8-K

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

FORM 8-K

 

 

CURRENT REPORT

Pursuant to Section 13 or 15(d) of the

Securities Exchange Act of 1934

Date of Report (Date of earliest event reported): September 7, 2018

 

 

SPARTON CORPORATION

(Exact Name of Registrant as Specified in its Charter)

 

 

 

Ohio   1-1000   38-1054690

(State or other jurisdiction

of incorporation)

  (Commission File Number)  

(IRS Employer

Identification No.)

 

425 N. Martingale Road

Suite 1000

Schaumburg, Illinois

  60173-2213
(Address of Principal Executive Offices)   (Zip Code)

Registrant’s telephone number, including area code: (800) 772-7866

N/A

(Former Name or former address, if changed since last report)

 

 

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:

 

Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

 

Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

 

Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

 

Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (§230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§240.12b-2 of this chapter)

☐    Emerging growth company

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards pursuant to Section 13(a) of the Exchange Act.    ☐

 

 

 

 


Item 4.02 Non-Reliance on Previously Issued Financial Statements or a Related Audit Report or Completed Interim Review.

On September 7, 2018, the audit committee of the board of directors (the “Audit Committee”) and management of Sparton Corporation (“Sparton” or the “Company”), after discussions with BDO USA, LLP (“BDO”), the Company’s independent registered public accounting firm, concluded that the consolidated financial statements for the quarterly periods ended October 1, 2017, December 31, 2017, and April 1, 2018 (the “Restated Quarters”) which were issued in the Company’s previously filed Quarterly Reports on Forms 10-Q for such periods should no longer be relied upon and will be restated.

The restatement of the Company’s consolidated financial statements for the Restated Quarters is set forth below in the tabular presentation. The effect of the restatement is to increase our reported gross profit and net income or reduced net loss for the Restated Quarters. The restatement arose as a result of the implementation of a new enterprise resource planning system (“ERP system”) at our DeLeon Springs, FL location at the beginning of fiscal 2018. The new ERP system was implemented, in large part, to address the needs of the U.S. Navy, the Defense Contract Management Agency (“DCMA”) and the Defense Contract Audit Agency (“DCAA”) in our reporting and management of our government contracts. To meet these needs, the ERP system capitalized certain allowable general and administrative expenses to inventory in accordance with Defense Federal Acquisition Regulations (“DFARs”). In order to properly account for these expenses under generally accepted accounting principles, the Company, during its monthly financial close process, reversed these capitalized expenses as an adjustment in our consolidation and financial reporting tool. As this reversal entry was reflected in our consolidation and financial reporting tool but not in the ERP system, the Company did not properly account for cost of goods sold when inventory was shipped, resulting in an understatement of inventory and a corresponding overstatement of cost of goods sold. We believe this is an isolated matter as this was the only adjustment to the consolidation and financial reporting tool that was not also recorded in the ERP systems of the operating entities (other than reclassification entries for reporting purposes) during the Restated Quarters. The correction only impacted the Company’s Engineered Components & Products reportable business segment.

In connection with the restatement, the Company re-evaluated its conclusions regarding the effectiveness of the Company’s disclosure controls and procedures and internal controls over financial reporting for the Restated Quarters and determined that a material weakness existed for the periods covered by the Restated Quarters. We will report this material weakness in our fiscal year 2018 Form 10-K in Item 9A, Controls and Procedures – Management Report on Internal Control over Financial Reporting. To remediate the material weakness over the interim reporting periods, we no longer allow adjustments to be made in our consolidation and financial reporting tool (other than reclassification entries for reporting purposes) that are not also reflected in the ERP systems of the operating entities. In addition, we will increase our quarterly oversight of our consolidation and financial reporting tool. We believe that the additional controls over our interim reporting periods will mitigate this matter.

The effects of this error on our previously reported fiscal year 2018 quarterly statements of operations are as follows:

 

    Originally Reported     Adjustments     Restated  
    Ql     Q2     Q3     Ql     Q2     Q3     Ql     Q2     Q3  

Net sales

  $ 82,763     $ 97,819     $ 93,938     $ —       $ —       $ —       $ 82,763     $ 97,819     $ 93,938  

Cost of goods sold

    68,175       77,390       76,262       (1,336     (1,320     (2,051     66,839       76,070       74,211  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Gross profit

    14,588       20,429       17,676       1,336       1,320       2,051       15,924       21,749       19,727  

Operating expense:

                 

Selling and administrative

    15,205       14,074       13,253       —         —         —         15,205       14,074       13,253  

Internal research & development

    572       669       307       —         —         —         572       669       307  

Amortization of intangible assets

    1,923       1,893       1,802       —         —         —         1,923       1,893       1,802  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total operating expense

    17,700       16,636       15,362       —         —         —         17,700       16,636       15,362  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Operating income (loss)

    (3,112     3,793       2,314       1,336       1,320       2,051       (1,776     5,113       4,365  

Other expense:

    (1,276     (1,494     (1,460     —         —         —         (1,276     (1,494     (1,460
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Income (loss) before income taxes

    (4,388     2,299       854       1,336       1,320       2,051       (3,052     3,619       2,905  

Income taxes

    (1,536     11,333       239       468       370       574       (1,068     11,703       813  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income (loss)

  $ (2,852   $ (9,034   $ 615     $ 868     $ 950     $ 1,477     $ (1,984   $ (8,084   $ 2,092  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

