Form 8-K/A SPARTON CORP For: Apr 14

Article Stock Quotes (1)

FREE Breaking News Alerts from StreetInsider.com!

StreetInsider.com Top Tickers, 4/26/2024

1. META
2. CMG
3. LRCX
4. IBM
5. SPY

6. BA
7. HCP
8. SNAP
9. TMUS
10. MSFT

Top News Most Read Special Reports

June 30, 2015 4:50 PM EDT

E-mail

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 8-K/A

Amendment No.1

CURRENT REPORT

Pursuant to Section 13 or 15(d) of

the Securities Exchange Act of 1934

Date of Report (Date of earliest event reported): April 14, 2015

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: (847) 762-5800

Not Applicable

(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))

Item 2.01 Completion of Acquisition or Disposition of Assets.

On April 20, 2015, Sparton Corporation (“Sparton”) filed a Current Report on Form 8-K (the “April 20 Form 8-K”) to report that Sparton and Sparton Hunter Corporation, a California corporation (“Sparton Hunter”) and wholly owned subsidiary of Sparton had entered into an Agreement and Plan of Merger dated April 14, 2015 (the “Agreement”) with Hunter Technology Corporation, a California corporation (“Hunter”) and Joseph F. O’Neil, an individual, as representative for certain Hunter stockholders and optionholders (the “Representative”). Pursuant to the Agreement, effective April 14, 2015 (the “Closing Date”), Sparton Hunter merged with and into Hunter, with Hunter as the surviving corporation (the “Merger”), and Sparton purchased all of Hunter’s outstanding common stock for an aggregate purchase price of $55,000,000, including certain amounts payable to Hunter’s optionholders and the repayment by Sparton of certain indebtedness of Hunter. The foregoing description of the Agreement is qualified in its entirety by reference to the full text of the Agreement as filed with the April 20 Form 8-K as Exhibit 10.1, which is incorporated herein by reference.

This amendment to the April 20 Form 8-K is being filed to provide financial statements and pro forma financial statements required by Item 9.01 of Form 8-K.

Item 9.01 Financial Statements and Exhibits.


(a)	Financial Statements of Businesses Acquired.

The audited consolidated financial statements of Hunter Technology Corporation, as of and for the years ended December 31, 2014 and December 31, 2013, the notes related thereto and the related independent auditor’s report of BDO USA, LLP, are filed as Exhibit 99.1 to this report and incorporated herein by reference.

The unaudited condensed consolidated financial statements of Hunter Technology Corporation, as of and for the three months ended March 31, 2015 and March 31, 2014 and notes related thereto, are filed as Exhibit 99.2 to this report and incorporated herein by reference.


(b)	Pro Forma Financial Information.

The unaudited pro forma condensed combined statement of income for the year ended June 30, 2014, unaudited pro forma condensed combined statement of income for the nine months ended March 31, 2015, unaudited pro forma condensed combined balance sheet as of March 31, 2015 and the notes related thereto, are filed as Exhibit 99.3 to this report and incorporated herein by reference.


(d)	Exhibits




Exhibit 23.1		Consent of BDO USA, LLP.

Exhibit 99.1		Audited consolidated financial statements of Hunter Technology Corporation, as of and for the years ended December 31, 2014 and December 31, 2013, the notes related thereto and the related independent auditor’s report of BDO USA, LLP.

Exhibit 99.2		Unaudited consolidated financial statements of Hunter Technology Corporation, as of and for the three months ended March 31, 2015 and March 31, 2014 and notes related thereto.

Exhibit 99.3		The unaudited pro forma condensed combined statement of income for the year ended June 30, 2014, unaudited pro forma condensed combined statement of income for the nine months ended March 31, 2015, unaudited pro forma condensed combined balance sheet as of March 31, 2015 and the notes related thereto.

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: June 30, 2015	By:	/s/ Cary B. Wood
		Cary B. Wood, President and Chief Executive Officer

Index to Exhibits




Exhibit No.		Description
23.1		Consent of BDO USA, LLP.

99.1		Audited consolidated financial statements of Hunter Technology Corporation, as of and for the years ended December 31, 2014 and December 31, 2013, the notes related thereto and the related independent auditor’s report of BDO USA, LLP.

99.2		Unaudited consolidated financial statements of Hunter Technology Corporation, as of and for the three months ended March 31, 2015 and March 31, 2014 and notes related thereto.

99.3		The unaudited pro forma condensed combined statement of income for the year ended June 30, 2014, unaudited pro forma condensed combined statement of income for the nine months ended March 31, 2015, unaudited pro forma condensed combined balance sheet as of March 31, 2015 and the notes related thereto.

Exhibit 23.1

CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

Sparton Corporation

Schaumburg, Illinois

We hereby consent to the incorporation by reference in the Registration Statements on Form S-8 (Nos. 333-82380, 333-156388, 333-164057 and 333-194917) of Sparton Corporation of our report dated June 30, 2015, relating to the consolidated financial statements of Hunter Technology Corporation and Subsidiaries, which appears in this Form 8-K/A.

/s/ BDO USA, LLP

Grand Rapids, Michigan

June 30, 2015

Exhibit 99.1

HUNTER TECHNOLOGY CORPORATION AND SUBSIDIARIES

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS




	Page
Independent Auditor’s Report	2
Consolidated Balance Sheets as of December 31, 2014 and December 31, 2013	3
Consolidated Statements of Income for the years ended December 31, 2014 and December 31, 2013	4
Consolidated Statements of Cash Flows for the years ended December 31, 2014 and December 31, 2013	5
Consolidated Statements of Shareholders' Equity for the years ended December 31, 2014 and December 31, 2013	6
Notes to Consolidated Financial Statements	7

INDEPENDENT AUDITOR’S REPORT

To the Board of Directors and Shareholders of

Sparton Corporation

Schaumburg, Illinois

We have audited the accompanying consolidated financial statements of Hunter Technology Corporation and its subsidiaries, which comprise the consolidated balance sheets as of December 31, 2014 and 2013, and the related consolidated statements of income, cash flows and shareholders’ equity for the years then ended, and the related notes to the consolidated financial statements.

Management’s Responsibility for the Financial Statements

Management is responsible for the preparation and fair presentation of these consolidated financial statements in accordance with accounting principles generally accepted in the United States of America; this includes the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of consolidated financial statements that are free from material misstatement, whether due to fraud or error.

Auditor’s Responsibility

Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free from material misstatement.

