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 September 30, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ______________ to ______________
Commission File Number 1-1000
SPARTON CORPORATION
------------------------------------------------------
(Exact name of registrant as specified in its charter)
Ohio 38-1054690
- ------------------------------- -------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
2400 East Ganson Street, Jackson, Michigan 49202
- ------------------------------------------ -------
(Address of principal executive offices) (Zip Code)
517-787-8600
----------------------------------------------------
(Registrant's telephone number, including area code)
Indicate by checkmark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
----- ------
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date. The number of shares of common
stock outstanding as of October 31, 1997 was 7,828,090.
2
SPARTON CORPORATION
INDEX
Financial Statements: Page No.
--------
Condensed Consolidated Balance Sheet - September 30 and June 30, 1997 3
Condensed Consolidated Statement of Operations - Three-Month Periods ended
September 30, 1997 and 1996 4
Condensed Consolidated Statement of Cash Flows - Three-Month Periods ended
September 30, 1997 and 1996 5
Notes to Condensed Consolidated Financial Statements 6
Management's Discussion and Analysis of Financial Condition and Results of Operations 9
Other Information and Signatures 13
2
3
SPARTON CORPORATION AND SUBSIDIARIES
Condensed Consolidated Balance Sheet (Unaudited)
September 30, 1997 and June 30, 1997
ASSETS
September 30 June 30
------------- ------------
Current assets:
Cash and cash equivalents $ 7,582,666 $ 8,021,620
Investment securities 22,062,020 21,926,849
Income taxes recoverable 1,724,727 --
Accounts receivable 23,835,681 24,800,904
Inventories and costs on contracts in progress,
less progress payments of $ 7,573,000 at September 30,1997
($2,198,000 at June 30, 1997) 22,054,076 29,662,787
Prepaid expenses 3,244,508 3,391,094
Current assets of discontinued automotive operations 7,506,552 8,175,772
------------ ------------
Total current assets 88,010,230 95,979,026
Other assets 5,081,062 5,118,524
Property, plant and equipment - net 9,642,433 9,372,526
Noncurrent assets, principally property, plant and
equipment, of discontinued automotive operations - net 3,637,179 3,707,011
------------ ------------
Total assets $106,370,904 $114,177,087
============ ============
LIABILITIES AND SHAREOWNERS' EQUITY
Current liabilities:
Accounts payable $ 6,883,529 $ 12,219,845
Taxes on income -- 2,080,513
Accrued liabilities 7,573,666 8,294,118
Current liabilities of discontinued automotive operations 4,539,430 4,623,617
------------ ------------
Total current liabilities 18,996,625 27,218,093
Deferred income taxes 1,571,500 1,571,500
Other liabilities of discontinued automotive operations 123,426 145,044
Shareowners' equity:
Common stock - 7,828,090 shares outstanding at September 30, 1997 (7,818,090
at June 30,1997) after deducting 106,622 shares at
September 30, 1997 (116,622 at June 30, 1997) in treasury 9,785,112 9,772,613
Capital in excess of par value 494,427 440,677
Retained earnings 75,399,814 75,029,160
------------ ------------
Total shareowners' equity 85,679,353 85,242,450
------------ ------------
Total liabilities and shareowners' equity $106,370,904 $114,177,087
============ ============
See accompanying notes
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4
SPARTON CORPORATION AND SUBSIDIARIES
Condensed Consolidated Statement of Operations (Unaudited)
For the Three-Month Periods ended September 30, 1997 and 1996
Three-Month Periods
--------------------------------
1997 1996
----------- -------------
Net sales $32,366,103 $33,280,285
Costs and expenses 32,958,518 33,315,983
----------- -----------
(592,415) (35,698)
Other income (expense):
Interest and investment income 530,444 74,028
Interest expense (720) (407,662)
Other - net 574,345 (9,910)
----------- -----------
Income (loss) from continuing operations before income taxes (credits) 511,654 (379,242)
Provision (credit) for income taxes 189,000 (137,000)
----------- -----------
Income (loss) from continuing operations 322,654 (242,242)
Loss from discontinued automotive operations, net income tax
credits of $72,000 -- (128,720)
----------- -----------
Net income (loss) $ 322,654 $ (370,962)
=========== ===========
Information per share of common stock:
Continuing operations $.04 $(.03)
Discontinued operations -- (.02)
---- -----
Net income (loss) $.04 $(.05)
==== =====
Dividends $-0- $ -0-
==== =====
See accompanying notes
4
5
SPARTON CORPORATION AND SUBSIDIARIES
Condensed Consolidated Statement of Cash Flows (Unaudited)
For the Three-Month Periods ended September 30, 1997 and 1996
