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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, 1996
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 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 August 30, 1996 was $29,100,000.
The number of shares of common stock outstanding as of August 30, 1996 were
7,811,370.
Documents incorporated in part by reference:
Parts II and IV - Portions of the 1996 Annual Report to Shareowners
of Sparton Corporation ("Annual Report") are filed as
Exhibit 13 herewith.
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PART I
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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 one principal
line of business, electronics. In August 1996, the Company formalized its plan
to offer for sale its automotive and industrial products operations.
Accordingly, these operating results have been reclassified and reported in
discontinued operations. The Company is in the process of negotiating the sale
of these operations and expects that the sale will be completed in fiscal 1997.
A description of the major products of the Company's continuing operations,
electronics, is included in the Annual Report in Note 1, Statement of
Significant Accounting Policies, of the Notes to Consolidated Financial
Statements on Page 13 and are filed as part of Exhibit 13. Additional
information about this line of business is as follows.
Electronics
- -----------
Historically, the electronics segment's principal product has been
sonobuoys, which are air deployable anti-submarine warfare (ASW) 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. Sales of sonobuoys have declined substantially in
recent years.
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Within the electronics line of business, the Company 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 the
production of these commercial products. The Company is focusing its resources
on substantially expanding revenues in these commercial areas, particularly in
electronic contract manufacturing. 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, principally
transducers and condition monitoring systems, are sold to the telecommunications
industry worldwide. Commercial electronics products are distributed through a
direct sales force and through a small group of manufacturers' representatives.
The primary industries of the Company's electronic contract manufacturing (ECM)
business include telecommunications, medical and industrial controls and
scientific instrumentation. In the ECM business, it must compete with a number
of domestic and foreign manufacturers. Within the ECM business, the Company
contracts with its customers to manufacture products based on the customer's
design, specifications, and shipping schedules. Generally, ECM programs do not
require the Company's direct involvement in product marketing. Material
availability, product quality, delivery and cost are very important factors in
the ECM business. In general, margins within the ECM operations are lower than
those obtained in the Company's ASW or proprietary electronics areas, primarily
due to intense competition and the higher purchased parts component of products
shipped.
At June 30, 1996 and June 30, 1995, the aggregate backlog from
continuing operations was approximately $107 million and $90 million,
respectively. A majority of the 1996 backlog is expected to be realized in 1997.
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The Company's sales of sonobuoys, principally to the U.S. Navy, have
declined dramatically from $151,024,000 in 1992 to $35,589,000 in 1996. It is
expected that both the domestic and international demand for production
sonobuoys will continue at these reduced and unpredictable levels for the
foreseeable future. In response to this changing environment, the Company has
been developing commercial electronics opportunities which will utilize its
existing technological and manufacturing capabilities, largely in the North
American ECM markets. The Company's experience to date indicates that
significant commercial electronics opportunities exist. Because of the many new
customers and markets involved, management continues to be challenged with the
ability to forecast near-term sales and margins with accuracy. As with any
change of this magnitude, unanticipated problems can be reasonably expected to
occur. Investors should be aware of this uncertainty and make their own
independent evaluation.
Automotive and Industrial Products
- ----------------------------------
As previously discussed, the Company formalized its plan in August 1996
to offer for sale the automotive and industrial products segment, and
accordingly, these operations have been reported as discontinued operations.
Other Information
- -----------------
Sparton's principal sales are currently concentrated on a limited
number of customers and the loss of any one of them could have a material
adverse financial effect. Materials for the electronics operations are obtained
from a variety of worldwide sources, except for selected components. Access to
competitively priced materials is critical to success in the ECM business. While
Sparton holds a number of patents relating to its products and processes, none
are considered of material
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importance. Business operations have not encountered or expect to encounter
significant long-term problems in obtaining sufficient raw materials although
the commercial electronics industry has experienced occasional spot shortages of
key components. The risk of materials obsolescence in the ECM business is less
than normal because materials are generally not purchased until actually needed.