An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the consolidated financial statements. The procedures selected depend on the auditor’s judgment, including the assessment of the risks of material misstatement of the consolidated financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity’s preparation and fair presentation of the consolidated financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements.

We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.

Opinion

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Hunter Technology Corporation and its subsidiaries as of December 31, 2014 and 2013, and the results of their operations and their cash flows for the years then ended in accordance with accounting principles generally accepted in the United States of America.

/s/ BDO USA, LLP

Grand Rapids, Michigan

June 30, 2015

HUNTER TECHNOLOGY CORPORATION AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(Dollars in thousands)



	December 31, 2014		December 31, 2013
Assets
Current Assets:
Cash and cash equivalents	$	410	$	1,834
Accounts receivable, net of allowance for doubtful accounts of $246 and $75, respectively	10,217		10,694
Inventories	11,829		6,604
Deferred income taxes	56		37
Prepaid expenses and other current assets	499		358
Total current assets	23,011		19,527
Property, plant and equipment, net	2,944		2,930
Goodwill	329		665
Deferred income taxes — non-current	87		139
Other non-current assets	162		178
Total assets	$	26,533	$	23,439
Liabilities and Shareholders’ Equity
Current Liabilities:
Current portion of long-term debt	$	5,204	$	5,727
Accounts payable	6,282		7,420
Accrued salaries and wages	1,858		310
Other accrued expenses	1,388		1,124
Total current liabilities	14,732		14,581
Long-term debt — non-current portion	2,067		1,736
Other long-term liabilities	183		10
Total liabilities	16,982		16,327
Commitments and contingencies
Shareholders’ Equity:
Common stock, no par value; 500,000,000 shares authorized, 11,334,059 and 12,347,558 shares issued and outstanding, respectively	673		2,059
Retained earnings	8,878		5,053
Total shareholders’ equity	9,551		7,112
Total liabilities and shareholders’ equity	$	26,533	$	23,439

See Notes to consolidated financial statements.

HUNTER TECHNOLOGY CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME

(Dollars in thousands)



	For the year ended
	December 31, 2014			December 31, 2013
Net sales	$	78,789		$	35,454
Cost of goods sold	70,666			31,691
Gross profit	8,123			3,763
Operating Expense:
Selling and administrative expenses	7,066			2,886
Gain on acquisition of NBS	—			(3,601		)
Gain on acquisition of Spectral	(2,923		)	—
Gain on sale of Spinnaker	(981		)	—
Total operating expense, net	3,162			(715		)
Operating income	4,961			4,478
Other income (expense)
Interest expense	(354		)	(103		)
Interest income	3			29
Total other expense, net	(351		)	(74		)
Income before provision for income taxes	4,610			4,404
Provision for income taxes	35			29
Net income	$	4,575		$	4,375

See Notes to consolidated financial statements.

HUNTER TECHNOLOGY CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Dollars in thousands)



	For the year ended
	December 31, 2014			December 31, 2013
Cash Flows from Operating Activities:
Net income	$	4,575		$	4,375
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization	850			477
Deferred income tax expense	33			27
Stock-based compensation expense	134			24
Gain on acquisition of NBS	—			(3,601		)
Gain on acquisition of Spectral	(2,923		)	—
Gain on sale of Spinnaker	(981		)	—
Gain on sale of property, plant and equipment	(10		)	(58		)
Changes in operating assets and liabilities, net of business acquisitions:
Accounts receivable	2,878			(6,838		)
Inventories	(1,319		)	1,267
Prepaid expenses and other assets	(125		)	248
Accounts payable and accrued expenses	635			4,939
Net cash provided by operating activities	3,747			860
Cash Flows from Investing Activities:
Purchase of Spectral	(4,399		)	—
Purchase of NBS	—			(3,362		)
Purchases of property, plant and equipment	(409		)	(784		)
Proceeds from sale of property, plant and equipment	329			622
Net cash used in investing activities	(4,479		)	(3,524		)
Cash Flows from Financing Activities:
(Repayments) borrowings of line of credit, net	(1,672		)	3,550
Borrowings of notes payable	4,000			2,500
Repayments of notes payable	(2,520		)	(381		)
Distribution to shareholders	(500		)	(1,953		)
Net cash (used in) provided by financing activities	(692		)	3,716
Net (decrease) increase in cash and cash equivalents	(1,424		)	1,052
Cash and cash equivalents at beginning of year	1,834			782
Cash and cash equivalents at end of year	$	410		$	1,834
Supplemental disclosure of cash flow information:
Cash paid for interest	$	354		$	103
Cash paid for income taxes	$	2		$	3
Supplemental disclosure of non-cash investing and financing activities:
Stock exchanged for sale of Spinnaker	$	1,520		$	—
Receipt of fixed assets and inventory in satisfaction of note receivable	$	—		$	572
Accrued distribution to shareholders	$	250		$	—

See Notes to consolidated financial statements.

HUNTER TECHNOLOGY CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY

(Dollars in thousands)



	Common Stock					Retained Earnings			Total Shareholders’ Equity
	Shares		Amount			Retained Earnings			Total Shareholders’ Equity
Balance at December 31, 2012	12,347,558		$	2,035		$	2,631		$	4,666
Distribution to shareholders	—		—			(1,953		)	(1,953		)
Stock-based compensation	—		24			—			24
Net income	—		—			4,375			4,375
Balance at December 31, 2013	12,347,558		2,059			5,053			7,112
Distribution to shareholders	—		—			(750		)	(750		)
Stock exchanged for sale of Spinnaker	(1,013,499	)	(1,520		)	—			(1,520		)
Stock-based compensation	—		134			—			134
Net income	—		—			4,575			4,575
Balance at December 31, 2014	11,334,059		$	673		$	8,878		$	9,551

See Notes to consolidated financial statements.

HUNTER TECHNOLOGY CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(1) Business

Hunter Technology Corporation (“Hunter”), originally incorporated in 1987, along with its subsidiaries (the "Company") is a privately held company that designs and assembles printed circuit boards principally for devices used in medical and military operations and provides high technology prototyping services to the electronics industry. Customers include original equipment manufacturers (“OEM”) engaged in designing and fabricating electronic assemblies, subsystems and complete systems.

(2) Summary of Significant Accounting Policies

Basis of presentation and principals of consolidation - The consolidated financial statements have been prepared in accordance with generally accepted accounting principles and include the accounts of Hunter Technology Corporation and its wholly-owned subsidiaries. All intercompany transactions and accounts have been eliminated.

