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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-Q
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended December 31, 1993
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
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(Exact name of registrant as specified in its charter)
Ohio 38-1054690
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
2400 East Ganson Street, Jackson, Michigan 49202
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(Address of principal executive offices) (Zip Code)
517-787-8600
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(Registrant's telephone number, including area code)
Indicate by checkmark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
---- ----
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date. The number of shares of
common stock outstanding as of January 31, 1994 was 7,810,370.
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SPARTON CORPORATION
INDEX
Page No.
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Financial Statements:
Consolidated Condensed Balance Sheet - December 31 and June 30, 1993 3
Consolidated Condensed Statement of Operations - Three-Month and Six-Month
Periods ended December 31, 1993 and 1992 4
Consolidated Condensed Statement of Cash Flows - Six-Month Periods ended
December 31, 1993 and 1992 5
Notes to Consolidated Condensed Financial Statements 6
Management's Discussion and Analysis of Financial Condition and Results of
Operations 7
Other Information and Signatures 10
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SPARTON CORPORATION AND SUBSIDIARIES
Consolidated Condensed Balance Sheet (Unaudited)
December 31 and June 30, 1993
December 31 June 30
ASSETS 1993 1993
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Current assets:
Cash and cash equivalents $3,510,376 $2,560,566
Income taxes recoverable 452,000 --
Accounts receivable 33,464,297 31,618,871
Inventories and costs on contracts in progress,
less progress payments of $4,097,000 at
December 31 ($6,900,000 at June 30) 48,783,573 47,419,133
Prepaid expenses 2,775,352 2,362,297
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Total current assets 88,985,598 83,960,867
Miscellaneous receivables and other assets 2,543,107 2,673,690
Property, plant and equipment - net 17,613,598 17,754,162
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Total assets $109,142,303 $104,388,719
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LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Notes payable - due within one year $15,000,000 $3,880,000
Accounts payable 14,521,680 18,900,081
Taxes on income 264,699 1,078,584
Accrued liabilities 8,225,737 8,890,032
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Total current liabilities 38,012,116 32,748,697
Deferred income taxes 1,755,000 1,965,000
Deferred compensation 1,996,908 1,924,079
Long-term obligations, net of current maturities 668,196 785,120
Shareowners' equity:
Common stock - 7,810,370 shares outstanding
after deducting 124,342 shares in treasury 9,762,963 9,762,963
Capital in excess of par value 399,942 399,942
Retained earnings 56,547,178 56,802,918
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Total shareowners' equity 66,710,083 66,965,823
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Total liabilities & shareowners' equity $109,142,303 $104,388,719
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See accompanying notes.
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SPARTON CORPORATION AND SUBSIDIARIES
Consolidated Condensed Statement of Operations (Unaudited)
For the Three-month and Six-month Periods Ended December 31, 1993 and 1992
Three-month Periods Six-month Periods
------------------------------- ------------------------------
1993 1992 1993 1992
----------- ----------- ----------- ------------
Net sales $47,898,718 $50,113,806 $89,291,320 $107,830,074
Costs and expenses 47,440,041 48,682,263 89,922,205 104,386,717
----------- ----------- ----------- ------------
458,677 1,431,543 (630,885) 3,443,357
Other income (expense):
Interest (138,384) (157,781) (196,749) (267,665)
Other - net (15,062) 167,740 14,894 132,419
----------- ----------- ----------- ------------
Income (loss) before income
taxes and cumulative effect
of accounting change 305,231 1,441,502 (812,740) 3,308,111
Provision (credit) for income
taxes 109,000 519,000 (293,000) 1,191,000
----------- ----------- ----------- ------------
Income (loss) before cumulative
effect of accounting change 196,231 922,502 (519,740) 2,117,111
Change (credit) in method of
accounting for income taxes -- -- (264,000) --
----------- ----------- ----------- ------------
Net income (loss) $196,231 $922,502 ($255,740) $2,117,111
=========== =========== ========== ============
Income (loss) per share of
common stock:
Income (loss) before
cumulative effect of
accounting change $.03 $ .12 $(.06) $ .27
Change (credit) in method
of accounting for income
taxes -- -- (.03) --
----------- ----------- ----------- ------------
Net income (loss) $.03 $ .12 $(.03) $ .27
=========== =========== =========== ============
Dividends $-0- $-0- $-0- $-0-
=========== =========== =========== ============
See accompanying notes.