While overall sales fluctuate during the year, such fluctuations have not
historically reflected a definitive seasonal pattern or tendency.
Research and development expenditures amounted to approximately
$17,254,000 in 1996, $20,440,000 in 1995 and $19,621,000 in 1994 (approximately
$15,845,000, $15,985,000 and $16,197,000 of these expenditures, respectively,
were customer funded). There are approximately 300 employees involved in
research and development. Few, if any, devote all of their time to such efforts.
In addition, many of those involved in research and development do not have an
engineering or other technical background.
Sparton employed approximately 2,300 people at June 30, 1996. The
Company has one operating division and four wholly-owned active subsidiaries
within continuing operations and four wholly-owned active subsidiaries within
discontinued operations.
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Item 2. Properties
- ------- ----------
The table below lists the principal properties of Sparton within
continuing operations. 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.
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)
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, 1996 are $80,000 in 1997 and $75,000 in 1998. Interest
of $5,000, 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,
1996. The Company's Coors Road, Albuquerque, New Mexico facility is not being
utilized and is 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 (PRP's) can be
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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 relatively small amounts of material or waste to a specific
site relative to other PRP's, its ultimate share of any cleanup costs has been
very minor. Based upon available information, the Company believes it has
contributed only small 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 with the United States Environmental Protection Agency
(EPA) under the Resource Conservation and Recovery Act (RCRA). 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
EPA a final Corrective Measures Study, based upon the results of its
investigation, as required in the AOC. In June, 1996, EPA issued its final
decision selecting remedies for corrective action at the site. 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 EPA are either unnecessary or technically impractical.
Sparton is vigorously challenging the EPA's remedy selection and has filed suit
in Federal District Court in Dallas asserting that EPA's decision on remedy
selection violates the AOC. Sparton is currently negotiating with other involved
regulatory agencies for alternative remedies that Sparton believes would protect
public health and the environment with estimated costs ranging from $500,000 to
$1,000,000. These negotiations have not yet been completed. Successful
resolution of these negotiations and Sparton's litigation
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with the EPA may be difficult given the simultaneous involvement of local, state
and federal governmental agencies. To date, Sparton has incurred approximately
$5,950,000 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 costs.
In 1996 and 1995, Sparton incurred $247,000 and $184,000 respectively, which was
charged against this reserve. At June 30, 1996, the remaining reserve to cover
future minimum costs totaled $444,000. If a remedy is ultimately imposed on
Sparton, other than the one is has proposed, the ultimate cleanup costs may
significantly increase. There is no assurance that additional costs above the
amount reserved will not be incurred or that significant changes in
environmental laws or their interpretation will not require that additional
amounts be spent.
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 84
Director
DAVID W. HOCKENBROCHT, President, Chief Operating Officer and Director 61
LAWSON K. SMITH, Vice President, Secretary and Director 81
RICHARD L. LANGLEY, Vice President-Treasurer and Assistant Secretary 51
R. JAN APPEL, Vice President, General Counsel and Assistant Secretary 50
RICHARD D. MICO, Vice President and General Manager of Sparton Technology, 66
Inc.
DOUGLAS E. JOHNSON, Vice President and General Manager of Sparton 48
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.
-8-
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Age
---
W. DAVID WEIND, Vice President and General Manager of Sparton of 49
Canada, Ltd. since June 1996. Prior to that date, Mr. Weind
was employed as President of GSW Construction Products.
JERRY R. GAUSE, Vice President and General Manager of Sparton Engineered 55
Products, Inc.-KPI Group
JOSEPH S. LERCZAK, Assistant Treasurer 39
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
- ------- ----------------------------------------
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, 1996, is included under
"Financial Highlights" on page 1 of the Annual Report and is included in Exhibit
13 filed herewith.
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Item 6. Selected Financial Data
- ------- -----------------------
The "Selected Financial Data" on Page 18 of Exhibit 13 filed hereunder
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 19-21 of Exhibit 13 filed hereunder is
incorporated herein by reference.
