash equivalents	586	(12,727)
Cash and cash equivalents at beginning of period	132	14,914
Cash and cash equivalents at end of period	718	2,187
Supplemental disclosure of cash flow information:
Cash paid for interest	1,072	663
Cash paid for income taxes	0	2
Supplemental disclosure of non-cash investing activities:
Machinery and equipment financed under capital leases	148	0
Adjustments to acquired companies' opening balance sheets	$ 0	$ 1,702

Business and Basis of Presentat

Business and Basis of Presentation	3 Months Ended
	Oct. 02, 2016
Accounting Policies [Abstract]
Business and Basis of Presentation	Business and Basis of Presentation The accompanying unaudited consolidated financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Certain reclassifications of prior year amounts have been made to conform to the current year presentation. Subsequent events have been evaluated through the date these financial statements were issued. Additionally, the consolidated financial statements should be read in conjunction with Item 2, Management’s Discussion and Analysis of Financial Condition and Results of Operations, included in this Quarterly Report on Form 10-Q. Operating results for the quarter ended October 2, 2016 are not necessarily indicative of the results that may be expected for the year ending July 2, 2017 . The consolidated balance sheet at July 3, 2016 has been derived from the audited financial statements at that date but does not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. For further information, refer to the consolidated financial statements and footnotes thereto included in the Company’s Annual Report on Form 10-K for the fiscal year ended July 3, 2016 . The Company reports fiscal years on a 52-53 week year (5-4-4 basis) ending on the Sunday closest to June 30. On April 27, 2016, Sparton announced that its Board of Directors had authorized a process to identify parties interested in acquiring the Company. This process is ongoing and there can be no assurance that this process will result in a consummation of any transaction. The Company cannot currently determine if the process will ultimately conclude in a sale of all or some of its assets. As such, no adjustments have been made to the Company’s carrying value of its assets or liabilities as a result of the contemplated sale.

Inventories and Cost of Contrac

Inventories and Cost of Contracts in Progress, net	3 Months Ended
	Oct. 02, 2016
Inventory Disclosure [Abstract]
Inventories and Cost of Contracts in Progress, net	Inventories and Cost of Contracts in Progress, net The following are the major classifications of inventory, net of interim billings: October 2, July 3, Raw materials $ 41,876 $ 40,914 Work in process 22,459 23,626 Finished goods 17,198 22,294 Total inventory and cost of contracts in progress, gross 81,533 86,834 Inventory to which the U.S. government has title due to interim billings (13,762 ) (8,963 ) Total inventory and cost of contracts in progress, net $ 67,771 $ 77,871

Property, Plant and Equipment,

Property, Plant and Equipment, net	3 Months Ended
	Oct. 02, 2016
Property, Plant and Equipment [Abstract]
Property, Plant and Equipment, Net	Property, Plant and Equipment, net Property, plant and equipment, net consists of the following: October 2, July 3, Land and land improvements $ 1,429 $ 1,429 Buildings and building improvements 27,660 27,660 Machinery and equipment 43,477 43,134 Construction in progress 2,116 1,372 Total property, plant and equipment 74,682 73,595 Less accumulated depreciation (41,743 ) (40,275 ) Total property, plant and equipment, net $ 32,939 $ 33,320

Other Intangible Assets

Other Intangible Assets	3 Months Ended
	Oct. 02, 2016
Goodwill and Intangible Assets Disclosure [Abstract]
Other Intangible Assets	Other Intangible Assets The components of other intangible assets, net consist of the following: Net Carrying Value at Additions Amortization Net Carrying Value at Non-compete agreements $ 2,193 $ — $ (221 ) $ 1,972 Customer relationships 32,625 — (1,894 ) 30,731 Trademarks/Tradenames 1,382 — (40 ) 1,342 Unpatented technology 733 — (64 ) 669 Other intangible assets, net $ 36,933 $ — $ (2,219 ) $ 34,714

Debt

Debt	3 Months Ended
	Oct. 02, 2016
Debt Disclosure [Abstract]
Debt	Debt On September 11, 2014, the Company entered into a revolving line-of-credit facility with a group of banks (the “Credit Facility”). The Company amended the Credit Facility on April 13, 2015 and again on June 27, 2016. As of the June 27, 2016 amendment, the Credit Agreement permits the Company to borrow up to $175,000 , and the Company has the right to request an increase of the facility in an amount of up to $50,000 . The facility is secured by substantially all assets of the Company and its subsidiaries and expires on September 11, 2019 . As of October 2, 2016, the Company had $77,702 available under the facility, which included letters of credit of $887 and capital leases of $636 . All borrowings under the Facility are classified as long-term. Outstanding borrowings under the Credit Facility will bear interest, at the Company’s option, at either LIBOR, fixed for interest periods of one, two, three or six month periods, plus 1.00% to 3.00% , or at the bank’s base rate, as defined, plus 0.00% to 2.00% , based upon the Company’s Total Funded Debt/EBITDA Ratio, as defined. The Company is also required to pay commitment fees on unused portions of the Credit Facility ranging from 0.20% to 0.50% , based on the Company’s Total Funded Debt/EBITDA Ratio, as defined. The Credit Facility includes representations, covenants and events of default that are customary for financing transactions of this nature. The effective interest rate on outstanding borrowings under the Credit Facility was 3.29% at October 2, 2016 . As a condition of the Credit Facility, the Company is subject to certain customary covenants, with which it was in compliance at October 2, 2016.

