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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 (Fee Required)
For the fiscal year ended June 30, 1994
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934 (No Fee Required)
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 of Incorporation) (IRS Employer Identification No.)
2400 East Ganson St., Jackson, Michigan 49202
- - ----------------------------------------- ----------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (517) 787-8600
Securities registered pursuant to Section 12(b) of the Act:
(Title of each class) (Name of each exchange on which registered)
- - -------------------------- ------------------------------------------
COMMON STOCK, $1.25 PAR VALUE NEW YORK STOCK EXCHANGE
Securities registered pursuant to Section 12(g) of the Act: NONE
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 by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to
this Form 10-K. [ ]
The aggregate market value of voting stock held by non-affiliates of the
registrant as of September 1, 1994 was $23,712,000.
The number of shares of common stock outstanding as of September 1, 1994 were
7,811,370.
Documents incorporated in part by reference:
1994 Annual Report to Shareowners - Parts I, II, IV
Proxy Statement for October 26, 1994 Meeting - Part III
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PART I
- - ------
Item l. Business
- - ------- --------
Except as otherwise indicated, the term "Company" refers to Sparton
Corporation, and the term "Sparton" refers to Sparton Corporation and its
consolidated subsidiaries.
The Company has been in continuous existence since 1900. It was last
reorganized in 1919 as an Ohio corporation. Sparton operates in two principal
business segments. The major products of both industry segments and selected
data are included in the Annual Report in Note 10, Segment Information, of the
Notes to Consolidated Financial Statements on pages 17 and 18 and are
incorporated herein by reference. Additional information about each segment is
as follows.
Electronics
- - -----------
Historically, the electronics segment's principal product has been
sonobuoys, which are anti-submarine warfare devices used by the U.S. Navy and
other free world military organizations. According to publicly available
government procurement data, Sparton has historically been one of two leading
manufacturers of sonobuoys in the United States. It competes with a limited
number of qualified manufacturers for sonobuoy procurements by the U.S. and
selected foreign governments. Contracts are obtained through competitive bid
or directed procurement. U.S. government contracts normally include
termination provisions which allow the government to cancel contracts at its
election. Termination clauses generally provide, however, a mechanism for the
contractor to recoup some or all of the costs previously incurred. U.S.
government contracts also generally include provisions for progress billings
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based upon contract costs incurred, which reduce the amount of working capital
otherwise required to perform such contracts.
The electronics segment also designs and/or manufactures a variety of
electronic and electromechanical products for the telecommunications,
electronics and other industries. Competitive factors in these markets include
technical ability, customer service and price. A majority of the proprietary
products, principally transducers and monitoring systems, are sold to the
telecommunications industry. The primary industries of the Company's contract
manufacturing business include telecommunications and health care. In the
general contract manufacturing business, it must compete vigorously with a
number of manufacturers. Commercial electronics products are distributed
through a direct sales force and through a small group of distributors.
At June 30, 1994 and June 30, 1993, the aggregate backlog was
approximately $90 million and $93 million, respectively. A majority of the
1994 backlog is expected to be realized in fiscal 1995.
The Company's sales of sonobuoys, principally to the U.S. Navy, have
declined dramatically from $151,024,000 in 1992 to $47,645,000 in 1994,
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 continue at reduced levels. The Navy
is funding development efforts to improve the detection capability of current
systems and to implement new detection systems for planned deliveries starting
in 1996. The Company is currently developing certain of these new systems both
individually and jointly with a major competitor. At the present time, the
Company is uncertain as to the market potential of these new
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systems, and if it would be the supplier of choice if these systems go to
production. The international market for sonobuoys has also been adversely
impacted by reduced budgets. As most foreign governments use sonobuoys for
training and do not maintain the same high level of reserves of the U.S. Navy,
the reductions in the international market presently experienced and expected
in the future should be less severe. In response to this changing environment,
the Company has previously consolidated certain of its manufacturing
facilities, continues to reduce costs 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 on a worldwide basis. 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. As with any change of this magnitude, unexpected delays
in new program start-ups and their associated cost impacts frequently occur.
Investors should be aware of this uncertainty and make their own independent
evaluation.