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SPARTON CORPORATION AND SUBSIDIARIES
Consolidated Condensed Statement of Cash Flows (Unaudited)
For the Six-month Periods Ended December 31, 1993 and 1992
1993 1992
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Operating activities:
Income (loss) from operations ($519,740) $2,117,111
Cumulative effect of accounting change 264,000 --
Add non-cash items charged to operations:
Depreciation 1,826,975 1,724,319
Deferred compensation 72,829 69,803
Deferred income taxes (210,000) --
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1,434,064 3,911,233
Add (deduct) changes in operating assets
and liabilities:
Income taxes recoverable (452,000) 125,466
Accounts receivable (1,845,426) 752,353
Inventories (1,364,440) (7,591,009)
Accounts payable (4,378,401) (74,016)
Taxes on income (813,885) (133,727)
Other (1,077,662) (1,612,267)
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Net cash provided (used) by operating activities (8,497,750) (4,621,967)
Investing activities:
Purchases of property, plant and equipment-net (1,686,411) (844,691)
Other 130,583 (2,542)
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(1,555,828) (847,233)
Financing activities:
Increase in notes payable 11,120,000 4,891,190
Changes in long-term obligations, including
current maturities thereof (116,612) (116,382)
Proceeds from the exercise of
stock options -- 2,187
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11,003,388 4,776,995
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Increase (decrease) in cash and cash equivalents 949,810 (692,205)
Cash and cash equivalents at beginning of period 2,560,566 3,416,185
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Cash and cash equivalents at end of period $3,510,376 $2,723,980
========== ==========
Cash paid during the period for:
Interest $168,000 $272,000
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Income taxes $720,000 $1,117,000
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See accompanying notes.
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SPARTON CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
1) The accompanying consolidated condensed balance sheet at
December 31, 1993, and the related consolidated condensed statements of
operations for the three-month and six-month periods ended December 31, 1993
and 1992 and cash flows for the six-month periods ended December 31, 1993 and
1992 are unaudited, but include all adjustments (consisting only of normal
recurring accruals) which the Company considers necessary for a fair
presentation of such financial statements. The results of operations for the
six- month period ended December 31, 1993 are not necessarily indicative of the
results that may be expected for the full fiscal year.
2) Effective July 1, 1993, the Company has determined tax expense
and other deferred tax information in compliance with Statement of Financial
Accounting Standards (SFAS) No. 109, "Accounting for Income Taxes". Under this
method, deferred tax assets and liabilities are determined based on differences
between financial reporting and tax bases of assets and liabilities and are
measured using the enacted tax rates and laws that will be in effect when such
differences are expected to reverse. Prior years financial statements have not
been restated to apply the provisions of SFAS No. 109 and, accordingly, reflect
the deferred method. The adoption of SFAS No. 109 has not changed the actual
amount of income tax that the Company pays. Provision is made for all deferred
income taxes due to temporary differences between earnings for financial
reporting and income tax purposes.
The cumulative effect of this accounting change made as of July
1, 1993 was to increase net earnings for the first quarter of fiscal 1994 by
$264,000 ($.03 per share) with corresponding changes to the Company's deferred
tax assets and deferred tax liabilities.
3) Earnings per share are computed using the weighted average
number of shares outstanding as follows: For the three- month periods,
7,810,370 in 1993 and 7,791,998 in 1992. For the six-month periods, 7,810,370
in 1993 and 7,791,835 in 1992.
4) There are various legal proceedings pending against the Company.
In many cases, these proceedings involve ordinary and routine claims incidental
to the business of the Company. In others, they represent allegations that are
non-routine. The ultimate legal and financial liability of the Company in
respect to these matters cannot be estimated with certainty. However, the
Company believes, based on its examination of such matters, experience to date
and discussions with legal counsel, that the ultimate liability (including
insurance recoveries, where applicable) will not be material in relation to the
Company's Consolidated Financial Statements.
The Company and its subsidiaries are also involved in certain
compliance issues with the United States Environmental Protection Agency and
various state environmental regulatory agencies. Based upon its own
examination and experience to date and upon information provided by legal
counsel and outside consultants, it is management's opinion that the resolution
of these issues will not have a material impact on the Company's Consolidated
Financial Statements.
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following is management's discussion and analysis of certain significant
events affecting the Company's earnings and financial condition during the
periods included in the accompanying financial statements.