Income Taxes

Income Taxes	3 Months Ended
	Oct. 02, 2016
Income Tax Disclosure [Abstract]
Income Taxes	Income Taxes The Company’s effective income tax rate for interim periods was determined based on the Company’s estimated annual effective tax rate for the applicable year using the federal statutory income tax rate, permanent tax differences, foreign income taxes and state income taxes. The Company's estimated annual effective tax rate was determined to be 35.0% for both the first quarter of fiscal years 2017 and 2016.

Defined Benefit Pension Plan

Defined Benefit Pension Plan	3 Months Ended
	Oct. 02, 2016
Compensation and Retirement Disclosure [Abstract]
Defined Benefit Pension Plan	Defined Benefit Pension Plan The Company has a frozen defined benefit pension plan. The Company recorded net periodic pension expense of $13 for the first quarter of fiscal year 2017 and net periodic pension income of $38 for the first quarter of fiscal year 2016 . No contributions were made to the pension plan during the first quarter of fiscal years 2017 and 2016 .

Commitments and Contingencies

Commitments and Contingencies	3 Months Ended
	Oct. 02, 2016
Commitments and Contingencies Disclosure [Abstract]
Commitments and Contingencies	Commitments and Contingencies From time to time, the Company is involved in various legal proceedings relating to claims arising in the ordinary course of business. The Company is not currently a party to any such legal proceedings, the adverse outcome of which, individually or in the aggregate, is expected to have a material adverse effect on the Company's financial condition or results of operations. Additionally, the Company believes it has sufficient insurance coverage to effectively mitigate any litigation exposure. The Company is a party to an environmental remediation matter in Albuquerque, New Mexico. As of October 2, 2016 and July 3, 2016 , Sparton had accrued $6,339 and $6,701 , respectively, as its estimate of the remaining minimum future discounted financial liability regarding this matter, of which $492 and $584 , respectively, was classified as a current liability and included on the balance sheets in other accrued expenses. As of October 2, 2016 and July 3, 2016, the Company had accrued $1,379 and $1,606 , respectively, in long-term assets in relation to expected reimbursements from the Department of Energy, which are included in other non-current assets on the balance sheets and are considered collectible. On October 3, 2016, the Company established the Sparton Corporation Standby Financial Assurance Trust and issued a standby letter of credit in the amount of $3,114 related to the Coors Road environmental remediation liability. The trust was established to meet the United States Environmental Protection Agency’s financial assurance requirements. As a result of the goodwill write-off of $64,174 in the prior fiscal year, the Company was not in compliance with these requirements. The release of such funds would only occur should the Company not meet its financial remediation requirements. The trust will remain in place until the Company is in compliance with the financial requirements. Upon successful compliance with the financial requirements, the trust will be dissolved and the letter of credit canceled. See the Company’s Annual Report on Form 10-K for the fiscal year ended July 3, 2016 for further information. The Company is subject to audits by certain federal government agencies, including the Defense Contract Audit Agency and the Defense Contract Management Agency. The agencies audit and evaluate government contracts and government contractors’ administrative processes and systems. These agencies review the Company’s performance on contracts, pricing practices, cost structure, financial capability and compliance with applicable laws, regulations and standards. They also review the adequacy of the Company’s internal control systems and policies, including the Company’s purchasing, accounting, estimating, compensation and management information processes and systems. The Company works closely with these agencies to ensure compliance. From time to time, the Company is notified of claims related to noncompliance arising from the audits performed by agencies. Such claims have historically been subject to actions of remediation and/or financial claims that are typically subject to negotiated settlements. The Company believes that it has appropriate reserves established for outstanding issues and is not aware of any other issues of noncompliance that would have a material effect on the Company’s financial position or results of operations.