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Automotive and Industrial Products
- - ----------------------------------
The automotive and industrial products segment produces a variety of
automatic floors shifters, horns, metal airbag components, spare tire carriers,
and stampings and assemblies for manufacturers of automobiles, trucks and other
industrial and marine equipment. Competition in these markets is generally
based upon product quality, customer service and price. Based on information
provided by automobile manufacturers, the Company is believed to be one of the
largest independent manufacturers of automatic floor shifters and horns in the
United States. It is also one of numerous suppliers of automotive stampings.
Sales are generally obtained on a competitive basis through either a direct
sales force or manufacturers' representatives.
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Other Information
- - -----------------
Sparton's two principal business markets are dependent on a limited number
of customers and the loss of any one of them could have a materially adverse
financial effect. Materials for the manufacturing segments are obtained from a
variety of sources. While Sparton holds a number of patents relating to its
products and processes, none are considered of material importance to any of
the individual business segments. Neither of the business segments have
encountered or expect to encounter significant problems in obtaining sufficient
raw materials. While sales fluctuate during the year, such fluctuations have
not historically reflected a definitive seasonal pattern or tendency.
Research and development expenditures amounted to approximately
$19,621,000 in 1994, $18,511,000 in 1993 and $24,556,000 in 1992 (approximately
$16,197,000, $15,155,000 and $21,885,000 of these expenditures, respectively,
were customer funded), primarily in the electronics segment. There are
approximately 260 employees involved in research and development. Few, if any,
devote all of their time to such efforts.
Sparton employed approximately 2,300 people at June 30, 1994. The Company
has one operating division and eight wholly-owned subsidiaries.
Item 2. Properties
- - ------- ----------
The table below lists the principal properties of Sparton, by segment.
All are owned except as noted. There are manufacturing and/or office
facilities at each
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location. Sparton believes these facilities are suitable for its operations,
except as noted.
Electronics:
Jackson, Michigan
DeLeon Springs, Florida (2 plants)
Brooksville, Florida
London, Ontario
Albuquerque, New Mexico
Rio Rancho, New Mexico
Deming, New Mexico (lease/purchase, see below)
Automotive and industrial products:
Flora, Illinois
Grayville, Illinois (2 plants, one of which is leased)
Lake Odessa, Michigan
Kentwood, Michigan (leased)
Gladwin, Michigan
Grand Haven, Michigan (in part leased)
White Cloud, Michigan (in part leased)
Spring Lake, Michigan
Brownstown, Indiana
Hartford City, Indiana
The Company leases the Deming, New Mexico facility under terms of a
capital lease and has exercised an option to purchase the facility at the end
of the lease term which expires on July 1, 1997. Future minimum payments under
this capital lease at June 30, 1994 are as follows: 1995 - $89,000, 1996 -
$85,000, 1997 - $80,000, and $75,000 in 1998. Interest of $29,000, payable
over the remaining lease term at 6 1/8% per annum, was deducted in arriving at
the obligation at June 30, 1994. In July 1991, the Company leased an
additional production facility in Albuquerque, New Mexico under a four-year
agreement. This facility is presently vacant and available for sublease.
Both the White Cloud, Michigan and Grand Haven, Michigan facilities are
occupied under lease agreements that allow termination by either party upon
ninety (90) day notice. These facilities are owned by John J. Smith and Lawson
K. Smith, Chief
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Executive Officer, and Vice President-Secretary, respectively, of Sparton
Corporation. The agreements, the result of arms-length type negotiations,
grant the Company the option to acquire the properties during the lease term
for $252,400 and $223,200, respectively.
The adminitrative facility in Kentwood, Michigan is presently leased under
an agreement that expires in October, 1997. The Company officially closed the
Gladwin plant of Sparton Engineered Products, Inc.-Lake Odessa Group in August
1990 with this property subsequently offered for sale. The Gladwin facility
was placed back in service in October 1993 and is no longer actively offered
for sale.
Item 3. Legal Proceedings
- - ------ -----------------
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 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, the Company believes it has
contributed only deminimus amounts to those sites in which it is currently
viewed a potentially responsible party.
One of the Company's facilities located in New Mexico has been the subject
of ongoing investigations by the U. S. Environmental Protection Agency (EPA).