1997 1996
----------- -----------
Cash flows provided (used) by operating activities:
Income (loss) from continuing operations $ 322,654 $ (242,242)
Add non-cash items affecting continuing operations:
Depreciation 441,309 381,653
Deferred compensation -- 53,159
----------- -----------
763,963 192,570
Add (deduct) changes in operating assets and liabilities:
Inventories 7,608,711 603,888
Accounts receivable 965,223 190,154
Other (525,866) (831,361)
Income taxes recoverable (1,724,727) 1,896,480
Taxes on income (2,080,513) (72,850)
Accounts payable (5,336,316) 965,296
----------- -----------
Net cash provided (used) by continuing operations (329,525) 2,944,177
Cash flow provided by discontinued operations 818,383 1,236,451
----------- -----------
488,858 4,180,628
Cash flows provided (used) by investing activities:
Noncurrent other assets 37,462 (358,273)
Purchases of investment securities-net (135,171) --
Purchases of property, plant and equipment-net (711,216) (1,168,009)
Discontinued operations, principally purchases of property,
plant and equipment-net (163,518) (116,139)
----------- -----------
(972,443) (1,642,421)
Cash flows provided (used) by financing activities:
Decrease in notes payable -- (2,121,499)
Decrease in long-term obligations -- (75,000)
Common stock transactions from exercise of stock options 66,249 --
Discontinued operations, decrease in long-term obligations (21,618) (21,271)
----------- -----------
44,631 (2,217,770)
----------- -----------
(Decrease) increase in cash and cash equivalents (438,954) 320,437
Cash and cash equivalents at beginning of period 8,021,620 718,363
----------- -----------
Cash and cash equivalents at end of period $ 7,582,666 $ 1,038,800
=========== ===========
Supplemental disclosures of cash flow information:
Cash paid (refunded) during the period for:
Interest $ 1,000 $ 699,000
=========== ===========
Income taxes $ 4,915,000 $(2,053,000)
=========== ===========
See accompanying notes
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SPARTON CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1) The accompanying condensed consolidated balance sheet at September
30, 1997, and the related condensed consolidated statements of operations and
cash flows for the three-month periods ended September 30, 1997 and 1996 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 three-month period ended
September 30, 1997 are not necessarily indicative of the results that may be
expected for the full fiscal year.
2) Earnings per share are computed using the weighted average number of
shares outstanding of 7,823,090 in 1997 and 7,811,370 in 1996.
3) Cash and cash equivalents consist of demand deposits and other
highly liquid investments with an original maturity date of less than three
months.
The Company has had investment securities since January 1997. A large
majority of the investment portfolio had an original maturity date of less 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 for its expanding ECM business.
At September 30, 1997, the Company had net unrealized gains, net of
applicable taxes, of $16,000. These net gains are included within equity. For
the three months ended September 30, 1997, the Company had gross purchases of
investment securities totaling $2,510,000 and gross sales of investment
securities totaling $2,209,000.
4) In August 1996, the Company formalized its plan to offer for sale
its automotive operations. Accordingly, these operating results have been
reclassified and 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) business unit. The KPI business,
which included the former Sparton Engineered Products, Inc.-Lake Odessa Group,
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). Flora is actively
being offered for sale. In December 1996, the Company recorded a reserve
totaling $4,671,000 for the estimated costs of discontinuing it's automotive
business including operating losses, the potential loss on sale of the Flora
operations, and other associated costs. At September 30, 1997, approximately
$2,879,000 of this reserve remained to cover such costs. Management does not
anticipate such costs will exceed what was anticipated and recorded in December,
1996.
In consideration for the assets and operations of the KPI unit, the
Company received approximately $80,500,000 in cash, before costs and expenses,
and retained ownership of certain assets totaling $345,000 as well as certain
liabilities totaling $550,000. The Company used a portion of the KPI sale
proceeds to eliminate short-term bank borrowings and canceled its formal credit
facility. Remaining proceeds from the sale of discontinued automotive operations
are intended to be used by the Company for working capital purposes and for
expanding its ECM business.