Stock-Based Compensation

Stock-Based Compensation	3 Months Ended
	Oct. 02, 2016
Disclosure of Compensation Related Costs, Share-based Payments [Abstract]
Stock-Based Compensation	Stock-Based Compensation The Company has a long-term incentive plan to offer incentive and non-qualified stock options, stock appreciation rights, restricted stock or restricted stock units, performance awards and other stock-based awards, including grants of shares under the Sparton Corporation 2010 Long-Term Incentive Plan (the “2010 Plan”). The following table shows stock-based compensation expense (credit) by type of share-based award included in the consolidated statements of income: For the First Quarter of Fiscal Years 2017 2016 Fair value expense of stock option awards $ 48 $ 122 Restricted stock units 279 218 Restricted stock (18 ) 92 Total stock-based compensation expense $ 309 $ 432 No stock options were granted during the first quarter of fiscal year 2017. During the first quarter of fiscal year 2016, the Company awarded an aggregate of 127,260 stock options to certain members of management with an average exercise price of $22.98 . The following is a summary of activity for the first quarter of fiscal year 2017 related to the 2010 Plan: Stock Options Restricted stock units Restricted shares Outstanding at July 3, 2016 115,415 79,274 52,651 Granted — 79,889 — Forfeited (10,073 ) (6,029 ) (26,739 ) Outstanding at October 2, 2016 105,342 153,134 25,912 As of October 2, 2016 , 33,473 stock options were exercisable.

Earnings Per Share Data

Earnings Per Share Data	3 Months Ended
	Oct. 02, 2016
Earnings Per Share [Abstract]
Earnings Per Share Data	Earnings Per Share Data The following table sets forth the computation of basic and diluted net income per share: For the First Quarter of Fiscal Years 2017 2016 Numerator: Net income $ 108 $ 2,394 Less net income allocated to contingently issuable participating securities — (25 ) Net income available to common shareholders $ 108 $ 2,369 Weighted average shares outstanding – Basic 9,792,818 9,780,274 Dilutive effect of stock options — — Weighted average shares outstanding – Diluted 9,792,818 9,780,274 Net income available to common shareholders per share: Basic $ 0.01 $ 0.24 Diluted $ 0.01 $ 0.24 The number of shares excluded from the calculation of diluted net income per share because the shares were either contingently issuable or their inclusion would be anti-dilutive was 284,388 and 493,050 for the first quarter of fiscal years 2017 and 2016, respectively.

Business Segments

Business Segments	3 Months Ended
	Oct. 02, 2016
Segment Reporting [Abstract]
Business Segments	Business Segments The Company has identified two reportable segments; Manufacturing & Design Services ("MDS") and Engineered Components & Products ("ECP"). The Company uses an internal management reporting system, which provides important financial data to evaluate performance and allocate the Company's resources on a segment basis. The Company’s Chief Operating Decision Maker assesses segment performance and allocates resources to each segment individually. Operating results and certain other financial information about the Company’s two reportable segments for the first quarter of fiscal years 2017 and 2016 were as follows: For the First Quarter of Fiscal Year 2017 MDS ECP Unallocated Eliminations Total Net sales $ 65,002 $ 37,592 $ — $ (2,227 ) $ 100,367 Gross profit 7,294 9,991 — — 17,285 Selling and administrative expenses (incl. depreciation) 5,976 3,824 3,583 — 13,383 Internal research and development expenses — 351 — — 351 Depreciation and amortization 2,676 606 437 — 3,719 Operating income (514 ) 5,429 (3,583 ) — 1,332 Capital expenditures 206 335 578 — 1,119 Total assets at October 2, 2016 $ 161,230 $ 64,490 $ 9,090 $ — $ 234,810 For the First Quarter of Fiscal Year 2016 MDS ECP Eliminations Total Net sales $ 73,957 $ 38,089 $ — $ (5,355 ) $ 106,691 Gross profit 10,296 10,842 — — 21,138 Selling and administrative expenses (incl. depreciation) 5,881 3,597 4,146 — 13,624 Internal research and development expenses — 513 — — 513 Depreciation and amortization 2,815 664 216 — 3,695 Operating income 2,341 6,303 (4,146 ) — 4,498 Capital expenditures 1,006 45 429 — 1,480 Total assets at July 3, 2016 $ 167,277 $ 69,627 $ 9,094 $ — $ 245,998