To date, the work has involved remedial investigations, negotiation and
execution of an administrative order on consent with the EPA, establishment of
on-site and off-site monitoring systems, and the installation of some
groundwater recovery and air stripping equipment. The remedial investigation
has been completed and approved. The Company has prepared a corrective action
plan based upon the results of its investigation. This action plan has not yet
been approved. In addition, the Company is involved in related issues with
State of New Mexico environmental agencies and a nearby landowner. The
Company has charged to expense approximately $2,700,000, net of $3,000,000 of
insurance recoveries received, since the contamination problem was first
identified in the early 1980's. Efforts to resolve thses matters will likely
continue for a number of years.
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The ultimate legal and financial liability of the Company in respect to the
above matters cannot be estimated with any certainty. Management of the
Company believes, however, based on its examination of such matters, experience
to date and discussions with counsel and other consultants, that such ultimate
liability (including insurance recoveries, where applicable) should not be
material in relation to the Company's consolidated financial statements.
Item 4. Submission of Matters to a Vote of Security Holders
- - ------ ---------------------------------------------------
No matters were submitted to a vote of the security holders during the
last quarter of the period covered by this report.
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Executive Officers
- - ------------------
Information with respect to executive officers of the Registrant is set
forth below. The positions noted have been held for at least five years,
except where noted.
Age
---
JOHN J. SMITH, Chairman of the Board, Chief Executive Officer and 82
Director.
DAVID W. HOCKENBROCHT, President, Chief Operating Officer and Director. 59
LAWSON K. SMITH, Vice President, Secretary and Director; President of 79
Sparton Engineered Products, Inc.-Lake Odessa Group.
RICHARD L. LANGLEY, Vice President-Treasurer since May 1990. Prior 49
to that date, Mr. Langley was employed by the Company as Assistant
Treasurer.
RICHARD H. NICHOLS, Vice President and Assistant Secretary since July 64
1994. Prior to that date, Mr. Nichols was also Vice President and
General Manager of Sparton Electronics.
MARK W. PICKARD, Vice President and General Manager of Sparton of 41
Canada, Ltd. since October 1992. Prior to that date, Mr. Pickard
was employed by the Company in several capacities, principally
within the financial management functions.
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Age
---
DOUGLAS E. JOHNSON, Vice President and General Manager of Sparton 46
Electronics since July 1994. Prior to that date, Mr. Johnson was
the Assistant General Manager of Sparton Electronics and prior to
August 1992, was employed by the Company in several capacities,
principally within engineering and manufacturing management.
GARY A. WHITE, Vice President and General Manager of Sparton Engineered 43
Products, Inc.-Lake Odessa Group since August 1991. Prior to that
date , Mr. White was employed by the Company as acting General
Manager of Sparton Engineered Products, Inc.-KPI Group and prior
to January 1991, as Director of Manufacturing.
JERRY R. GAUSE, Vice President and General Manager of Sparton Engineered 53
Products, Inc.-KPI Group since July 1991. Employed as Vice President
and General Manager of Sparton Engineered Products, Inc.-Lake Odessa
Group since November 1989 and before that as Director of Marketing since
April 1989.
WILLIAM C. MIRGAIN, Vice President and General Manager of Sparton 51
Engineered Products, Inc.-Flora Group since July 1994. Prior to that
date, Mr. Mirgain was employed as Managing Director of DME Europe
since August 1991 and prior to that date, was employed as Director
of International Manufacturing for FMC Corporation.
RICHARD D. MICO, Vice President and General Manager of Sparton Technology, 64
Inc.
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R. JAN APPEL, Vice President, General Counsel and Assistant 48
Secretary.
JOSEPH S. LERCZAK, Assistant Treasurer since June 1990 and Assistant to 37
the Treasurer since January 1990. Prior to that date, he was employed
as Controller of SMI PatientCare, Inc.
John J. Smith and Lawson K. Smith are brothers. There are no other family
relationships between the persons named above. John J. Smith is employed as
Chief Executive Officer under the terms of an employment agreement through June
30, 1994. All other officers are elected annually and serve at the discretion
of the Board of Directors.