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7
Operating results of discontinued automotive operations are as follows
for the three-month period ended September 30, 1996. Operating results for
discontinued operations for the three-month period ended September 30, 1996 were
classified as such through August 1996, the date the Company formalized its plan
to offer for sale its automotive operations.
Three-Month
Period
-----------
1996
-----------
Revenues $30,461,930
===========
Loss before income taxes $ (200,720)
Income tax credits (72,000)
-----------
Net loss $ (128,720)
===========
5) 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 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 deminimus amounts of material or
waste to a specific site, its ultimate share of any cleanup costs has been very
small. Based upon available information, and subject to the exception noted
below, the Company believes it has contributed only deminimus amounts to those
sites in which it is currently viewed a potentially responsible party.
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 its now largely idle facility. To date, this work has
involved, among other things, on-site and off-site investigations of
environmental impacts, negotiation and execution of an Administrative Order on
Consent (AOC) with the EPA and the installation of some on-site groundwater
recovery wells and air stripping equipment. A remedial investigation called for
in the AOC has been completed and approved. In May 1996, Sparton submitted to
the EPA a final Corrective Measures Study, based upon the results of its
investigation, as required in the AOC. In June 1996, the EPA issued its final
decision selecting remedies for corrective action at the site. 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 30-year time frame. In Sparton's judgment, the
remedies proposed by the EPA are either unnecessary or technically impractical.
Sparton is vigorously challenging the EPA's remedy selection and filed suit in
Federal District Court in Dallas asserting that the EPA's decision on remedy
selection violates the AOC. In September 1996, the EPA issued an Initial
Administrative Order under RCRA ordering Sparton to undertake additional testing
to justify implementing the remedy selected by the Agency in June 1996, and then
implement that remedy. Sparton is vigorously contesting this action both
judicially and administratively, and does not believe that the EPA has the
authority to issue such an order.
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 now idled 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 and
referred to above. Sparton is vigorously contesting these actions on procedural
and substantive grounds. In March 1997, the plaintiffs in these three
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lawsuits filed a motion for preliminary injunction. If this motion is granted,
Sparton would be required to install additional monitoring wells and conduct
acquifer testing at an estimated cost of $550,000. Sparton is opposing this
motion. In July 1997, Sparton's action in Dallas was transferred to Federal
District Court in Albuquerque and consolidated with the three lawsuits filed in
February 1997.
Sparton continues to seek regulatory acceptance of alternative remedies
that it believes should adequately protect human health and the environment, but
with costs in the first three to five years of operations ranging from $815,000
to $1,120,000. Acceptance of such a remedy, either by the plaintiffs or the
courts, is uncertain. To date, Sparton has incurred approximately $7,000,000
since this contamination problem was first identified in the early 1980's.
$3,000,000 of this amount has been recovered from insurance companies. A reserve
was initiated in 1991 to cover the then estimated future minimum operating
costs. For the three months ended September 30, 1997 and 1996, Sparton incurred
costs of $124,000 and $362,000, respectively, principally related to legal and
other defense costs. At September 30, 1997, the reserve to cover future minimum
operating costs totaled $967,000. If a remedy is imposed on Sparton, other than
the one it has proposed, the ultimate cleanup costs may significantly increase.
There is no assurance that additional costs greater than the amount reserved
will not be incurred or that changes in environmental laws or their
interpretation will not require that additional amounts be spent. At this time,
it is not possible to estimate the ultimate cost to resolve this matter.
8
9
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 following discussion
about the Company's results of operations and financial condition contains
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 world economies, competition in the
overall electronic contract manufacturing (ECM) 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.
RESULTS OF OPERATIONS
- ---------------------
Sales for the three-month period ended September 30, 1997 were $32,366,000, a
decrease of $914,000 (3%) from the corresponding period last year. While overall
sales were expected to be somewhat weak in the quarter, actual revenues were
below expectations as unanticipated delays were encountered in the start-up of
several programs. Revenues decreased $416,000 (2%) to $28,159,000 at Sparton
Electronics. While defense sales increased 10% over last year, commercial
revenues decreased 9%. Sales decreased $281,000 (7%) to $3,982,000 at Sparton
Technology. Revenues at Sparton of Canada totaled $605,000 for the three-month
period, down $355,000 from last year. Two new program launches are scheduled for
the second quarter, one each at Sparton Technology and Sparton of Canada.