New Accounting Standards

New Accounting Standards	3 Months Ended
	Oct. 02, 2016
Accounting Policies [Abstract]
New Accounting Standards	New Accounting Standards In May 2014, the FASB issued Accounting Standards Update No. 2014-09 ("ASU 2014-09"), Revenue from Contracts with Customers , which amends guidance for revenue recognition. Under the new standard, revenue will be recognized when control of the promised goods or services is transferred to customers in an amount that reflects the consideration to which the Company expects to be entitled in exchange for those goods and services. The standard creates a five-step model that will generally require companies to use more judgment and make more estimates than under current guidance when considering the terms of contracts along with all relevant facts and circumstances. These include the identification of customer contracts and separating performance obligations, the determination of transaction price that potentially includes an estimate of variable consideration, allocating the transaction price to each separate performance obligation, and recognizing revenue in line with the pattern of transfer. In August 2015, the FASB issued an amendment to defer the effective date for all entities by one year. The new standard will become effective for annual reporting periods beginning after December 15, 2017, including interim periods within that reporting period. Early adoption is permitted as of annual reporting periods beginning after December 15, 2016. Companies have the option of using either a full or modified retrospective approach in applying this standard. During fiscal 2016, the FASB issued three additional updates which further clarify the guidance provided in ASU 2014-09. The Company is currently in the process of evaluating the impact of adoption on its consolidated financial statements. In July 2015, the FASB issued Accounting Standards Update No. 2015-11 ("ASU 2015-11"), Simplifying the Measurement of Inventory. ASU 2015-11 clarifies that inventory should be held at the lower of cost or net realizable value. Net realizable value is defined as the estimated selling price, less the estimated costs to complete, dispose and transport such inventory. ASU 2015-11 will be effective for fiscal years and interim periods beginning after December 15, 2016. ASU 2015-11 is required to be applied prospectively and early adoption is permitted. The Company is currently in the process of evaluating the impact of adoption on its consolidated financial statements. In February 2016, the FASB issued Accounting Standards Update No. 2016-02 (“ASU 2016-02”), Leases (Topic 842) . ASU 2016-02 establishes a right-of-use (ROU) model that requires a lessee to record a ROU asset and a lease liability on the balance sheet for all leases with terms longer than 12 months. Leases will be classified as either finance or operating, with classification affecting the pattern of expense recognition in the income statement. ASU 2016-02 is effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. A modified retrospective transition approach is required for capital leases and operating leases existing at, or entered into after, the beginning of the earliest comparative period presented in the financial statements, with certain practical expedients available. The Company is currently in the process of evaluating the impact of adoption on its consolidated financial statements. In March 2016, the FASB issued Accounting Standards Update No. 2016-09 ("ASU 2016-09"), Compensation - Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting. ASU 2016-09 will directly impact the tax administration of equity plans. ASU 2016-09 is effective for fiscal years beginning after December 15, 2016, including interim periods within those fiscal years. Early adoption is permitted and any adjustments should be reflected as of the beginning of the fiscal year that includes that interim period. The Company has elected to early adopt ASU 2016-09 as of July 4, 2016 on a prospective basis. There was no impact on the Company's financial statements as a result of early adoption in the first quarter of fiscal year 2017. In June 2016, the FASB issued Accounting Standards Update No. 2016-13 ("ASU 2016-13"), Financial Instruments— Credit Losses (Topic 326) . ASU 2016-13 requires the measurement of all expected credit losses for financial assets held at the reporting date based on historical experience, current conditions, and reasonable and supportable forecasts. ASU 2016-13 is effective for fiscal years beginning after December 15, 2019 and early adoption is permitted. The Company is currently in the process of evaluating the impact of adoption on its consolidated financial statements. In August 2016, the FASB issued Accounting Standards Update No. 2016-15 ("ASU 2016-15"), Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments . ASU 2016-15 will make eight targeted changes to how cash receipts and cash payments are presented and classified in the statement of cash flows. ASU 2016-15 is effective for fiscal years beginning after December 15, 2017. The new standard will require adoption on a retrospective basis unless it is impracticable to apply, in which case it would be required to apply the amendments prospectively as of the earliest date practicable. The Company is currently in the process of evaluating the impact of adoption on its consolidated financial statements.