EPS

  $ (0.29   $ (0.92   $ 0.06           $ (0.20   $ (0.82   $ 0.21  


The effects of this error on our previously reported fiscal year 2018 quarterly statements of operations on a year-to-date basis are as follows:

 

    Originally Reported     Adjustments     Restated  
    YTD Q1     YTD Q2     YTD Q3     YTD Q1     YTD Q2     YTD Q3     YTD Q1     YTD Q2     YTD Q3  

Net sales

  $ 82,763     $ 180,582     $ 274,520     $ —       $ —       $ —       $ 82,763     $ 180,582     $ 274,520  

Cost of goods sold

    68,175       145,565       221,827       (1,336     (2,656     (4,707     66,839       142,909       217,120  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Gross profit

    14,588       35,017       52,693       1,336       2,656       4,707       15,924       37,673       57,400  

Operating expense:

                 

Selling and administrative

    15,205       29,279       42,532       —         —         —         15,205       29,279       42,532  

Internal research & development

    572       1,241       1,548       —         —         —         572       1,241       1,548  

Amortization of intangible assets

    1,923       3,816       5,618       —         —         —         1,923       3,816       5,618  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total operating expense

    17,700       34,336       49,698       —         —         —         17,700       34,336       49,698  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Operating income (loss)

    (3,112     681       2,995       1,336       2,656       4,707       (1,776     3,337       7,702  

Other expense:

    (1,276     (2,770     (4,230     —         —         —         (1,276     (2,770     (4,230
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Income (loss) before income taxes

    (4,388     (2,089     (1,235     1,336       2,656       4,707       (3,052     567       3,472  

Income taxes

    (1,536     9,797       10,036       468       838       1,412       (1,068     10,635       11,448  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income (loss)

  $ (2,852   $ (11,886   $ (11,271   $ 868     $ 1,818     $ 3,295     $ (1,984   $ (10,068   $ (7,976
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

EPS

  $ (0.29   $ (1.21   $ (1.15         $ (0.20   $ (1.02   $ (0.81

The effects of this error on our previously reported fiscal year 2018 quarterly balance sheets are as follows:

 

    Originally Reported     Adjustments     Restated  
    Q1     Q2     Q3     Q1     Q2     Q3     Q1     Q2     Q3  

Assets

                 

Cash and cash equivalents

  $ 319     $ 1,104     $ 792     $ —       $ —       $ —       $ 319     $ 1,104     $ 792  

Accounts receivable

    53,933       54,466       65,730       —         —         —         53,933       54,466       65,730  

Inventory

    68,646       62,767       65,448       1,336       2,656       4,707       69,982       65,423       70,155  

Prepaids and other current assets

    4,443       4,177       3,639       —         —         —         4,443       4,177       3,639  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total current assets

    127,341       122,514       135,609       1,336       2,656       4,707       128,677       125,170       140,316  

Property, plant and equipment

    33,374       34,484       33,760       —         —         —         33,374       34,484       33,760  

Goodwill

    12,663       12,663       12,663       —         —         —         12,663       12,663       12,663  

Other intangible assets

    26,522       24,629       22,827       —         —         —         26,522       24,629       22,827  

Deferred income taxes

    24,874       14,771       14,760       —         —         —         24,874       14,771       14,760  

Other non-current assets

    5,670       5,177       4,988       —         —         —         5,670       5,177       4,988  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total assets

    230,444       214,238       224,607     $ 1,336     $ 2,656     $ 4,707       231,780       216,894       229,314  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Liabilities and Shareholders’ Equity

                 

Accounts payable

  $ 30,278     $ 38,210     $ 28,401     $ —       $ —         —       $ 30,278     $ 38,210     $ 28,401  

Accrued liabilities

    8,802       10,417       10,869       —         —         —         8,802       10,417       10,869  

Other current liabilities

    8,228       10,390       11,730       468       838       1,412       8,697       11,228       13,142  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total current liabilities

    47,308       59,017       51,000       468       838       1,412       47,777       59,855       52,412  

Credit facility

    97,600       78,900       96,800       —         —         —         97,600       78,900       96,800  

Other long-term liabilities

    6,273       6,060       5,896       —         —         —         6,273       6,060       5,896  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total liabilities

    151,181       143,977       153,696       468       838       1,412       151,650       144,815       155,108  

Common Stock

    30,388       30,399       30,405       —         —         —         30,388       30,399       30,405  

Retained earnings

    50,116       41,081       41,696       868       1,818       3,295       50,983       42,899       44,991  

Accumulated other comprehensive loss

    (1,241     (1,219     (1,190     —         —         —         (1,241     (1,219     (1,190
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total shareholders’ equity

    79,263       70,261       70,911       868       1,818       3,295       80,130       72,079       74,206  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total liabilities and shareholders’ equity

    230,444       214,238       224,607     $ 1,336     $ 2,656     $ 4,707       231,780       216,894       229,314  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

The Company intends to file, as soon as practicable, financial information for the Restated Fiscal 2018 Quarters through amendments to the previously filed fiscal year 2018 Quarterly Reports on Forms 10-Qs.


SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.

 

    SPARTON CORPORATION
Dated: September 13, 2018     By:   /s/ Joseph J. Hartnett
     

Joseph J. Hartnett, Interim President

and Chief Executive Officer