Item 8. Financial Statements and Supplementary Data
- ------- -------------------------------------------
The consolidated financial statements of Sparton Corporation and
Subsidiaries and "Report of Independent Auditors" are included on Pages 8-17 and
12, respectively, in Exhibit 13 filed hereunder 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
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Item 10. Directors and Executive Officers
- -------- --------------------------------
of the Registrant
-----------------
Information with respect to directors of the Registrant is set forth
below. Information concerning the executive officers is included in Part I on
Pages 8 and 9.
Age
---
JOHN J. SMITH, Chairman of the Board and Chief Executive Officer 84
of Sparton Corporation, Jackson, Michigan. Mr. Smith has
served as a Director since 1950 and his current term
expires in 1998.
DAVID W. HOCKENBROCHT, President and Chief Operating Officer 61
of Sparton Corporation, Jackson, Michigan. Mr. Hockenbrocht
has served as a Director since 1978 and his current term
expires in 1997.
LAWSON K. SMITH, Vice President and Secretary of Sparton 81
Corporation, Jackson, Michigan. Mr. Smith has served
as a Director since 1971 and his current term expires
in 1997.
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JAMES N. DEBOER, Partner, law firm of Varnum, Riddering, 71
Schmidt and Howlett, LLP, Grand Rapids, Michigan. Mr.
DeBoer has served as a Director since 1971 and his current term
expires in 1997.
ROBERT J. KIRK, Financial Consultant, Toledo, Ohio. Mr. Kirk 83
has served as a Director since 1978 and his current term
expires in 1996.
MARSHALL V. NOECKER, President and substantial owner of the 81
Marshall Noecker Group Companies (aluminum fabrication
and manufacturing companies and investment companies),
Garden City, Michigan. Mr. Noecker has served as a
Director since 1963 and his current term expires in 1996.
RORY B. RIGGS, President of Biomatrix, Inc., Richfield, New 43
Jersey, a medical biotechnology company since 1996, and
President, ITIM Corporation, New York, New York, an
investment advisory and venture capital firm since 1991.
Mr. Riggs was President and Chief Executive Officer of RF&P
Corporation, Richmond, Virginia, a real estate investment
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company, from 1991 to 1994. Mr. Riggs has served as a
Director since 1994 and his current term expires in 1997.
DAVID B. SCHOON, President, Stock Portfolio Management, Inc., 45
Grand Rapids, Michigan, a financial consulting services
company, since 1992, and was a Senior Stock Analyst
for other financial consulting services companies from 1986
to 1992. Mr. Schoon has served as a Director since 1994
and his current term expires in 1996.
BLAIR H. THOMPSON, formerly Vice President and Treasurer of 71
Sparton Corporation, Jackson, Michigan (retired in 1990).
Mr. Thompson has served as a Director since 1972 and his
current term expires in 1998.
Mr. John J. Smith and Mr. Lawson K. Smith are brothers. There are no
other family relationships between the directors. Except as noted, the principal
occupations referred to have been held by the foregoing directors for at least
five years.
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Mr. Robert J. Kirk is a director of Seaway Foodtown, Inc. Mr. David B.
Schoon is a director of California Micro Devices Corporation. Mr. Rory B. Riggs
is a director of Biomatrix, Inc.
Item 11. Executive Compensation
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The following tables provide certain data and information on the
compensation of the Company's Chief Executive Officer and its four most highly
compensation executive officers (other than the CEO) whose annual salary and
bonus exceeded $100,000 (collectively referred to as the "Named Executives").
This report addresses the Company's compensation policies and programs for the
year ended June 30, 1996, the details of which are reflected in the tables set
forth in the following sections. The Company's and the Board's policies and
practices pertaining to the compensation of executive officers and management
have been in effect for a number of years.
The Executive Compensation Committee Report and Performance Graph set
forth below are not deemed to be soliciting material or to be filed with the
Securities and Exchange Commission under the Securities Act of 1933 or the
Securities Exchange Act of 1934 or incorporated by reference in any document so
filed.