The Company evaluated subsequent events through June 30, 2015, the date these financial statements were issued.

Use of estimates - The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements and the reported revenue and expenses during the reporting period. Actual results could differ from those estimates.

Cash and cash equivalents - Cash and cash equivalents include cash on hand, demand deposits and money market funds with original maturities of three months or less. Cash equivalents are stated at cost which approximates fair value.

Trade accounts receivable and allowances for doubtful accounts - Trade accounts receivable are recorded at original invoice amounts less an allowance for doubtful accounts. Management determines the allowance for doubtful accounts by identifying troubled accounts and by using historical experience applied to an aging of accounts receivable. Trade receivables are charged against the allowance when deemed uncollectible and recoveries of previously written-off accounts are recorded when received.

Inventories - Inventories are valued at the lower of cost (first-in, first-out basis) or market and consist of materials, supplies labor and overhead used in the production of the Company’s products.

Property, plant and equipment - Property, plant and equipment are stated at cost less accumulated depreciation. Major improvements and upgrades are capitalized while ordinary repair and maintenance costs are expensed as incurred. Depreciation of property, plant and equipment is provided on a straight-line method over the estimated useful lives generally ranging from three to seven years. Leasehold improvements are amortized over the lesser of the useful lives or the lease term.

Goodwill - Goodwill is the excess of the purchase price over the fair value of assets acquired and liabilities assumed in a business combination. Goodwill is not amortized for financial reporting purposes. The Company tests goodwill for impairment annually or more often if events or changes in circumstances indicate the carrying value of the goodwill of its reporting units may not be recoverable. The Company has elected to first perform a qualitative assessment to determine whether it is more likely than not that the fair value of the reporting unit is less than its carrying value including goodwill. If the qualitative assessment indicates that it is not more likely than not that the fair value of a reporting unit is less than its carrying amount, then the first and second steps of the goodwill impairment test are unnecessary.

Impairment of long-lived assets - The Company reviews other long-term assets that are not held for sale for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Impairment is determined by comparing the carrying value of the assets to their estimated undiscounted cash flows. If such assets are considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the assets exceed the fair value of the assets. Assets to be disposed of are reported at the lower of their carrying amount or fair value less costs to sell and are reviewed at least quarterly.

Revenue recognition - Revenue from product sales is recognized when goods are shipped by the Company or received by the customer, title and risk of ownership have been passed, the price to the customer is fixed or determinable and recoverability is reasonably assured. Revenue for service is recognized when the service is rendered.

Warranty cost - The Company generally provides a thirty day labor and workmanship warranty on equipment sold from the date of shipment. The cost of warranty is accrued at the date of sale based on historical experience and management’s estimate of future liability. Accrued warranty was $19 thousand at December 31, 2014 and 2013.

Shipping and handling charges - Shipping and handling costs incurred by the Company are included in costs of goods sold.

Advertising costs - Advertising costs were $80 thousand and $72 thousand for the years ended December 31, 2014 and 2013, respectively and are expensed as incurred.

Stock-based compensation - The Company accounts for stock option awards as compensation expense based on the fair value of the awards on the date of grant and recognizes such expense, net of estimated forfeitures, on a straight-line basis over the requisite service period of the award, generally the four-year vesting period of the award. The Company determines the fair value of such options using the Black-Scholes option pricing model. The Black-Scholes option pricing model incorporates certain assumptions relating to risk-free interest rate, expected volatility, expected dividend yield and expected life of options, in order to arrive at a fair value estimate.

Income taxes - The Company elected S corporation status; accordingly, no federal income taxes have been provided in the consolidated statements of income as income and losses flow directly to the Company’s shareholders. The Company is subject to a state of California modified S corporation tax of 1.5% on taxable income as well as built-in gain taxes.

Deferred state income taxes are provided using the asset and liability method under which deferred tax assets and liabilities are recognized for the differences between the financial reporting and state income tax basis of assets and liabilities as well as state operating loss and state credit carry forwards. Deferred tax assets are reduced by a valuation allowance when, in the opinion of management, it is more likely than not that some portion or all of the deferred tax asset will not be realized. Interest and penalties are included in the provision for state income taxes in the consolidated statement of operations.

Market risk exposure - Financial instruments that potentially subject the Company to credit risk are primarily trade accounts receivable and cash and cash equivalents. The Company places temporary cash investments in high quality financial institutions. At times, such investments are in excess of the FDIC insurance limit. At December 31, 2014 and 2013, the Company had approximately $66 thousand and $2.0 million on deposit with financial institutions in excess of insured limits, respectively.

For the years ended December 31, 2014 and 2013, revenue from the Company’s major customers and related receivables from those customers at years’ end were as follows:



	Percent of Revenue		Percent of accounts receivables
	2014	2013	2014	2013
Customer 1	16%	32%	14%	6%
Customer 2	10%	14%	7%	32%
Customer 3	0%	10%	0%	5%

The percentage of total revenue for the years ended December 31, 2014 and 2013 were generated from the following industries and locations:



	2014	2013
Industries:
Networking	35%	7%
Medical	32%	19%
Industrial	16%	13%
Military	10%	47%
Other	7%	14%
	100%	100%

Geographic locations:
United States	98%	99%
Foreign	2%	1%
	100%	100%

New Accounting Standards

Revenue recognition - In May 2014, the Financial Accounting Standards Board (“FASB”) issued revised guidance on revenue recognition. The standard provides a single revenue recognition model which is intended to improve comparability over a range of industries, companies and geographical boundaries and to enhance disclosures. The guidance is effective for fiscal years, and interim periods within those years, beginning after December 15, 2017 and requires either full retrospective adoption or modified retrospective adoption.

Discontinued operations - In April 2014, the FASB issued guidance that changes the criteria for determining which disposals can be presented as discontinued operations and modifies related disclosure requirements. Under the new guidance, a discontinued operation is defined as a component or group of components that is disposed of or is classified as held for sale and represents a strategic shift that has or will have a major effect on an entity’s operations and financial results. The change is effective for fiscal years, and interim reporting periods within those years, beginning on or after December 15, 2014, with early adoption permitted. The guidance applies prospectively to new disposals and new classifications of disposal groups as held for sale after the effective date. The Company early adopted this guidance in 2014 and assessed its disposition of Spinnaker Microwave, Inc. ("Spinnaker") in October 2014 thereunder.

