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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, 1995
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
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(Exact name of registrant as specified in its charter)
OHIO 38-1054690
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(State of Incorporation) (IRS Employer Identification No.)
2400 East Ganson St., Jackson, Michigan 49202
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(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)
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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
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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, 1995 was $20,765,000.
The number of shares of common stock outstanding as of September 1, 1995 were
7,811,370.
Document incorporated in by reference:
Proxy Statement for October 25, 1995 Meeting - Part III
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PART I
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Item l. Business
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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 9, Segment Information, of the
Notes to Consolidated Financial Statements on pages 16 and 17 and are filed as
part of Exhibit 13. Additional information about each segment is as follows.
Electronics
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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. 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. The electronics segment also designs and/or manufactures
a variety of electronic and electromechanical products for the
telecommunications, electronics and other industries. Many of the physical and
technical attributes used in the production of sonobuoys are required in these
markets. Sales are generally obtained on a competitive basis. Competitive
factors include technical ability, customer service, product quality and price.
A majority of the proprietary products,
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principally transducers and condition monitoring systems, are sold to the
telecommunications industry worldwide. The primary industries of the Company's
contract manufacturing business include telecommunications, medical and
industrial controls and scientific instrumentation. In the general contract
manufacturing business, it must compete with a number of domestic and foreign
manufacturers. Commercial electronics products are distributed through a
direct sales force and through a small group of manufacturers' representatives.
Material availability, product quality and cost are very important factors in
this latter business.
At June 30, 1995 and June 30, 1994, the aggregate backlog was
approximately $100 million and $90 million, respectively. A majority of the
1995 backlog is expected to be realized in 1996.
The Company's sales of sonobuoys, principally to the U.S. Navy, have
declined dramatically from $151,024,000 in 1992 to $34,663,000 in 1995. It is
expected that the international demand for production sonobuoys will continue
at reduced and unpredictable levels for the foreseeable future. In response to
this changing environment, the Company continues to reduce overhead 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. The
Company is also restructuring its business operations to compete in the
commercial electronics markets where the risks and environment is significantly
different than that historically found within the defense-oriented industry.
As with any change of this magnitude, unanticipated problems and delays can
reasonably be expected to occur. Investors should be aware of this uncertainty
and make their own independent evaluation.
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Automotive and Industrial Products
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The automotive and industrial products segment produces a variety of
automatic transmission shifters, horns, metal airbag components, spare tire
carriers, parking brakes, brake pedal modules and stampings and assemblies for
manufacturers of automobiles, trucks and other industrial and marine equipment.
In the automotive supplier industry, the Company must compete with a number of
globally-based manufacturers on the basis of product quality, customer service
and price. The Company is believed to be one of the largest independent
manufacturers of automatic transmission shifters and horns in North America.
Sales are generally obtained on a competitive basis through either a direct
sales force or manufacturers' representatives.
Other Information
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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 material adverse
financial effect. Materials for the manufacturing segments are obtained from a
variety of worldwide sources, except electronic components. Access to
competitively priced materials is critical to success in the electronic
contract manufacturing business. 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 has encountered or expects to encounter significant long-term problems
in obtaining sufficient raw materials although the contract manufacturing
operations have experienced spot shortages of key components needed to
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complete a customer order. 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
$20,440,000 in 1995, $19,621,000 in 1994 and $18,511,000 in 1993 (approximately
$15,985,000, $16,197,000 and $15,155,000 of these expenditures, respectively,
were customer funded), primarily in the electronics segment. There are
approximately 300 employees involved in research and development. Few, if any,
devote all of their time to such efforts.
Sparton employed approximately 2400 people at June 30, 1995. The Company
has one operating division and eight wholly-owned active subsidiaries.
Item 2. Properties
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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 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 (see below)
Rio Rancho, New Mexico
Deming, New Mexico (lease/purchase, see below)
Automotive and industrial products:
Flora, Illinois
Grayville, Illinois
Lake Odessa, Michigan
Kentwood, Michigan (leased)
Gladwin, Michigan
Grand Haven, Michigan (leased)
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White Cloud, Michigan (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, 1995 are as follows: 1996 - $85,000, 1997 -
$80,000, and $75,000 in 1998. Interest of $15,000, payable over the remaining
lease term at 6 1/8% per annum, was deducted in arriving at the capitalized
lease obligation liability at June 30, 1995. The Company's Coors Road,
Albuquerque, New Mexico facility is not being fully utilized and is offered for
sale.
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 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 administrative facility in Kentwood, Michigan is presently leased
under an agreement that expires in October, 1997.
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Item 3. Legal Proceedings
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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 United States 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. In August 1995 the EPA
announced its preferred remedy for the site. The EPA's proposed remedy, which
is subject to public comment and administrative review, includes remediation
tasks which the Company believes are either unnecessary or technically
impractical. The Company is challenging the EPA's proposed remedy selection.