PART II
- - -------
Item 5. Market for the Registrant's Common Stock
- - ------ ----------------------------------------
and Related Security Holder Matters
-----------------------------------
Information with respect to the market for the Company's stock, including
stock prices, stock exchange and number of shareowners, and quarterly dividends
for the two year period ended June 30, 1994, is included under "Financial
Highlights" on page 1 and "Management's Discussion and Analysis of Financial
Condition and Results of Operations" on page 20 of the Annual Report and is
incorporated herein by reference.
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Item 6. Selected Financial Data
- - ------ -----------------------
The "Selected Financial Data" on page 19 of the Annual Report is
incorporated herein by reference.
Item 7. Management's Discussion and Analysis of
- - ------ ---------------------------------------
Financial Condition and Results of Operations
---------------------------------------------
"Management's Discussion and Analysis of Financial Condition and Results
of Operations" on pages 20-22 of the Annual Report is incorporated herein by
reference.
Item 8. Financial Statements and Supplementary Data
- - ------ -------------------------------------------
The consolidated financial statements and "Report of Independent Auditors"
are included in the Annual Report on pages 8-18 and 12, respectively, and are
incorporated herein by reference.
Item 9. Changes in and Disagreements with Accountants on Accounting
- - ------ -----------------------------------------------------------
and Financial Disclosure
------------------------
None.
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PART III
- - --------
Item 10. Directors and Executive Officers
- - ------- --------------------------------
of the Registrant
-----------------
Information with respect to directors is included in the Proxy Statement
under "Election of Directors" and is incorporated herein by reference.
Information concerning the executive officers is included in Part I on pages
9-11.
Item 11. Executive Compensation
- - ------- ----------------------
Information concerning executive compensation is included under
"Compensation of Executive Officers and Directors" in the Proxy Statement and
is incorporated herein by reference.
Item 12. Security Ownership of Certain
- - ------- -----------------------------
Beneficial Owners and Management
--------------------------------
Information on management and certain other beneficial ownership of the
Company's common stock is included under "Outstanding Shares and Voting" in the
Proxy Statement and is incorporated herein by reference.
Item 13. Certain Relationships and Related Transactions
- - ------- ----------------------------------------------
Information as to certain relationships and related transactions is
included under "Certain Relationships and Transactions" in the Proxy Statement
and is incorporated herein by reference.
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PART IV
- - -------
Item 14. Exhibits, Financial Statement
- - ------- -----------------------------
Schedules, and Reports on Form 8-K
----------------------------------
The following financial statements and schedules are filed as part of this
report:
Index to Financial Statements and Schedules Covered by Report of
----------------------------------------------------------------
Independent Auditors:
- - --------------------
Page Reference
--------------------------------
Form Annual Report
10-K to Shareowners
----- --------------
Data incorporated by reference from
the 1994 Annual Report to Share-
owners of Sparton Corporation:
Consolidated balance sheets at June 30, 8 - 9
1994 and 1993
For the years ended June 30, 1994, 1993,
and 1992:
Consolidated statements of operations 10
Consolidated statements of cash flows 11
Consolidated statements of share- 12
owners' equity
Notes to consolidated financial 13 - 18
statements
Financial statement schedules for the years
ended June 30, 1994, 1993 and 1992:
VIII - Valuation and qualifying accounts S-1
IX - Short-term borrowings S-2
X - Supplementary income statement S-3
information
All other prescribed schedules have been omitted since the required
information is not present or is not present in amounts sufficient to require
submission of the schedule, or because the information required is included in
the consolidated financial statements or the notes thereto.
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Exhibit Index
- - -------------
3 and 4 Articles of Incorporation of the Registrant were filed
with Form 10-K for the year ended June 30, 1981 and an
amendment thereto was filed with Form 10-Q for the
three-month period ended September 30, 1983, and are
incorporated herein by reference.
By-laws of the Registrant were filed with Form 10-K for
the year ended June 30, 1981, and are incorporated herein
by reference.
Code of Regulations of the Registrant were filed with
Form 10-K for the year ended June 30, 1981 and an
amendment thereto was filed with Form 10-Q for the
three-month period ended September 30, 1982, and are
incorporated herein by reference.