(3) Acquisitions

Spectral

In March 2014, Hunter, through a wholly-owned subsidiary, acquired accounts receivable, inventories and property, plant and equipment from Spectral Response, LLC ("Spectral") for $4.4 million. The acquired business provides a broad range of product design, additional manufacturing operations as well as penetration into additional markets. Spectral operates as an electronic manufacturing services ("EMS") company that specializes in contract manufacturing of circuit boards and electric components for various commercial and industrial applications. Spectral complements its unique EMS services with strong engineering support, flexible supply chain management, quality process controls, customized program management and a lean manufacturing culture.

The following table represents the allocation of the total consideration to the assets acquired from Spectral in March 2014 based on Hunter's estimate of their respective fair values (in thousands):



Total purchase consideration	$	4,399
Assets acquired:
Accounts receivable, net	$	2,401
Inventories	4,116
Property, plant and equipment	805
Total assets acquired	7,322
Gain on acquisition	$	2,923

Hunter has determined that the fair value of the assets acquired in this acquisition exceed the total purchase consideration and as a result the Company recorded a gain on the acquisition of $2.9 million. Hunter believes it was able to purchase the assets of Spectral significantly below its fair value due to the assets that were purchased being distressed, presenting challenges and opportunities to Hunter.

NBS

In October 2013, Hunter, through a wholly owned subsidiary, acquired inventories and property, plant and equipment from NBS Design, Inc. ("NBS") for $3.4 million. The acquired business expanded Hunter's portfolio of contract product design, engineering and manufacturing services.

The following table represents the allocation of the total consideration to the assets acquired from NBS in October 2013 based on Hunter's estimate of their respective fair values (in thousands):



Total purchase consideration	$	3,362
Assets acquired:
Inventories	$	4,426
Property, plant and equipment	2,537
Total assets acquired	6,963
Gain on acquisition	$	3,601

Hunter has determined that the fair value of the assets acquired in this acquisition exceed the total purchase consideration and as a result the Company recorded a gain on the acquisition of $3.6 million. Hunter believes it was able to purchase the assets of NBS significantly below its fair value due to the assets that were purchased being distressed, presenting challenges and opportunities to Hunter.

(4) Sale of Spinnaker

In October 2014, all of the assets of Spinnaker were sold to RFE, Inc. and Jason Seifert, the sole shareholder of RFE, Inc. in exchange for 1,013,499 shares of Hunter Technology Corporation common stock owned by Mr. Seifert. Hunter no longer operates Spinnaker but continues to own the common stock of Spinnaker, now essentially a shell company. Mr. Seifert was a former employee of Hunter and is a non-controlling shareholder and a related party of Hunter as of December 31, 2014. The assets sold resulted in a gain of $981 thousand. The gain is based on the estimated fair value of the Hunter common stock of $1.50 per share which was determined by a third-party valuation firm based on the income approach, a discounted cash flow method.

(5) Inventories

The following are the major classifications of inventory (in thousands):



	December 31, 2014		December 31, 2013
Raw materials	$	8,012	$	4,195
Work in process	3,620		2,236
Finished goods	197		173
Total inventory	$	11,829	$	6,604

(6) Property, Plant and Equipment, Net

Property, plant and equipment consists of the following (in thousands):



	December 31, 2014			December 31, 2013
Machinery and equipment	$	3,417		$	4,976
Furniture and fixtures	14			18
Computer equipment and software	488			465
Leasehold improvements	195			—

Total property, plant and equipment	4,114			5,459
Less accumulated depreciation and amortization	(1,170		)	(2,529		)

Total property, plant and equipment, net	$	2,944		$	2,930

(7) Goodwill

Changes in the carrying value of goodwill for the years ended December 31, 2014 and 2013 were as follows:



	December 31, 2014			December 31, 2013
Balance, beginning of year	$	665		$	665
Sale of Spinnaker (See Note 4)	(336		)	—
Balance, end of period	$	329		$	665

(8) Income taxes

California state income tax expense consisted of the following (in thousands):



	December 31, 2014		December 31, 2013
Current	$	2	$	2
Deferred	33		27
Total Taxes	$	35	$	29

Significant components of deferred income tax assets and liabilities are as follows (in thousands):



	December 31, 2014			December 31, 2013
Deferred tax assets:
Accruals and reserves	$	37		$	18
California state tax credit carryover	110			163
	147			181
Deferred tax liabilities:
Property and equipment	(1		)	(1		)
Goodwill	(3		)	(4		)
	(4		)	(5		)
Net deferred tax assets	$	143		$	176

Net deferred income tax assets are included in the consolidated balance sheets as follows (in thousands):



	December 31, 2014		December 31, 2013
Current deferred tax assets	$	56	$	37
Long term deferred tax assets, net	87		139
Total deferred tax assets	$	143	$	176

At December 31, 2014, the Company had a California Research and Development Credit carryover of approximately $110 thousand, which does not have an expiration date.

The Company’s state tax returns for 2010 and later years are subject to examinations by taxing authorities.

(9) Debt

Debt consists of the following (in thousands):



	December 31, 2014			December 31, 2013
Note payable to bank with a variable interest rate of 1.0% over the bank's prime rate (4.25% at December 31, 2014 and 2013) payable monthly in the amount of $69, plus interest until January 2017.	$	1,234		$	2,500

Note payable to bank with a variable interest rate of 1.0% over the bank's prime rate (4.25% at December 31, 2014) payable monthly in the amount of $111, plus interest until March 2017.	3,000			—

Note payable to bank with interest rate of 4.9%, payable monthly in the amount of $32, plus accrued interest until August 2014.	—			254
Total notes payable	4,234			2,754
Line of credit	3,037			4,709
Total debt	7,271			7,463
Less: current portion and debt in default	(5,204		)	(5,727		)
Total long-term debt	$	2,067		$	1,736

At December 31, 2014, the Company had a line of credit with a bank of $7.0 million with a maturity date of August 2016. Interest on the line calculated at 0.5% over the bank’s Prime Rate (3.75% at December 31, 2014). Advances on the line are limited to the lesser of $7.0 million or 75% of the Company’s eligible trade accounts receivable. Availability under the line of credit was $4.0 million as of December 31, 2014. Borrowings under the line of credit and the notes payable to a bank are secured by the Company’s accounts receivable, inventory, equipment and other assets.