EXECUTIVE COMPENSATION COMMITTEE REPORT
Decisions on the compensation of the Company's executive officers are
made by the Board's Compensation Committee. This Committee is composed of Mr.
John J. Smith, Chairman of the Board and Chief Executive Officer and four
non-employee directors; Messrs. Noecker, Kirk, DeBoer and Thompson.
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The Company has long-established policies and practices intended to
compensate its salaried employees in a manner that will enable the Company to
attract, retain and motivate them to accomplish corporate goals and objectives.
These policies and practices encourage management to remain dedicated to the
maximization of shareholder value. The Compensation Committee establishes
compensation for its key executives through a comparison of its salary levels
with companies of comparable size, sales and profitability.
The Company's compenation program is comprised of several elements:
cash compensation (including salary and incentive bonus), incentive stock
options and defined benefit or defined contribution retirement plans. Reflective
of the Company's goal of relating compensation to corporate performance, the
incentive bonus compensation plan permits certain executive officers to earn
additional compensation if the pretax earnings of their operating unit is in
excess of an established goal. The bonus for all other key executives is a
subjective determination by the Compensation Committee based upon an evaluation
of the employees' individual performance, level of responsiblity and experience.
The Company's Chief Executive Officer is compensated pursuant to
employment agreements that have been in existence since 1950. A description of
the current employment agreement and related compensation of the Company's Chief
Executive Officer is set forth below under the caption "Employment Agreement and
Related Compensation."
Marshall V. Noecker Robert J. Kirk Blair H. Thompson
James N. DeBoer John J. Smith
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EMPLOYMENT AGREEMENT AND RELATED COMPENSATION
The current agreement for Mr. John J. Smith, the Company's CEO, expires
on June 30, 1997. Under the terms of this contract, Mr. Smith's annual salary
for fiscal 1996 was to be $288,542. The contract also provides for an annual
cash bonus equal to 5% of the Company's pretax earnings in excess of $5,000,000
with the bonus limited to $150,000 for the fiscal year ended June 30, 1996. For
the year ended June 30, 1996, Mr. Smith voluntarily reduced his compensation to
a rate of $178,200 per annum. No bonus was payable under the terms of the
contract for fiscal year 1996.
Pursuant to prior employment agreements with Mr. Smith, a deferred
compensation account was established. Mr. Smith is entitled to receive payments
in monthly installments following termination of employment; or, subject to
prior approval of the Company's Board of Directors, from time to time in lump
sums upon Mr. Smith's request. No payments were made to Mr. Smith during fiscal
year 1996. The balance in Mr. Smith's deferred compensation account will be paid
in a lump sum upon his death. Beginning July 1, 1976, the Company agreed to
credit interest to Mr. Smith's deferred compensation account at the rate of
1-1/2% above the prime rate, but not exceeding 10%. However, if the prime rate
exceeds 10% then interest will be credited at the prime rate, but in no event at
a rate exceeding 14%. At June 30, 1996, the balance in Mr. Smith's deferred
compensation account was $2,180,903.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Mr. John J. Smith and Mr. Blair H. Thompson (a former officer of the
Company) are members of the Compensation Committee and as such participate in
establishing compensation for executives of the Company.
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EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE
The Summary Compensation Table Shows certain compensation information
for the Named Executives for services rendered in all capacities during the
fiscal years ended June 30, 1996, 1995 and 1994.