10 The employment agreement with John J. Smith was filed
with Form 10-K for the year ended June 30, 1981 and
subsequent amendments thereto were filed with Form 10-K
for the year ended June 30, 1985, with Form 10-Q for the
three-month period ended September 30, 1988, and with
Form 10-Q for the three month period ended September 30,
1991 and are incorporated herein by reference.
13 1994 Annual Report to Shareowners (filed herewith and
attached). With the exception of the pages of the Annual
Report specifically incorporated herein by reference, the
Annual Report is not deemed to be filed as part of this
report on Form 10-K.
22 Subsidiaries (filed herewith and attached).
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23 Consent of independent auditors (filed herewith and
attached).
27 Submitted to the Securities and Exchange Commission for
its information
Reports on Form 8-K Filed in the Fourth Quarter of Fiscal 1994
- - --------------------------------------------------------------
No reports on Form 8-K were required to be filed by the Registrant during
the last quarter of the period covered by this report.
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SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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
---------------------------------
Date: September 26, 1994 By /s/ Richard L. Langley
-------------------------------
Richard L. Langley, Vice President-
Treasurer (Principal Accounting and
Financial Officer)
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Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
Signature and Title Date
------------------- ----
By /s/ John J. Smith August 26, 1994
- - -------------------------------------------------- ---------------
John J. Smith, Chairman of the Board
of Directors and Chief Executive Officer
By /s/ David W. Hockenbrocht August 26, 1994
- - -------------------------------------------------- ---------------
David W. Hockenbrocht, President,
Chief Operating Officer and Director
By /s/ Lawson K. Smith August 26, 1994
- - -------------------------------------------------- ---------------
Lawson K. Smith, Vice President, Secretary
and Director
By /s/ James N. DeBoer August 26, 1994
- - -------------------------------------------------- ---------------
James N. DeBoer, Director
By /s/ Robert J. Kirk August 26, 1994
- - -------------------------------------------------- ---------------
Robert J. Kirk, Director
By /s/ Marshall V. Noecker August 26, 1994
- - -------------------------------------------------- ---------------
Marshall V. Noecker, Director
By /s/ Blair H. Thompson August 26, 1994
- - --------------------------------------------------- ---------------
Blair H. Thompson, Director
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SPARTON CORPORATION AND SUBSIDIARIES
SCHEDULE VIII - VALUATION AND QUALIFYING ACCOUNTS
Years Ended June 30, 1994, 1993, 1992
Additions
------------------ Deductions
Balance Charged Charged From Balance
Beginning to to Other (Recoveries at End
Description of Year Income Accounts to) Reserves of Year
- - ------------- --------- ------- -------- ------------ ---------
Allowance for
doubtful accounts:
1994 $339,000 $607,000 $1,000 $ 844,000 $103,000
1993 397,000 70,000 -- 128,000 339,000
1992 281,000 32,000 -- (84,000) 397,000
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SPARTON CORPORATION AND SUBSIDIARIES
SCHEDULE IX - SHORT-TERM BORROWINGS
Years Ended June 30, 1994, 1993 and 1992
Maximum Weighted
Amount Average
Outstanding Average Interest
at Any Amount Rate
Balance Weighted Month-end Outstanding during
at End Average during during the
of Year Rate the Year the Year Year1
--------- ------- ----------- ----------- -------
Notes
payable
to banks:
1994 $20,615,000 5.5% $21,748,000 $13,719,000 4.7%
========== ===== ========== ========== =====
1993 $ 3,880,000 4.6% $15,620,000 $11,696,000 4.6%
========== ===== ========== ========== =====
1992 $ 8,959,000 5.3% $21,471,000 $15,660,000 6.5%
========== ===== ========== ========== =====
____________________
1 Actual interest expense divided by average short-term borrowings.
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SPARTON CORPORATION AND SUBSIDIARIES
SCHEDULE X - SUPPLEMENTARY INCOME STATEMENT INFORMATION
Years Ended June 30, 1994, 1993 and 1992
Charged to Costs and Expenses
---------------------------------------
1994 1993 1992
---------- ---------- ----------
Maintenance and repairs $3,059,000 $3,443,000 $4,171,000
========= ========= =========
S-3