The line of credit agreements contain financial covenants, as defined, with respect to the quick ratio, debt service coverage ratio, total liabilities to tangible effective net worth ratio and maximum capital expenditures. At December 31, 2014, the Company exceeded the maximum capital expenditures covenant, however, was in compliance with the other three financial covenants. At December 31, 2013, the Company was not in compliance with the total liabilities to tangible net worth ratio and had exceeded the maximum capital expenditures, however, received a waiver from the bank for the non-compliance.

Future maturities of total notes payable at December 31, 2014 are as follows (in thousands):



Year Ending December 31,	Amount
2015	$	2,167
2016	1,734
2017	333
Total	$	4,234

On April 14, 2015, all of the Company's debt was paid off in conjunction with the acquisition of the Company by Sparton Corporation. See Note 13, Subsequent Events for a further description of this transaction.

(10) Employee Retirement Benefit Plans

The Company has a 401(k) plan which allows employees who are over the age of twenty one and that have completed three months of consecutive service to defer part of their income into the plan on a tax favorable basis. The Company may contribute, on a payroll-by-payroll basis, a matching contribution equal to 25% of the first 4% of employee’s elective contributions not to exceed 1% of employee’s eligible compensation and not to exceed $2,540 per employee for the plan year. The Company contributions were $40 thousand and $29 thousand for the years ended December 31, 2014 and 2013, respectively.

(11) Commitments and Contingencies

Lease commitments and rent expense - The Company has commercial lease agreements for its office and manufacturing facilities in Santa Clara, CA, Milpitas, CA and Lawrenceville, GA.

At December 31, 2014, the future minimum lease payments under operating leases with initial or remaining noncancelable lease terms in excess of one year are as follows (in thousands):



Year Ending December 31,	Amount
2015	$	839
2016	823
2017	688
2018	591
2019	591
Thereafter	541
Total *	$	4,073

*Future minimum lease payments shown above have not been reduced by minimum sublease rentals, which were $14 thousand and $34 thousand for 2014 and 2013, respectively.

Rent expense, net of sublease payments, was $1.4 million and $479 thousand for the years ended December 31, 2014 and 2013, respectively.

Litigation

NVision Solutions Claim

On or about November 26, 2014, the Company received a letter from counsel to NVision Solutions, Inc. (''NVision") notifying Hunter of claims for loss arising from alleged breach of contract between NVision and Hunter’s wholly-owned subsidiary, Spinnaker. On February 12, 2015, NVision filed a Complaint against Hunter in United States District Court for the Southern District of Mississippi, alleging, among other things, breach of contract and misrepresentation. On June 1, 2015, the parties entered into a settlement agreement, agreement for dismissal and mutual release, pursuant to which, among other things, Hunter agreed to pay NVision $350 thousand, NVision agreed to dismiss the lawsuit with prejudice, and the parties executed a mutual, general release. This settlement amount was accrued at December 31, 2014 and is reflected within other accrued expenses on the consolidated balance sheet on that date.

SBOE Claim

On October 11, 2013, HTC-EIAC, Inc. (“HTC”), a wholly owned subsidiary of Hunter, purchased substantially all of the assets of NBS under the Agreement to Purchase Assets by and between and NBS dated October 4, 2013, as amended October 10, 2013 (the "NBS APA"). On or about January 24, 2014, the California State Board of Equalization ("SBOE") issued a determination for sales tax liability of NBS in the amount of approximately $1.4 million, and on or about March 21, 2014, issued a billing to NBS for such amount plus additional accruing interest. On or about April 30, 2015, HTC received a Billing Notice from the SBOE in the amount of approximately $1.8 million, based on a Notice of Successor Liability. On June I, 2015, HTC submitted an Administrative Protest to the Notice of Successor Liability, in which it has been asserted, among other things, that HTC is not the successor of NBS, and that the Billing Notice is not correct. Hunter believes that its defenses to the charges are strong and it intends to defend the charges asserted in the Billing Notice vigorously. Given the stage of claim and the Company’s assertion that it has no successor liability on this claim, no provision for any liability under this claim has been recorded in the Company’s financial statements.

Wrongful Death Claim

On November 19, 2014, Clark Edward Gibbs Sr., as the Personal Representative/Beneficiary and Spouse of The Estate of Barbara Jeanette Gibbs, filed a wrongful death action against Hunter in the State Court of Fulton County, Georgia, seeking damages in the amount of $54.5 million for lost earnings, medical and funeral expenses, mental anguish, and punitive damages. Ms. Gibbs was a former factory worker at Hunter’s Georgia facility who died from a heart attack on September 5, 2014, the day after encountering a lizard on the premises. Tender of defense has been accepted by Hunter’s insurance carrier and defense counsel filed an early motion for summary judgment on March 27, 2015 on the basis that the claims are barred by the Workers’ Compensation Act. A hearing on the motion is currently scheduled for July 8, 2015. The Company believes that its defenses to the claims are very strong and it intends to defend this action vigorously. The claim is in the early stages and due to the limited information available and the uncertainty in the ultimate resolution of this matter, no provision for any liability under this claim have been recorded in the Company’s financial statements.

Other

In addition to the foregoing, from time to time, the Company is involved in various legal proceedings relating to claims arising in the ordinary course of business. The Company is not currently a party to any other such legal proceedings, the adverse outcome of which, individually or in the aggregate, is expected to have a material adverse effect on its business, financial condition or results of operations.

(12) Stock Based Compensation

Stock-based compensation expense for all share-based payment awards is based on the grant-date calculated fair value. The Company recognizes these compensation costs, net of estimated forfeitures, only on shares expected to vest on a straight line basis over the requisite service period of the award, generally the option vesting period of four years. The estimated forfeiture rate is based on historical experience.

In October 2013, the Company’s Board of Directors approved the termination of its prior stock option plan and approved the adoption of a new stock option plan (the “Option Plan”). The Option Plan permits the Company to grant up to 1,281,730 shares of the Company’s common stock.

The Option Plan provides for the grant of incentive and non-qualified options to employees, nonemployee directors and consultants of the Company. Options granted generally become exercisable over a four-year period following the date of grant and expire ten years from date of grant. The exercise price of all stock options must be at least equal to 100% of the fair value of the Company’s common stock at date of grant as determined by the Board of Directors.

In October 2013, options were granted to two employees to purchase a total of 4,260,000 shares of common stock. These non-qualified options were granted outside of the Option Plan.