Business and Basis of Present19

Business and Basis of Presentation (Policies)	3 Months Ended
	Oct. 02, 2016
Accounting Policies [Abstract]
Business and Basis of Presentation	Business and Basis of Presentation The accompanying unaudited consolidated financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Certain reclassifications of prior year amounts have been made to conform to the current year presentation. Subsequent events have been evaluated through the date these financial statements were issued. Additionally, the consolidated financial statements should be read in conjunction with Item 2, Management’s Discussion and Analysis of Financial Condition and Results of Operations, included in this Quarterly Report on Form 10-Q. Operating results for the quarter ended October 2, 2016 are not necessarily indicative of the results that may be expected for the year ending July 2, 2017 . The consolidated balance sheet at July 3, 2016 has been derived from the audited financial statements at that date but does not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. For further information, refer to the consolidated financial statements and footnotes thereto included in the Company’s Annual Report on Form 10-K for the fiscal year ended July 3, 2016 . The Company reports fiscal years on a 52-53 week year (5-4-4 basis) ending on the Sunday closest to June 30. On April 27, 2016, Sparton announced that its Board of Directors had authorized a process to identify parties interested in acquiring the Company. This process is ongoing and there can be no assurance that this process will result in a consummation of any transaction. The Company cannot currently determine if the process will ultimately conclude in a sale of all or some of its assets. As such, no adjustments have been made to the Company’s carrying value of its assets or liabilities as a result of the contemplated sale.
New Accounting Standards	New Accounting Standards In May 2014, the FASB issued Accounting Standards Update No. 2014-09 ("ASU 2014-09"), Revenue from Contracts with Customers , which amends guidance for revenue recognition. Under the new standard, revenue will be recognized when control of the promised goods or services is transferred to customers in an amount that reflects the consideration to which the Company expects to be entitled in exchange for those goods and services. The standard creates a five-step model that will generally require companies to use more judgment and make more estimates than under current guidance when considering the terms of contracts along with all relevant facts and circumstances. These include the identification of customer contracts and separating performance obligations, the determination of transaction price that potentially includes an estimate of variable consideration, allocating the transaction price to each separate performance obligation, and recognizing revenue in line with the pattern of transfer. In August 2015, the FASB issued an amendment to defer the effective date for all entities by one year. The new standard will become effective for annual reporting periods beginning after December 15, 2017, including interim periods within that reporting period. Early adoption is permitted as of annual reporting periods beginning after December 15, 2016. Companies have the option of using either a full or modified retrospective approach in applying this standard. During fiscal 2016, the FASB issued three additional updates which further clarify the guidance provided in ASU 2014-09. The Company is currently in the process of evaluating the impact of adoption on its consolidated financial statements. In July 2015, the FASB issued Accounting Standards Update No. 2015-11 ("ASU 2015-11"), Simplifying the Measurement of Inventory. ASU 2015-11 clarifies that inventory should be held at the lower of cost or net realizable value. Net realizable value is defined as the estimated selling price, less the estimated costs to complete, dispose and transport such inventory. ASU 2015-11 will be effective for fiscal years and interim periods beginning after December 15, 2016. ASU 2015-11 is required to be applied prospectively and early adoption is permitted. The Company is currently in the process of evaluating the impact of adoption on its consolidated financial statements. In February 2016, the FASB issued Accounting Standards Update No. 2016-02 (“ASU 2016-02”), Leases (Topic 842) . ASU 2016-02 establishes a right-of-use (ROU) model that requires a lessee to record a ROU asset and a lease liability on the balance sheet for all leases with terms longer than 12 months. Leases will be classified as either finance or operating, with classification affecting the pattern of expense recognition in the income statement. ASU 2016-02 is effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. A modified retrospective transition approach is required for capital leases and operating leases existing at, or entered into after, the beginning of the earliest comparative period presented in the financial statements, with certain practical expedients available. The Company is currently in the process of evaluating the impact of adoption on its consolidated financial statements. In March 2016, the FASB issued Accounting Standards Update No. 2016-09 ("ASU 2016-09"), Compensation - Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting. ASU 2016-09 will directly impact the tax administration of equity plans. ASU 2016-09 is effective for fiscal years beginning after December 15, 2016, including interim periods within those fiscal years. Early adoption is permitted and any adjustments should be reflected as of the beginning of the fiscal year that includes that interim period. The Company has elected to early adopt ASU 2016-09 as of July 4, 2016 on a prospective basis. There was no impact on the Company's financial statements as a result of early adoption in the first quarter of fiscal year 2017. In June 2016, the FASB issued Accounting Standards Update No. 2016-13 ("ASU 2016-13"), Financial Instruments— Credit Losses (Topic 326) . ASU 2016-13 requires the measurement of all expected credit losses for financial assets held at the reporting date based on historical experience, current conditions, and reasonable and supportable forecasts. ASU 2016-13 is effective for fiscal years beginning after December 15, 2019 and early adoption is permitted. The Company is currently in the process of evaluating the impact of adoption on its consolidated financial statements. In August 2016, the FASB issued Accounting Standards Update No. 2016-15 ("ASU 2016-15"), Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments . ASU 2016-15 will make eight targeted changes to how cash receipts and cash payments are presented and classified in the statement of cash flows. ASU 2016-15 is effective for fiscal years beginning after December 15, 2017. The new standard will require adoption on a retrospective basis unless it is impracticable to apply, in which case it would be required to apply the amendments prospectively as of the earliest date practicable. The Company is currently in the process of evaluating the impact of adoption on its consolidated financial statements.

Inventories and Cost of Contr20

Inventories and Cost of Contracts in Progress, net (Tables)	3 Months Ended
	Oct. 02, 2016
Inventory Disclosure [Abstract]
Classifications of Inventory, Net of Interim Billings	The following are the major classifications of inventory, net of interim billings: October 2, July 3, Raw materials $ 41,876 $ 40,914 Work in process 22,459 23,626 Finished goods 17,198 22,294 Total inventory and cost of contracts in progress, gross 81,533 86,834 Inventory to which the U.S. government has title due to interim billings (13,762 ) (8,963 ) Total inventory and cost of contracts in progress, net $ 67,771 $ 77,871