RESULTS OF OPERATIONS
SIX-MONTH PERIODS
Sales for the six-month period ended December 31, 1993 were $89,291,000, a
decline of $18,539,000 (17%) from the corresponding period last year. These
revenues were also below internal expectations. Sales decreased 39% at Sparton
Electronics. This reflected both the anticipated declining level of U.S.
government defense-related sales and unexpected delays in certain commercial
product shipments. Sparton Electronics' commercial sales continues to expand,
but not at a level to offset the decline in U.S. government related revenues.
Sales decreased substantially at the Canadian unit compared to last year.
Revenues also declined at Sparton Technology. The decrease at Sparton
Technology was anticipated and was due to reduced government and contract
manufacturing sales offset modestly by expanding foreign and proprietary
product revenues. The Automotive and Industrial Products segment continues to
expand with an aggregate sales increase of $9,075,000 (24%) for the current
six-month period compared to the same period last year. This growth exceeded
expectations and reflects both increased customer demand as well as new product
shipments.
An operating loss of $631,000 was reported for the six-month period ended
December 31, 1993 compared to operating income of $3,443,000 last year.
Sparton Electronics operated at a small profit for the period. Profit margins
continue to be adversely impacted by increased costs associated with multiple
program launches, unexpected production delays and lower overall volumes. The
Sparton Technology and Canadian units both reported operating losses, but these
losses were significantly less than those incurred in the prior year due to
various cost cutting measures instituted. The Automotive and Industrial
Products segment incurred a small operating loss for the current period
compared to a modest profit last year. Factors contributing to this loss
included costs associated with the relocation of a production facility,
unexpected difficulties on new product launches, undercapacity problems on
certain products and an overall inability to adjust prices due to competitive
pressures. The Company will be expanding its manufacturing capacity within the
year and has requested a price increase on one product line.
Interest expense declined $71,000 to $197,000 due to lower average borrowings
and lower interest rates. After provision (credit) for applicable income taxes
and before the cumulative effect of an accounting change, the Company incurred
a loss of $520,000 ($.06 per share) for the six months ended December 31, 1993
compare to income of $2,117,000 ($.27 per share) for the corresponding period
last year. Effective July 1, 1993, the Company adopted Statement of Financial
Accounting Standards No. 109, "Accounting for Income Taxes". The cumulative
effect of this required change in the method for accounting for income taxes
resulted in a credit in the first quarter of $264,000 ($.03 per share),
primarily from a reduction in the income tax rates used to record deferred tax
liabilities. The Company's net loss for the six-month period ended December
31, 1993 was
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$256,000 ($.03 per share) compared to net income of $2,117,000 ($.27 per share)
for the corresponding period last year.
Statement of Financial Accounting Standards No. 106, "Accounting for
Postretirement Benefits Other than Pensions", has no effect on the Company as
the Company does not provide postretirement benefits of the type described
within this Statement. In addition, the Company has not elected to early
comply with Statement of Financial Accounting Standards No. 112, "Employer's
Accounting for Postemployment Benefits". The impact of such change, which is
required in fiscal 1995, is not expected to have a material effect on the
Company's financial position or results of operations.
THREE-MONTH PERIODS
Sales for the three-month period ended December 31, 1993 were $47,899,000, a
decrease of $2,215,000 (4%) from the corresponding period last year. At
Sparton Electronics, sales decreased $4,609,000 (19%) from the levels of the
prior year due to the previously mentioned declining U.S. defense revenues and
delays in commercial production. Sales were lower at the Canadian unit.
Revenue at Sparton Technology decreased 36% from last year primarily due to the
previously mentioned reductions in the government and contract manufacturing
areas. The Automotive and Industrial products segment reported an increase of
$4,845,000 (23%) in overall sales compared to the same period last year. All
three of the operating units that comprise this segment had higher sales during
this period principally due to increases in both customer demand and new
product shipments.
Operating income of $459,000 was reported for the three months ended December
31, 1993 compared to $1,432,000 in the same period last year. Sparton
Electronics operated at a profit substantially below last year's level and
below internal expectations due to the previously mentioned problems of
multiple program launches, production delays and lower volumes. The Canadian
unit operated at a loss principally due to low sales volume. Sparton
Technology operated at a slight loss for the current period, but improved over
the operating loss last year primarily due to cost-cutting measures that were
implemented. The Automotive and Industrial Products segment operated at a
small profit for the current three-month period, approximately one-half the
amount earned for the same period last year. This profit decrease was
attributable to the previously mentioned relocation costs, difficulties on
product launches, undercapacity problems and product pricing.