The fair value of stock options granted was estimated using the Black-Scholes option pricing model with the following weighted average assumptions:



	December 31, 2014		December 31, 2013
Expected dividend yield (a)	0.0%		0.0%
Risk-free interest rate (b)	2.00	%	3.00	%
Expected volatility (c)	41.12%		43.51%
Expected life (years) (d)	4.0		4.0
Fair value	$1.50		$1.02

(a) The Company has no history or expectation of paying cash dividends on its common stock.

(b) The risk-free interest rate is based on the U.S. treasury yield for terms consistent with the expected life of the options at the date of grant.

(c) The Company is not a public entity and has therefore based volatility on the closing prices of a similar company that is public.

(d) The expected life of the options granted is based on expected exercise patterns.

Stock based compensation was $134 thousand and $24 thousand for the years ended December 31, 2014 and 2013, respectively.

Unamortized stock-option compensation expense and the weighted average remaining amortization period as of December 31, 2014 and 2013 was as follows:



	December 31, 2014		December 31, 2013
Unamortized stock-based compensation expense	$	360	$	287

Weighted average amortization period (years)	2.8		2.7

Stock option activity for the years ended December 31, 2014 and 2013 is as follows:



	Number of Options	Weighted Average Exercise Price		Weighted Average Remaining Contractual Life
Outstanding, December 31, 2012	205,285	$	0.23
Options granted	4,775,428	1.02
Outstanding, December 31, 2013	4,980,713	0.99		8.7
Options granted	432,500	1.50
Options cancelled or forfeited	(69,842)	0.49
Outstanding, December 31, 2014	5,343,371	$	1.03	8.8

Exercisable, December 31, 2013	146,000	$	0.19	7.2
Exercisable, December 31, 2014	1,569,447	$	0.96	8.8

On April 14, 2015, all outstanding options outstanding were canceled in conjunction with the acquisition of the Company by Sparton Corporation. See Note 13, Subsequent Events for a further description of this transaction.

(13) Subsequent Events

On April 14, 2015, the Company was acquired by Sparton Corporation in a $55.0 million all-cash transaction, plus $0.8 million of initial net working capital adjustments. Additional consideration of up to $13.0 million is contingent upon Hunter attaining certain performance thresholds during the twelve month period following the transaction. All of the Company's debt was paid off in conjunction with the acquisition of the Company by Sparton Corporation. All outstanding options outstanding were canceled in conjunction with the acquisition of the Company by Sparton Corporation.

Exhibit 99.2

HUNTER TECHNOLOGY CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(UNAUDITED)

(Dollars in thousands)



	March 31, 2015		December 31, 2014 (a)
Assets
Current Assets:
Cash and cash equivalents	$	230	$	410
Accounts receivable, net of allowance for doubtful accounts of $68 and $246, respectively	12,439		10,217
Inventories	19,265		11,829
Deferred income taxes	56		56
Prepaid expenses and other current assets	323		499
Total current assets	32,313		23,011
Property, plant and equipment, net	2,970		2,944
Goodwill	329		329
Deferred income taxes — non-current	75		87
Other non-current assets	162		162
Total assets	$	35,849	$	26,533
Liabilities and Shareholders’ Equity
Current Liabilities:
Current portion of long-term debt	$	5,993	$	5,204
Accounts payable	14,813		6,282
Accrued salaries and wages	1,001		1,858
Other accrued expenses	1,216		1,388
Total current liabilities	23,023		14,732
Long-term debt — non-current portion	1,526		2,067
Other long-term liabilities	178		183
Total liabilities	24,727		16,982
Commitments and contingencies
Shareholders’ Equity:
Common stock, no par value; 500,000,000 shares authorized, 11,334,059 shares issued and outstanding	706		673
Retained earnings	10,416		8,878
Total shareholders’ equity	11,122		9,551
Total liabilities and shareholders’ equity	$	35,849	$	26,533


(a)	Derived from the Company’s audited financial statements as of December 31, 2014.

See Notes to unaudited condensed consolidated financial statements.

HUNTER TECHNOLOGY CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

(UNAUDITED)

(Dollars in thousands)



	For the Three Months Ended
	March 31, 2015			March 31, 2014
Net sales	$	19,577		$	15,269
Cost of goods sold	16,649			13,337
Gross profit	2,928			1,932
Operating Expense:
Selling and administrative expenses	1,267			1,283
Gain on acquisition of Spectral	—			(2,923		)
Total operating expense, net	1,267			(1,640		)
Operating income	1,661			3,572
Other income (expense):
Interest expense	(73		)	(68		)
Other, net	(38		)	—
Total other expense, net	(111		)	(68		)
Income before provision for income taxes	1,550			3,504
Provision for income taxes	12			27
Net income	$	1,538		$	3,477

See Notes to unaudited condensed consolidated financial statements.

HUNTER TECHNOLOGY CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED)

(Dollars in thousands)



	For the Three Months Ended
	March 31, 2015			March 31, 2014
Cash Flows from Operating Activities:
Net income	$	1,538		$	3,477
Adjustments to reconcile net income to net cash (used in) provided by operating activities:
Depreciation and amortization	207			68
Stock-based compensation expense	33			33
Deferred income tax expense	12			27
Gain on acquisition of Spectral	—			(2,923		)
Changes in operating assets and liabilities, net of business acquisition:
Accounts receivable	(2,220		)	2,444
Inventories	(7,437		)	(2,337		)
Prepaid expenses and other assets	177			(279		)
Accounts payable and accrued expenses	7,497			808
Net cash (used in) provided by operating activities	(193		)	1,318
Cash Flows from Investing Activities:
Purchase of Spectral	—			(4,399		)
Purchases of property, plant and equipment	(235		)	—
Proceeds from sale of property, plant and equipment	—			7
Net cash used in investing activities	(235		)	(4,392		)
Cash Flows from Financing Activities:
Borrowings of line of credit, net	790			142
Borrowings of notes payable	—			4,000
Repayments of notes payable	(542		)	(737		)
Net cash provided by financing activities	248			3,405
Net (decrease) increase in cash and cash equivalents	(180		)	331
Cash and cash equivalents at beginning of period	410			1,834
Cash and cash equivalents at end of period	$	230		$	2,165
Supplemental disclosure of cash flow information:
Cash paid for interest	$	73		$	68

See Notes to unaudited condensed consolidated financial statements.