ANNUAL COMPENSATION
All
Other
Name and Pricipal Fiscal Compen-
Position Year Salary Bonus sation
- --------------------- ------ ------ ----- -------
John J. Smith 1996 $178,200 -0- $ 1,750(1)
Chairman of the Board 1995 120,000 -0- 121,750(1)
and Chief Executive 1994 206,287 -0- 163,272(1)
Officer
David W. Hockenbrocht 1996 178,200 -0- 1,750(2)
President and Chief 1995 178,200 -0- 1,750(2)
Operating Officer 1994 196,350 -0- 2,100(2)
Richard D. Mico 1996 106,294 11,034 3,304(3)
Vice President and 1995 103,125 -0- 2,510(3)
General Manager 1994 98,405 -0- 1,971(3)
Jerry R. Gause 1996 94,577 24,000 4,256(3)
Vice President and 1995 88,723 21,000 3,553(3)
General Manager 1994 80,884 21,000 3,378(3)
Douglas E. Johnson 1996 100,000 -0- -0-
Vice President and 1995 93,572 -0- -0-
General Manager 1994 88,054 -0- -0-
- --------
(1) Represents directors fees of $1,750 paid in 1996 and 1995, and $2,100 in
1994. The balance represents payments made pursuant to deferred
compensation arrangement discussed under the caption Employment Agreement
and Related Compensation above.
(2) Represents directors fees.
(3) Represents Company contributions to its employees' defined contribution
benefit plan.
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OPTION GRANTS IN LAST FISCAL YEAR
There were no options granted to any Company officers or other
employees for the fiscal year ended June 30, 1996.
OPTIONS/SAR EXERCISES AND HOLDINGS
The following table sets forth information, with respect to the Named
Executives, concerning the unexercised options and SARs held at June 30, 1996.
None of the Named Executives exercised any options for the purchase of Company
Common Stock during the past fiscal year.
AGGREGATED OPTION/SARs EXERCISED IN
LAST FISCAL YEAR AND FISCAL YEAR-END
OPTIONS/SAR VALUES
Number of Unexercised Value of Unexercised In
Options/SARs at Fiscal the Money Options/SARs
Year-End at Fiscal Year-End (1)
------------------------------ -------------------------------
Name Exercisable Unexercisable Exercisable Unexercisable
- ------------- ----------- ------------- ----------- -------------
John J. Smith -0- -0- $-0- $-0-
David W. Hockenbrocht 16,000 16,000 -0- -0-
Richard D. Mico 3,750 1,250 -0- -0-
Jerry R. Gause 3,750 1,250 -0- -0-
Douglas E. Johnson -0- -0- -0- -0-
- ------------------------
(1) The closing price of the Company's Common Stock was $4.25 at June 28, 1996,
which price was less than the exercise price on outstanding stock options.
RETIREMENT PROGRAMS
The Company maintains a defined benefit retirement plan for employees
of the Company and one subsidiary which provide for monthly pensions following
retirement. During the past year, no cash contributions were made by the Company
to the plan as
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in the judgment of the Company's independent actuaries, the pension plan was
fully funded. The plan provides a basic benefit of $2.25 per month for each year
of credited service up to a maximum of $90 per month. In addition, for those
participant's who contribute 5% of thier monthly compentation (excluding
bonuses) per month, the plan provides for an additional monthly pension amount
equal to 1-1/2% of the particpant's final 10-year average monthly compensation
(excluding bonuses) times the participant's years of contributory and credited
service to a maximum of 30 years. The following table shows the estimated annual
retirement benefits in specified remuneration and service classifications upon
normal retirement at age 65. The benefits shown are not subject to any deduction
for Social Security or other offset amounts. (For fiscal years beginning after
June 30, 1993, the maximum amount of annual compensation allowed to be included
in determining final average compensation has been limited by statute to
$150,000. This amount is subject to future adjustment by the Internal Revenue
Service).
Final 10-Year
Average
Annual Earnings Years of Contributory and Credited Service at Age 65
(Excludes Bonuses) 10 15 20 25 30
- ------------------ ------ ------ ------ ------ ------
$ 60,000 $ 9,270 $13,905 $18,540 $23,175 $27,810
80,000 12,270 18,405 24,540 30,675 36,810
100,000 15,270 22,905 30,540 38,175 45,810
120,000 18,270 27,405 36,540 45,675 54,810
140,000 21,270 31,905 42,540 53,175 63,810
160,000 24,270 36,405 48,540 60,675 72,810
180,000 27,270 40,905 54,540 68,175 81,810
The following Named Executives have years of contributory credited
service under the plan and current annual earnings as of June 30, 1996:
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Current Annual
Years of Contributory Earnings (Excluding
Officer Credited Service Bonus)
- --------------------- --------------------- -------------------
David W. Hockenbrocht 18.50 $178,200
Douglas E. Johnson 8.00 100,000
Mr. John J. Smith, Mr. Richard D. Mico and Mr. Jerry R. Gause do not
participate in the Company's defined benefit retirement plan.