Lower average borrowings and borrowing costs during the current three-month
period resulted in a decline in interest costs to $138,000. After provision
for applicable income taxes, the Company's net income for the three-month
period ended December 31, 1993 was $196,000 ($.03 per share) compared to
$923,000 ($.12 per share) last year.
FINANCIAL POSITION
For the six-month period ended December 31, 1993, cash and cash equivalents
increased $950,000 to $3,510,000. Operating activities used $8,498,000.
Principal uses of cash flows from operating activities included increases in
accounts receivable and product inventories and decreases in accounts payable.
Operations provided cash flows of $1,434,000. Investing activities used
$1,556,000 in cash flows primarily for purchases of property and equipment.
Financing activities provided $11,003,000 in cash flows as the Company
increased its short-term borrowings to fund its operating and investing
activities. The Company will be investing in additional plant and equipment to
accommodate additional automotive business previously awarded. Currently the
expectation is to fund these investments from existing sources. No dividends
were declared or paid in any of the periods presented. At December 31, 1993,
the company had
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$66,710,000 ($8.54 per share) in recorded shareholders' equity, $50,973,000 in
working capital, and a 2.34:l working capital ratio.
OTHER
Environmental clean-up costs at Sparton Technology's Coors Road facility
totalled $32,000 for the current six-month period compared to $138,000 for the
corresponding period last year. These costs were charged against a provision
initiated in 1991 to cover management's estimate of the future minimum costs.
As of December 31, 1993, the remaining reserve to fund these future minimum
costs totalled $712,000. Due to the nature of the problem, however, management
is unable to reasonably estimate the ultimate costs to be incurred. At the
present time, the Company has completed cost-recovery efforts against its
insurers. Negotiations with regulatory authorities continue and based on
information provided by counsel and outside consultants, it is management's
continued opinion that the ultimate resolution of this issue will not have a
material effect on the Company's consolidated financial position or results of
operations.
Historically, approximately 50% of the Company's sales have been from the sale
of sonobuoys, principally to the U.S. Navy. Purchases of production sonobuoys
have been at reduced levels reflecting overall changes in the U.S. Navy's
budget. Based on current information, it is expected that the U.S. Navy's
budget for production sonobuoys for the foreseeable future will be no more than
one-third to one-half the dollar levels of the late 1980's. The Navy is
presently using available funds to improve the detection capability of current
systems and to implement new detection systems for delivery in the late 1990's.
The Company and Magnavox, our major competitor, are jointly developing these
new systems. While the Company is uncertain as to the market potential of
these new systems, we believe that this joint effort would be the supplier of
choice. The international market for sonobuoys has also been impacted by
reduced budgets. As most foreign governments use sonobuoys for training and do
not maintain the high level of reserves of the U.S. Navy, the reductions to the
international market will be less severe. In response to this changing
environment, the Company has consolidated certain of its manufacturing
facilities, implemented a cost reduction program within the defense-oriented
operations and is developing commercial opportunities which will utilize its
existing technological and manufacturing capabilities. In addition, the Company
is focusing on expanding sales in its automotive and other commercial
electronics markets. Management, however, cannot predict the level of U.S.
sonobuoy awards it will receive over the next several years, the growth in
sales volume of new commercial business intended to replace these declining
defense revenues, nor the resulting financial impact of these changes on the
Company's operations. Investors should be aware of this uncertainty and make
their own independent evaluation.
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OTHER INFORMATION
PART II
ITEM 6 - Exhibits and Reports on Form 8-K
(a) Exhibits
3 & 4 Instruments defining the rights of security holders have
been previously filed as follows:
Articles of Incorporation of the Registrant were
filed on Form 10-K for the year ended June 30, 1981
and an amendment thereto was filed on Form 10-Q
for the three-month period ending September 30, 1983
and are incorporated herein by reference.
By-laws of the Registrant were filed on Form 10-K for the
year ended June 30, 1981 and are incorporated herein by
reference.
Code of Regulations of the Registrant was filed on Form 10-K
for the year ended June 30, 1981 and an amendment thereto was
filed on Form 10-Q for the three-month period ended
September 30, 1982 and are incorporated herein by reference.
(b) Reports on Form 8-K Filed in the Second Quarter of Fiscal 1994: None
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
SPARTON CORPORATION
Registrant
Date: _________________ /s/ David W. Hockenbrocht
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David W. Hockenbrocht, President
Date: _________________ /s/ Richard Langley
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Richard Langley, Vice President-
Treasurer & Principal Financial Officer
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