An operating loss of $592,000 was reported for the three months ended September
30, 1997 compared to an operating loss of $36,000 last year. These results were
consistent with expectations. Sparton Electronics had an operating profit of
$533,000 in 1997 compared to $91,000 for the same period last year. These
results reflect a more favorable product mix and lower general and
administrative costs. Included within these operating results were adverse
capacity variances of $833,000 caused by underutilized capacity at two
production facilities. Sparton Technology reported an operating loss of $249,000
for the three-month period compared to an operating profit of $258,000 for the
same period last year. These results were below expectations and primarily due
to lower sales volume and an unfavorable product mix. Included within these
results were charges against income of $250,000 in 1997 and $90,000 in 1996
related to the New Mexico environmental claim. The Canadian unit incurred an
operating loss of $268,000 in 1997 compared to an operating loss of $403,000
last year. These results were consistent with internal expectations. Low sales
volume continues to impact operations. Underutilized manufacturing capacity
resulted in a charge of $212,000 to the Canadian operations.
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10
Interest and Investment Income increased $456,000 to $530,000 in 1997 due to the
investment of the sales proceeds from the December 1996 sale of the discontinued
automotive operations. This sale is more fully described below. Interest Expense
declined $407,000 to $1,000 in 1997. In December 1996, the Company used a
portion of the proceeds from the sale of its automotive operations to eliminate
short-term borrowings. Since December 1996, the Company has incurred
substantially no interest expense. Other Income-Net was $574,000 in 1997
compared to Other Expense-Net of $10,000 for the corresponding three-month
period last year. Included within 1997 Other Income-Net was a gain of $511,000
from the sale of equipment and other assets at the Canadian operating unit.
In August 1996, the Company formalized its plans to sell its automotive
operations and accordingly reclassified and reported operating results as
discontinued operations. Operating results from discontinued operations for the
fiscal year ended June 30, 1997 were classified as such through August 1996.
After provision for applicable income taxes, the Company reported a loss from
discontinued automotive operations of $128,000 ($.02 per share) for the three
months ended September 30, 1996. As more fully described in Note 4 to these
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) business unit for cash and retained ownership of certain assets and
liabilities. The KPI sale included the former Sparton Engineered Products,
Inc.-Lake Odessa Group. This sale did not include the net assets and operations
of the remaining automotive unit, Sparton Engineered Products, Inc.-Flora Group
(Flora). The Company is actively pursuing the sale of Flora. Reflected in the
December 1996 after-tax gain of $31,587,000 on the sale of discontinued
automotive operations was a charge of $4,671,000 for the estimated costs
(including operating losses, the potential loss on sale and other costs)
associated with the discontinued automotive operations. This charge represented
the Company's best estimate of the costs, principally operating losses and other
costs to be incurred by Flora through date of disposal. At September 30, 1997,
approximately $2,879,000 of this reserve remained to cover these costs.
Management does not anticipate that such costs will exceed what was anticipated
and recorded in December 1996. The amounts that the Company ultimately incurs,
however, could differ materially from the charge recorded.
The Company reported net income of $323,000 ($.04 per share) for the three
months ended September 30, 1997 compared to a net loss of $371,000 ($.05 per
share) for the corresponding period last year.
FINANCIAL POSITION
- ------------------
For the three-month period ended September 30, 1997, Cash and Cash Equivalents
decreased $439,000 to $7,583,000. Operating activities provided $489,000 in net
cash flows. Principal sources of cash flows from operating activities included
continuing operations, decreases in inventories, and decreases in accounts
receivable. Principal uses of cash flows from operating activities included
reductions in accounts payable and the payment of income tax liabilities. Cash
flows used by investing activities were $972,000, principally for the purchase
of equipment. The Company will continue to strategically invest in additional
property, plant and equipment to accommodate growth in the ECM business. Cash
flows provided by financing activities were $45,000, primarily from the exercise
of employee stock options.