PERFORMANCE GRAPH
The following is a line-graph presentation comparing cumulative,
five-year shareholder return, on an indexed basis, of the Company's Common Stock
with that of a broad market index (the S&P 500 Composite Index) and a weighted
index made up of selected S&P 500 indices including Electronics Defense (50%),
Automobiles (25%) and Industrials (25%). The Company selected this weighted
index because the companies included therein are engaged in operations similar
to the Company's operations. The comparison assumes a $100 investment on June
30, 1991, and the reinvestment of dividends.
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Comparison of Five Year Cumulative Total Return Among
Sparton Corporation, S&P 500 Composite Index and an Industry Index
(Index June 30, 1991 = 100)
June 30
1991 1992 1993 1994 1995 1996
Sparton Corporation 100 123 88 96 85 71
S&P 500 Index 100 113 129 131 165 208
S&P Weighted Index 100 109 142 150 196 299
23
Item 12. Security Ownership of Certain
- -------- -----------------------------
Beneficial Owners and Management
--------------------------------
As of September 1, 1996, the Company had outstanding 7,811,370 shares
of Common Stock. As of that date, the persons named in the following table were
known by the management to be the beneficial owners of more than 5% of the
Company's outstanding Common Stock:
Amount and
Nature Of
Beneficial
Name and Address of Beneficial Owner Ownership Percent of Class
- ------------------------------------ ----------- ----------------
John Smith(1) 2,100,000(2) 26.88%(2)
1839 S. Walmont
Jackson, Michigan 49203
Lawson K. Smith(1) 777,256(3) 9.95%(3)
717 Fourth Street
Lake Odessa, Michigan 48849
Dimensional Fund Advisors, Inc. 410,400(4) 5.25%(4)
1299 Ocean Avenue, 11th Floor
Santa Monica, California 90401
- ------------------------
(1) Mr. John J. Smith and Mr. Lawson K. Smith are brothers.
(2) Includes 1,920,000 shares owned directly by Mr. John J. Smith jointly with
his wife. An additional 180,000 shares are held in a trust over which Mr.
Smith has voting control. The amount does not include 433,600 shares held
by several of the Company's retirement plans as to which Mr. Smith holds
voting and investment powers in his capacity as Chief Executive Officer of
the Company. Mr. Smith has no pecuniary interest in these shares and
disclaims any beneficial ownership interest.
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(3) Includes 358,966 shares and 418,290 shares held by the Lawson K. Smith
Trust and Margaret E. Smith Trust, respectively. Lawson K. Smith and his
wife, Margaret E. Smith, have voting and investment control over the shares
held in the trusts bearing their names.
(4) According to information included in the Form 13G Report filed by
Dimensional Fund Advisors Inc. ("Dimensional"), a registered investment
advisor, it is deemed to have beneficial ownership of 410,400 shares of
Common Stock, all of which shares are held in portfolios of DFA Investment
Dimensions Group Inc., a registered open-end investment company, or in
series of the DFA Investment Trust Company, a Delaware business trust, or
the DFA Group Trust and DFA Participation Group Trust, investment vehicles
for qualified employee benefit plans, all of which Dimensional serves as
investment manager. Dimensional disclaims beneficial ownership of all such
shares.
As of September 1, 1996, the following table shows the Company's Common
Stock beneficially owned by the Named Executives identified in the Compensation
Table, included in Item 11 of this report, and all officers and directors of the
Company as a group (16 persons):
Amount and Nature of Percent of
Name Beneficial Ownership Class(6)
- ---------------- -------------------- -----------
John J. Smith 2,100,000(1) 26.88%(1)
David Hockenbrocht 77,535(2) .99
Richard D. Mico 17,000(3) .22
Jerry R. Gause 8,700(4) .11
Douglas E. Johnson 5,000 .06
All Officers & Directors 3,098,727(5) 39.48
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- ----------------------------
(1) Reference is made to note (2) of the previous table.