HUNTER TECHNOLOGY CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY

(UNAUDITED)

(Dollars in thousands)



	March 31, 2014
	Common Stock			Retained Earnings		Total Shareholders’ Equity
	Shares	Amount		Retained Earnings		Total Shareholders’ Equity
Balance at December 31, 2013	12,347,558	$	2,059	$	5,053	$	7,112
Net income	—	—		3,477		3,477
Stock-based compensation	—	33		—		33
Balance at March 31, 2014	12,347,558	$	2,092	$	8,530	$	10,622



	March 31, 2015
	Common Stock			Retained Earnings		Total Shareholders’ Equity
	Shares	Amount		Retained Earnings		Total Shareholders’ Equity
Balance at December 31, 2014	11,334,059	$	673	$	8,878	$	9,551
Net income	—	—		1,538		1,538
Stock-based compensation	—	33		—		33
Balance at March 31, 2015	11,334,059	$	706	$	10,416	$	11,122

See Notes to unaudited condensed consolidated financial statements.

HUNTER TECHNOLOGY CORPORATION AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(1) Business and Basis of Presentation

Hunter Technology Corporation (“Hunter”), originally incorporated in 1987, along with its subsidiaries (the "Company") is a privately held Company that designs and assembles printed circuit boards principally for devices used in medical and military operations and provides high technology prototyping services to the electronics industry. Customers include original equipment manufacturers (“OEM”) engaged in designing and fabricating electronic assemblies, subsystems and complete systems.

The unaudited condensed consolidated financial statements and related footnotes have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) for interim financial information and Rule 10-01 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements. The financial information presented herein should be read in conjunction with the Company’s audited financial statements for the fiscal years ended December 31, 2014 and December 31, 2013 which includes information and disclosures not presented herein. In the opinion of management, the unaudited condensed consolidated financial statements contain all of the adjustments, consisting of normal recurring adjustments, necessary to present fairly, in summarized form, the consolidated financial position, results of operations and cash flows of the Company. The results of operations for the three months ended March 31, 2015 are not necessarily indicative of the results that may be expected for the full fiscal year 2015. All significant intercompany accounts and transactions have been eliminated in consolidation. Subsequent events have been evaluated through June 30, 2015, the date these financial statements were issued.

(2) Acquisition of Spectral

The following table represents the allocation of the total consideration to the assets acquired from Spectral in March 2014 based on Hunter's estimate of their respective fair values (in thousands):



Total purchase consideration	$	4,399
Assets acquired:
Accounts receivable, net	$	2,401
Inventories	4,116
Property, plant and equipment	805
Total assets acquired	7,322
Gain on acquisition	$	2,923

(3) Sale of Spinnaker

In October 2014, all of the assets of Spinnaker Microwave, Inc. ("Spinnaker") were sold to RFE, Inc. and Jason Seifert, the sole shareholder of RFE, Inc. in exchange for 1,013,499 shares of Hunter Technology Corporation common stock owned by Mr. Seifert. Hunter no longer operates Spinnaker but continues to own the common stock of Spinnaker, now essentially a shell company. Mr. Seifert was a former employee of Hunter and is a non-controlling shareholder and a related party of Hunter as of March 31, 2015.

(4) Inventories

The following are the major classifications of inventory (in thousands):



	March 31, 2015		December 31, 2014
Raw materials	$	11,896	$	8,012
Work in process	7,224		3,620
Finished goods	145		197
Total inventory	$	19,265	$	11,829

(5) Property, Plant and Equipment, Net

Property, plant and equipment, net consists of the following (in thousands):



	March 31, 2015			December 31, 2014
Machinery and equipment	$	3,591		$	3,417
Furniture and fixtures	14			14
Computer equipment and software	550			488
Leasehold improvements	195			195

Total property, plant and equipment	4,350			4,114
Less accumulated depreciation and amortization	(1,380		)	(1,170		)

Total property, plant and equipment, net	$	2,970		$	2,944

(6) Goodwill

Changes in the carrying value of goodwill for the three months ended March 31, 2015 and year ended December 31, 2014 were as follows:



	March 31, 2015		December 31, 2014
Balance, beginning of year	$	329	$	665
Sale of Spinnaker (See Note 3)	—		(336		)
Balance, end of period	$	329	$	329

(7) Income Taxes

The Company elected S corporation status; accordingly, no federal income taxes have been provided in the condensed consolidated statements of income as income and losses flow directly to the Company’s shareholders. The Company is subject to a state of California modified S corporation tax of 1.5% on taxable income as well as built-in gain taxes.

(8) Debt

Debt consists of the following (in thousands):



	March 31, 2015			December 31, 2014
Note payable to bank with a variable interest rate of 1.0% over the bank's prime rate (4.25% at March 31, 2015 and December 31, 2014) payable monthly in the amount of $69, plus interest until January 2017.	$	1,026		$	1,234
Note payable to bank with a variable interest rate of 1.0% over the bank's prime rate (4.25% at March 31, 2015 and December 31, 2014) payable monthly in the amount of $111, plus interest until March 2017.	2,667			3,000
Total notes payable	3,693			4,234
Line of credit	3,826			3,037
Total debt	7,519			7,271
Less: current portion and debt in default	(5,993		)	(5,204		)
Total long-term debt	$	1,526		$	2,067

At March 31, 2015, the Company had a line of credit with a bank of $7.0 million with a maturity date of August 2016. Interest on the line calculated at 0.5% over the bank’s Prime Rate (3.75% at March 31, 2015). Advances on the line are limited to the lesser of $7.0 million or 75% of the Company’s eligible trade accounts receivable. Availability under the line of credit was $3.2 million as of March 31, 2015. The line of credit agreements contain financial covenants, as defined, with respect to the quick ratio, debt service coverage ratio, total liabilities to tangible effective net worth ratio and maximum capital expenditures. At December 31, 2014, the Company exceeded the maximum capital expenditures covenant, however, was in compliance with the other three financial covenants.

Borrowings under the line of credit and the notes payable to a bank are secured by the Company’s accounts receivable, inventory, equipment and other assets.

Future maturities of total notes payable at March 31, 2015 are as follows (in thousands):



Years Ending December 31,	Amount
2015	$	1,626
2016	1,734
2017	333
	$	3,693

On April 14, 2015, all of the Company's debt was paid off in conjunction with the acquisition of the Company by Sparton Corporation. See Note 10, Subsequent Events for a further description of this transaction.