Property, Plant and Equipment21

Property, Plant and Equipment, net (Tables)	3 Months Ended
	Oct. 02, 2016
Property, Plant and Equipment [Abstract]
Property, Plant and Equipment, net	Property, plant and equipment, net consists of the following: October 2, July 3, Land and land improvements $ 1,429 $ 1,429 Buildings and building improvements 27,660 27,660 Machinery and equipment 43,477 43,134 Construction in progress 2,116 1,372 Total property, plant and equipment 74,682 73,595 Less accumulated depreciation (41,743 ) (40,275 ) Total property, plant and equipment, net $ 32,939 $ 33,320

Other Intangible Assets (Tables

Other Intangible Assets (Tables)	3 Months Ended
	Oct. 02, 2016
Goodwill and Intangible Assets Disclosure [Abstract]
Summary of Intangible Assets, Net	The components of other intangible assets, net consist of the following: Net Carrying Value at Additions Amortization Net Carrying Value at Non-compete agreements $ 2,193 $ — $ (221 ) $ 1,972 Customer relationships 32,625 — (1,894 ) 30,731 Trademarks/Tradenames 1,382 — (40 ) 1,342 Unpatented technology 733 — (64 ) 669 Other intangible assets, net $ 36,933 $ — $ (2,219 ) $ 34,714

Stock-Based Compensation (Table

Stock-Based Compensation (Tables)	3 Months Ended
	Oct. 02, 2016
Disclosure of Compensation Related Costs, Share-based Payments [Abstract]
Stock-Based Compensation Expense by Type of Share-Based Award	The following table shows stock-based compensation expense (credit) by type of share-based award included in the consolidated statements of income: For the First Quarter of Fiscal Years 2017 2016 Fair value expense of stock option awards $ 48 $ 122 Restricted stock units 279 218 Restricted stock (18 ) 92 Total stock-based compensation expense $ 309 $ 432
Summary of Options Outstanding and Exercisable	The following is a summary of activity for the first quarter of fiscal year 2017 related to the 2010 Plan: Stock Options Restricted stock units Restricted shares Outstanding at July 3, 2016 115,415 79,274 52,651 Granted — 79,889 — Forfeited (10,073 ) (6,029 ) (26,739 ) Outstanding at October 2, 2016 105,342 153,134 25,912

Earnings Per Share Data (Tables

Earnings Per Share Data (Tables)	3 Months Ended
	Oct. 02, 2016
Earnings Per Share [Abstract]
Earnings Per Share	The following table sets forth the computation of basic and diluted net income per share: For the First Quarter of Fiscal Years 2017 2016 Numerator: Net income $ 108 $ 2,394 Less net income allocated to contingently issuable participating securities — (25 ) Net income available to common shareholders $ 108 $ 2,369 Weighted average shares outstanding – Basic 9,792,818 9,780,274 Dilutive effect of stock options — — Weighted average shares outstanding – Diluted 9,792,818 9,780,274 Net income available to common shareholders per share: Basic $ 0.01 $ 0.24 Diluted $ 0.01 $ 0.24

Business Segments (Tables)

Business Segments (Tables)	3 Months Ended
	Oct. 02, 2016
Segment Reporting [Abstract]
Operating Results and Other Financial Information by Segment	Operating results and certain other financial information about the Company’s two reportable segments for the first quarter of fiscal years 2017 and 2016 were as follows: For the First Quarter of Fiscal Year 2017 MDS ECP Unallocated Eliminations Total Net sales $ 65,002 $ 37,592 $ — $ (2,227 ) $ 100,367 Gross profit 7,294 9,991 — — 17,285 Selling and administrative expenses (incl. depreciation) 5,976 3,824 3,583 — 13,383 Internal research and development expenses — 351 — — 351 Depreciation and amortization 2,676 606 437 — 3,719 Operating income (514 ) 5,429 (3,583 ) — 1,332 Capital expenditures 206 335 578 — 1,119 Total assets at October 2, 2016 $ 161,230 $ 64,490 $ 9,090 $ — $ 234,810 For the First Quarter of Fiscal Year 2016 MDS ECP Eliminations Total Net sales $ 73,957 $ 38,089 $ — $ (5,355 ) $ 106,691 Gross profit 10,296 10,842 — — 21,138 Selling and administrative expenses (incl. depreciation) 5,881 3,597 4,146 — 13,624 Internal research and development expenses — 513 — — 513 Depreciation and amortization 2,815 664 216 — 3,695 Operating income 2,341 6,303 (4,146 ) — 4,498 Capital expenditures 1,006 45 429 — 1,480 Total assets at July 3, 2016 $ 167,277 $ 69,627 $ 9,094 $ — $ 245,998

Inventories and Cost of Contr26

Inventories and Cost of Contracts in Progress, net - Classifications of Inventory, Net of Interim Billings (Detail) - USD ($) $ in Thousands	Oct. 02, 2016	Jul. 03, 2016
Inventory Disclosure [Abstract]
Raw materials	$ 41,876	$ 40,914
Work in process	22,459	23,626
Finished goods	17,198	22,294
Total inventory and cost of contracts in progress, gross	81,533	86,834
Inventory to which the U.S. government has title due to interim billings	(13,762)	(8,963)
Total inventory and cost of contracts in progress, net	$ 67,771	$ 77,871