These additional tasks would add significantly to the ultimate clean-up
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costs for the facility. 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. All amounts available under insurance
policies concerning this clean-up effort have been previously recovered.
Efforts to resolve these matters will likely continue for a number of years.
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 legal 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 position
and cash flows. The impact in any one year, however, could be material to the
Company's consolidated results of operations.
Item 4. Submission of Matters to a Vote of Security Holders
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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
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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 83
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Director.
David W. Hockenbrocht, President, Chief Operating Officer and Director. 60
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Lawson K. Smith, Vice President, Secretary and Director; President of 80
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Sparton Engineered Products, Inc.-Lake Odessa Group.
Richard L. Langley, Vice President-Treasurer and Assistant Secretary. 50
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Mark W. Pickard, Vice President and General Manager of Sparton of 42
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Canada, Ltd. since October 1992. Prior to that date, Mr. Pickard
was employed by the Company in several capacities, principally
within financial management.
Douglas E. Johnson, Vice President and General Manager of Sparton 47
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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.
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Age
---
Gary A. White, Vice President and General Manager of Sparton Engineered 44
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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 54
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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.
William C. Mirgain, Vice President and General Manager of Sparton 52
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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, 65
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Inc.
R. Jan Appel, Vice President, General Counsel and Assistant Secretary 49
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Joseph S. Lerczak, Assistant Treasurer 38
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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, 1997. All other officers are elected annually and serve at the discretion
of the Board of Directors.
PART II
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Item 5. Market for the Registrant's Common Stock
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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, 1995, is included under "Financial
Highlights" on page 1 of the Annual Report and is included in Exhibit 13 filed
herewith.
Item 6. Selected Financial Data
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The "Selected Financial Data" on page 18 of the Annual Report is
included in Exhibit 13 filed herewith.
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Item 7. Management's Discussion and Analysis of
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Financial Condition and Results of Operations
---------------------------------------------
"Management's Discussion and Analysis of Financial Condition and Results
of Operations" on pages 19-21 of the Annual Report is included in Exhibit 13
filed herewith.
Item 8. Financial Statements and Supplementary Data
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The consolidated financial statements and "Report of Independent Auditors"
are included in the Annual Report on pages 8-17 and 12, respectively, and are
included in Exhibit 13 filed herewith.
Item 9. Changes in and Disagreements with Accountants on Accounting
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and Financial Disclosure
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None.
PART III
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Item 10. Directors and Executive Officers
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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
8-10.
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Item 11. Executive Compensation
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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
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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
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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 10-K
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(a) Exhibits
See Exhibit Index on page 14
(b) Financial Statement Schedules
All 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.
(c) Reports on Form 10-K
The following financial statements are filed as part of this report:
Index to Financial Statements Covered by Report of Independent Auditors:
------------------------------------------------------------------------
Page Reference
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Annual Report
to Shareowners
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Data from the 1995 Annual Report to Share-
owners of Sparton Corporation:
Consolidated balance sheets at June 30, 8 - 9
1995 and 1994
For the years ended June 30, 1995, 1994,
and 1993:
Consolidated statements of operations 10
Consolidated statements of cash flows 11
Consolidated statements of share- 12
owners' equity
Notes to consolidated financial 13 - 17
statements
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Exhibit Index
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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-Q for the three-month period ended September 30,
1988, with Form 10-Q for the three-month period ended September 30, 1991 and with Form 10-Q for the
three-month period ended September 30, 1994 and are incorporated herein by reference.
13 Portions of the 1995 Annual Report to Shareowners (filed herewith and attached).
22 Subsidiaries (filed herewith and attached).
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23 Consent of independent auditors (filed herewith and attached).
27 Financial data schedule, submitted to the Securities and Exchange Commission for its information.
(filed herewith and attached)
Reports on Form 8-K Filed in the Fourth Quarter of Fiscal 1995
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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
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Date: September 28, 1995 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
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By /s/ John J. Smith August 25, 1995
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John J. Smith, Chairman of the Board
of Directors and Chief Executive Officer
By /s/ David W. Hockenbrocht August 25, 1995
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David W. Hockenbrocht, President,
Chief Operating Officer and Director
By /s/ Lawson K. Smith August 25, 1995
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Lawson K. Smith, Vice President, Secretary
and Director
By /s/ James N. DeBoer August 25, 1995
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James N. DeBoer, Director
By /s/ Robert J. Kirk August 25, 1995
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Robert J. Kirk, Director
By /s/ Marshall V. Noecker August 25, 1995
- -------------------------------------------------- ---------------
Marshall V. Noecker, Director
By /s/ Rory Riggs August 25, 1995
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Rory Riggs, Director
By /s/ David B. Schoon August 25, 1995
- -------------------------------------------------- ---------------
David B Schoon, Director
By /s/ Michael N. Taglich August 25, 1995
- -------------------------------------------------- ---------------
Michael N. Taglich, Director
By /s/ Blair H. Thompson August 25, 1995
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Blair H. Thompson, Director
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