(2) Includes 21,333 shares which Mr. Hockenbrocht has the right to acquire
pursuant to options exercisable within 60 days.
(3) Includes 5,000 shares which Mr. Mico has the right to acquire pursuant to
options exercisable within 60 days.
(4) Includes 5,000 shares which Mr. Gause has the right to acquire pursuant to
options exercisable within 60 days.
(5) Includes 38,333 shares under options held by officers and directors
exercisable within 60 days.
(6) Calculated based on total shares outstanding plus the shares subject to
options exercisable within 60 days as described in this statement.
Item 13. Certain Relationships and Related Transactions
- -------- ----------------------------------------------
John J. Smith and his wife and Lawson K. Smith lease a manufacturing
facility located in White Cloud, Michigan to Sparton Engineered Products, Inc.
- - KPI Group (Michigan). John J. Smith and his wife also lease a facility
located in Grand Haven, Michigan to this subsidiary. Both the facilities are
occupied under lease agreements that allow termination by either party upon
ninety (90) days notice. These two lease agreements, the result of arms-length
type negotiations, grant the Company the option to acquire the properties
during the lease term for $252,600 and $223,200, respectively. The original
leases of these facilities were in existence prior to the Company's
acquisition of this subsidiary.
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PART IV
- -------
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K
- -------- ----------------------------------------------------------------
(a) The following financial statements are filed as part of this
report on Form 10-K:
The following Consolidated Financial Statements of Sparton Corporation and
Subsidiaries and Report of Independent Auditors, included on Pages 8-17 and 12,
respectively, of Exhibit 13 filed hereunder are incorporated by reference in
Item 8.
Page Reference
Annual Report
to Shareowners
Data from the 1996 Annual Report to
Shareowners of Sparton Corporation:
Consolidated balance sheets at June 30, 8 - 9
1996 and 1995
For the years ended June 30, 1996, 1995,
and 1994:
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
Report of Independent Auditors 12
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.
-24-
27
(b) Reports on Form 8-K
No reports on Form 8-K were required to be filed for the
three months ended June 30, 1996.
(c) Exhibits
See Exhibit Index on page 26
-25-
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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-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 1996 Annual Report to Shareowners (filed herewith and
attached).
22 Subsidiaries (filed herewith and attached).
-26-
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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.
-27-
30
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 27, 1996 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 23, 1996
- --------------------------------------------- ---------------
John J. Smith, Chairman of the Board
of Directors and Chief Executive Officer
By /s/ David W. Hockenbrocht August 23, 1996
- --------------------------------------------- ---------------
David W. Hockenbrocht, President,
Chief Operating Officer and Director
By /s/ Lawson K. Smith August 23, 1996
- --------------------------------------------- ---------------
Lawson K. Smith, Vice President, Secretary
and Director
By /s/ James N. DeBoer August 23, 1996
- --------------------------------------------- ---------------
James N. DeBoer, Director
By /s/ Robert J. Kirk August 23, 1996
- --------------------------------------------- ---------------
Robert J. Kirk, Director
By /s/ Marshall V. Noecker August 23, 1996
- --------------------------------------------- ---------------
Marshall V. Noecker, Director
By /s/ Rory B. Riggs August 23, 1996
- --------------------------------------------- ---------------
Rory B. Riggs, Director
By /s/ David B. Schoon August 23, 1996
- --------------------------------------------- ---------------
David B Schoon, Director
By /s/ Michael N. Taglich August 23, 1996
- --------------------------------------------- ---------------
Michael N. Taglich, Director
By /s/ Blair H. Thompson August 23, 1996
- --------------------------------------------- ---------------
Blair H. Thompson, Director
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