Property Plant and Equipment, n

Property Plant and Equipment, net (Detail) - USD ($) $ in Thousands	Oct. 02, 2016	Jul. 03, 2016
Property, Plant and Equipment [Line Items]
Total property, plant and equipment	$ 74,682	$ 73,595
Less accumulated depreciation	(41,743)	(40,275)
Total property, plant and equipment, net	32,939	33,320
Land and land improvements
Property, Plant and Equipment [Line Items]
Total property, plant and equipment	1,429	1,429
Buildings and building improvements
Property, Plant and Equipment [Line Items]
Total property, plant and equipment	27,660	27,660
Machinery and equipment
Property, Plant and Equipment [Line Items]
Total property, plant and equipment	43,477	43,134
Construction in progress
Property, Plant and Equipment [Line Items]
Total property, plant and equipment	$ 2,116	$ 1,372

Other Intangible Assets - Summa

Other Intangible Assets - Summary of Intangible Assets, Net (Detail) - USD ($) $ in Thousands	3 Months Ended
	Oct. 02, 2016	Sep. 27, 2015
Finite-lived Intangible Assets [Roll Forward]
Net carrying amount at beginning of period	$ 36,933
Additions	0
Amortization	(2,219)	$ (2,503)
Net carrying amount at end of period	34,714
Non-compete agreements
Finite-lived Intangible Assets [Roll Forward]
Net carrying amount at beginning of period	2,193
Additions	0
Amortization	(221)
Net carrying amount at end of period	1,972
Customer relationships
Finite-lived Intangible Assets [Roll Forward]
Net carrying amount at beginning of period	32,625
Additions	0
Amortization	(1,894)
Net carrying amount at end of period	30,731
Trademarks/Tradenames
Finite-lived Intangible Assets [Roll Forward]
Net carrying amount at beginning of period	1,382
Additions	0
Amortization	(40)
Net carrying amount at end of period	1,342
Unpatented technology
Finite-lived Intangible Assets [Roll Forward]
Net carrying amount at beginning of period	733
Additions	0
Amortization	(64)
Net carrying amount at end of period	$ 669

Debt - Additional Information (

Debt - Additional Information (Detail) - USD ($)	Apr. 13, 2015	Oct. 02, 2016	Jun. 27, 2016
Revolving Credit Facility
Debt Instrument [Line Items]
Maximum borrowing capacity			$ 175,000,000
Additional borrowing capacity			$ 50,000,000
Available borrowings		$ 77,702,000
Capital leases		$ 636,000
Effective interest rate percent		3.29%
Letter of Credit
Debt Instrument [Line Items]
Available borrowings		$ 887,000
Minimum | Revolving Credit Facility
Debt Instrument [Line Items]
Unused commitment fees	0.20%
Minimum | LIBOR | Revolving Credit Facility
Debt Instrument [Line Items]
Interest rate		1.00%
Minimum | Bank Base Rate | Revolving Credit Facility
Debt Instrument [Line Items]
Interest rate		0.00%
Maximum | Revolving Credit Facility
Debt Instrument [Line Items]
Unused commitment fees	0.50%
Maximum | LIBOR | Revolving Credit Facility
Debt Instrument [Line Items]
Interest rate		3.00%
Maximum | Bank Base Rate | Revolving Credit Facility
Debt Instrument [Line Items]
Interest rate		2.00%

Income Taxes - Additional Infor

Income Taxes - Additional Information (Detail)	3 Months Ended
	Oct. 02, 2016	Sep. 27, 2015
Income Tax Disclosure [Abstract]
Effective income tax rate reconciliation percent	35.00%	35.00%

Defined Benefit Pension Plan -

Defined Benefit Pension Plan - Additional Information (Detail) - USD ($)	3 Months Ended
	Oct. 02, 2016	Sep. 27, 2015
Compensation and Retirement Disclosure [Abstract]
Periodic pension income (expense)	$ (13,000)	$ 38,000
Pension plan contributions	$ 0	$ 0

Commitments and Contingencies -

Commitments and Contingencies - Additional Information (Detail) - USD ($) $ in Thousands	12 Months Ended
	Jul. 03, 2016	Oct. 03, 2016	Oct. 02, 2016
Loss Contingencies [Line Items]
Environmental remediation accrual	$ 6,701		$ 6,339
Amount of financial liability included in other accrued expenses of current liability	584		492
Expected reimbursement accrual	1,606		$ 1,379
Goodwill write-off	$ 64,174
Subsequent Event | Standby Letter of Credit
Loss Contingencies [Line Items]
Environmental remediation accrual		$ 3,114