As previously stated, the Company plans on using the proceeds from the sale of
its automotive operations, after paying income taxes and other costs, to provide
working capital for its expanding ECM business. To the extent not immediately
used, these proceeds will continue to be invested 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 ECM business grows as well as the emergence of alternate uses for
these proceeds. No dividends were declared in either period presented. At
September 30, 1997, the Company had $85,679,000 in recorded shareowners' equity,
$69,014,000 in working capital, and a 4.63:1.00 working capital ratio.
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OTHER
- -----
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 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 deminimus amounts of material or
waste to a specific site, its ultimate share of any cleanup costs has been very
small. Based upon available information, and subject to the exception noted
below, the Company believes it has contributed only deminimus amounts to those
sites in which it is currently viewed a potentially responsible party.
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 its now largely idle facility. To date, this work has
involved, among other things, on-site and off-site investigations of
environmental impacts, negotiation and execution of an Administrative Order on
Consent (AOC) with the EPA and the installation of some on-site groundwater
recovery wells and air stripping equipment. A remedial investigation called for
in the AOC has been completed and approved. In May 1996, Sparton submitted to
the EPA a final Corrective Measures Study, based upon the results of its
investigation, as required in the AOC. In June 1996, the EPA issued its final
decision selecting remedies for corrective action at the site. 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 30-year time frame. In Sparton's judgment, the
remedies proposed by the EPA are either unnecessary or technically impractical.
Sparton is vigorously challenging the EPA's remedy selection and filed suit in
Federal District Court in Dallas asserting that the EPA's decision on remedy
selection violates the AOC. In September 1996, the EPA issued an Initial
Administrative Order under RCRA ordering Sparton to undertake additional testing
to justify implementing the remedy selected by the Agency in June 1996, and then
implement that remedy. Sparton is vigorously contesting this action both
judicially and administratively, and does not believe that the EPA has the
authority to issue such an order.
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 now idled 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 and referred to
above. Sparton is vigorously contesting these actions on procedural and
substantive grounds. In March 1997, the plaintiffs in these three lawsuits filed
a motion for preliminary injunction. If this motion is granted, Sparton would be
required to install additional monitoring wells and conduct acquifer testing at
an estimated cost of $550,000. Sparton is opposing this motion. In July 1997
Sparton's action in Dallas was transferred to Federal District Court in
Albuquerque and consolidated with the three lawsuits filed in February 1997.
Sparton continues to seek regulatory acceptance of alternative remedies that it
believes should adequately protect human health and the environment, but with
costs in the first three to five years of operations ranging from $815,000 to
$1,120,000. Acceptance of such a remedy, either by the plaintiffs or the courts,
is uncertain. To date, Sparton has incurred approximately $7,000,000 since this
contamination problem was first identified in the early 1980's. $3,000,000 of
this amount has been recovered from insurance companies. A reserve was initiated
in 1991 to cover the then estimated future minimum operating costs. For the
three months ended September 30, 1997 and 1996, Sparton incurred costs of
$124,000 and $362,000, respectively, principally related to legal and other
defense costs. At September 30, 1997, the reserve to cover future minimum
operating costs totaled $967,000. If a remedy is imposed on Sparton, other than
the one it has proposed, the ultimate cleanup costs may significantly increase.
11
12
There is no assurance that additional costs greater than the amount reserved
will not be incurred or that changes in environmental laws or their
interpretation will not require that additional amounts be spent. At this time,
it is not possible to estimate the ultimate cost to resolve this matter.
The Company's sales of sonobuoys, principally to the U.S. Navy, have declined
dramatically from the levels of the early 1990's. The Company has chosen to
focus on electronic contract manufacturing which will utilize its existing
technological and manufacturing capabilities, primarily in the U.S. and Canadian
ECM markets. The Company's experience indicates that significant commercial
electronics opportunities exist. As with any change of this magnitude,
unanticipated problems can be reasonably expected to occur. Because of the many
new customers and markets involved, management continues to be challenged in its
attempts to forecast near-term sales and margins with accuracy (see reference
above regarding forward-looking information). 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 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
December 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 September
30, 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 First Quarter of Fiscal 1998: 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: November 12, 1997 /s/ John J. Smith
------------------ ----------------------------------
John J. Smith, Chairman of the Board of
Directors and Chief Executive Officer
Date: November 12, 1997 /s/ Richard Langley
------------------ ----------------------------------
Richard Langley, Vice President/Treasurer
and Principal Financial Officer
13