Stock-Based Compensation - Expe

Stock-Based Compensation - Expense by Type of Share-Based Award (Detail) - USD ($) $ in Thousands	3 Months Ended
	Oct. 02, 2016	Sep. 27, 2015
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Total stock-based compensation expense	$ 309	$ 432
Fair value expense of stock option awards
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Total stock-based compensation expense	48	122
Restricted stock units
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Total stock-based compensation expense	279	218
Restricted stock
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Total stock-based compensation expense	$ (18)	$ 92

Stock-Based Compensation - Addi

Stock-Based Compensation - Additional Information (Detail) - $ / shares	3 Months Ended
	Oct. 02, 2016	Sep. 27, 2015
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Options granted in period intrinsic value (in shares)	0
Stock options exercisable (in shares)	33,473
Management
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Options granted in period intrinsic value (in shares)	0	127,260
Options granted in period (in dollars per share)		$ 22.98

Stock-Based Compensation - Summ

Stock-Based Compensation - Summary of Options Outstanding and Exercisable (Detail)	3 Months Ended
	Oct. 02, 2016shares
Stock Options
Outstanding, beginning balance (in shares)	115,415
Granted (in shares)	0
Forfeited (in shares)	(10,073)
Outstanding, ending balance (in shares)	105,342
Restricted stock units
Stock Units
Outstanding, beginning balance (in shares)	79,274
Granted (in shares)	79,889
Forfeited (in shares)	(6,029)
Outstanding, ending balance (in shares)	153,134
Restricted shares
Stock Units
Outstanding, beginning balance (in shares)	52,651
Granted (in shares)	0
Forfeited (in shares)	(26,739)
Outstanding, ending balance (in shares)	25,912

Earnings Per Share Data (Detail

Earnings Per Share Data (Detail) - USD ($) $ / shares in Units, $ in Thousands	3 Months Ended
	Oct. 02, 2016	Sep. 27, 2015
Earnings Per Share [Abstract]
Net income	$ 108	$ 2,394
Less net income allocated to contingently issuable participating securities	0	(25)
Net income available to common shareholders	$ 108	$ 2,369
Weighted average shares outstanding – Basic (in shares)	9,792,818	9,780,274
Dilutive effect of stock options (in shares)	0	0
Weighted average shares outstanding – Diluted (in shares)	9,792,818	9,780,274
Income per share of common stock:
Net income per share: Basic (in dollars per share)	$ 0.01	$ 0.24
Net income per share: Diluted (in dollars per share)	$ 0.01	$ 0.24

Earnings Per Share Data - Addit

Earnings Per Share Data - Additional Information (Detail) - shares	3 Months Ended
	Oct. 02, 2016	Sep. 27, 2015
Earnings Per Share [Abstract]
Potential shares	284,388	493,050

Business Segments - Operating R

Business Segments - Operating Results and Other Financial Information by Segment (Detail) $ in Thousands	3 Months Ended
	Oct. 02, 2016USD ($)segment	Sep. 27, 2015USD ($)	Jul. 03, 2016USD ($)
Segment Reporting Information [Line Items]
Number of segments | segment	2
Net sales	$ 100,367	$ 106,691
Gross profit	17,285	21,138
Selling and administrative expenses	13,383	13,624
Internal research and development expenses	351	513
Depreciation and amortization	3,719	3,695
Operating (loss) income	1,332	4,498
Capital expenditures	1,119	1,480
Total assets	234,810		$ 245,998
Operating Segments | Manufacturing and Design Services
Segment Reporting Information [Line Items]
Net sales	65,002	73,957
Gross profit	7,294	10,296
Selling and administrative expenses	5,976	5,881
Internal research and development expenses	0	0
Depreciation and amortization	2,676	2,815
Operating (loss) income	(514)	2,341
Capital expenditures	206	1,006
Total assets	161,230		167,277
Operating Segments | Engineered Components and Products
Segment Reporting Information [Line Items]
Net sales	37,592	38,089
Gross profit	9,991	10,842
Selling and administrative expenses	3,824	3,597
Internal research and development expenses	351	513
Depreciation and amortization	606	664
Operating (loss) income	5,429	6,303
Capital expenditures	335	45
Total assets	64,490		69,627
Unallocated
Segment Reporting Information [Line Items]
Net sales	0	0
Gross profit	0	0
Selling and administrative expenses	3,583	4,146
Internal research and development expenses	0	0
Depreciation and amortization	437	216
Operating (loss) income	(3,583)	(4,146)
Capital expenditures	578	429
Total assets	9,090		9,094
Eliminations
Segment Reporting Information [Line Items]
Net sales	(2,227)	(5,355)
Gross profit	0	0
Selling and administrative expenses	0	0
Internal research and development expenses	0	0
Depreciation and amortization	0	0
Operating (loss) income	0	0
Capital expenditures	0	$ 0
Total assets	$ 0		$ 0