(9) Commitments and Contingencies

NVision Solutions Claim - On or about November 26, 2014, the Company received a letter from counsel to NVision Solutions, Inc. (''NVision") notifying Hunter of claims for loss arising from alleged breach of contract between NVision and Hunter’s wholly-owned subsidiary, Spinnaker. On February 12, 2015, NVision filed a Complaint against Hunter in United States District Court for the Southern District of Mississippi, alleging, among other things, breach of contract and misrepresentation. On June 1, 2015, the parties entered into a settlement agreement, agreement for dismissal and mutual release, pursuant to which, among other things, Hunter agreed to pay NVision $350 thousand, NVision agreed to dismiss the lawsuit with prejudice, and the parties executed a mutual, general release. This settlement amount was accrued at December 31, 2014 and is reflected within other accrued expenses on the consolidated balance sheet on that date.

SBOE Claim - On October 11, 2013, HTC-EIAC, Inc. (“HTC”), a wholly owned subsidiary of Hunter, purchased substantially all of the assets of NBS Design, Inc. (“NBS”) under the Agreement to Purchase Assets by and between and NBS dated October 4, 2013, as amended October 10, 2013 (the "NBS APA"). On or about January 24, 2014, the California State Board of Equalization ("SBOE") issued a determination for sales tax liability of NBS in the amount of approximately $1.4 million, and on or about March 21, 2014, issued a billing to NBS for such amount plus additional accruing interest. On or about April 30, 2015, HTC received a Billing Notice from the SBOE in the amount of approximately $1.8 million, based on a Notice of Successor Liability. On June I, 2015, HTC submitted an Administrative Protest to the Notice of Successor Liability, in which it has been asserted, among other things, that HTC is not the successor of NBS, and that the Billing Notice is not correct. Hunter believes that its defenses to the charges are strong and it intends to defend the charges asserted in the Billing Notice vigorously. Given the stage of claim and the Company’s assertion that it has no successor liability on this claim, no provision for any liability under this claim has been recorded in the Company’s financial statements.

Wrongful Death Claim - On November 19, 2014, Clark Edward Gibbs Sr., as the Personal Representative/Beneficiary and Spouse of The Estate of Barbara Jeanette Gibbs, filed a wrongful death action against Hunter in the State Court of Fulton County, Georgia, seeking damages in the amount of $54.5 million for lost earnings, medical and funeral expenses, mental anguish, and punitive damages. Ms. Gibbs was a former factory worker at Hunter’s Georgia facility who died from a heart attack on September 5, 2014, the day after encountering a lizard on the premises. Tender of defense has been accepted by Hunter’s insurance carrier and defense counsel filed an early motion for summary judgment on March 27, 2015 on the basis that the claims are barred by the Workers’ Compensation Act. A hearing on the motion is currently scheduled for July 8, 2015. The Company believes that its defenses to the claims are very strong and it intends to defend this action vigorously. The claim is in the early stages and due to the limited information available and the uncertainty in the ultimate resolution of this matter, no provision for any liability under this claim have been recorded in the Company’s financial statements.

Other — In addition to the foregoing, from time to time, the Company is involved in various legal proceedings relating to claims arising in the ordinary course of business. The Company is not currently a party to any other such legal proceedings, the adverse outcome of which, individually or in the aggregate, is expected to have a material adverse effect on its business, financial condition or results of operations.

(10) Subsequent Events

Exhibit 99.3

UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL DATA

The following unaudited pro forma condensed combined financial statements have been prepared by the management of Sparton Corporation (“Sparton”) and have been developed by applying pro forma adjustments to the historical audited and unaudited consolidated financial statements of Sparton and Hunter Technology Corporation (“Hunter”). Assumptions underlying the pro forma adjustments are described in the accompanying notes, which should be read in conjunction with these unaudited pro forma condensed combined financial statements. These unaudited pro forma condensed combined financial statements give effect to the following:


•	Sparton’s acquisition of Hunter, effective April 14, 2015 for an all cash payment of $55.8 million, plus a $2.7 million discounted estimated fair value of additional consideration payable in relation to additional consideration of up to $13.0 million contingent upon Hunter attaining certain performance thresholds during the twelve month period following the Transaction.


•	The borrowing of $55.9 million from Sparton’s revolving line-of-credit facility at an average rate of 1.52% for the year ended June 30, 2014 and $58.6 million ($55.9 million plus $2.7 million earnout payment) at an average rate of 1.54% for the nine months ended March 31, 2015 to finance the acquisition of Hunter;


•	The payment of $336 thousand of transaction costs and $353 thousand of financing costs paid after March 31, 2015.

Hunter acquired certain assets of NBS Design, Inc. ("NBS") for $3.4 million in October 2013 and certain assets of Spectral Response, LLC ("Spectral") for $4.4 million in March 2014. Additionally, Hunter sold all of the assets of Spinnaker Microwave, Inc. ("Spinnaker") in October 2014. None of these transactions are significant in size to Sparton and therefore no pro forma effects of the acquisitions and disposition of these businesses have been made within these unaudited pro forma combined financial statements.

The unaudited pro forma condensed combined balance sheet is presented as if the consummation of the acquisition, revolver borrowing and payment of transaction and financing costs (collectively, the “Transaction”) had occurred on March 31, 2015 and is based on the unaudited balance sheets of Sparton and Hunter on that date. The unaudited pro forma condensed combined statements of income are presented as if the Transaction had occurred on July 1, 2013, the first day of Sparton’s 2014 fiscal year ended June 30, 2014.

Due to the fact that the end dates of Sparton’s and Hunter’s fiscal periods differ, and in order to present pro forma results for comparable periods,


•	the unaudited pro forma condensed combined statement of income for the year ended June 30, 2014 is presented based on Sparton’s audited results for its fiscal year ended June 30, 2014 and Hunter’s unaudited results for its twelve months ended June 30, 2014. (Hunter’s fiscal year end was December 31);


•	the unaudited pro forma condensed combined statement of income for the nine months ended March 31, 2015 is presented based on Sparton’s unaudited results for its nine months ended March 31, 2015 and Hunter’s unaudited results for its nine months ended March 31, 2015.

The acquisition will be accounted for under the acquisition method of accounting, which requires the total acquisition cost of $55.0 million, net working capital adjustment of $0.8 million and the $2.7 million estimated fair value of additional consideration payable to be allocated to the tangible and intangible assets acquired and liabilities assumed based on their estimated fair values. The excess of the total acquisition costs over the amounts allocated to Hunter’s net assets will be recognized as goodwill.

The process of valuing Hunter’s tangible and intangible assets and liabilities, as well as evaluating accounting policies for conformity, is still in the preliminary stages. Accordingly, the purchase price allocation adjustments included in the unaudited pro forma condensed combined financial statements are preliminary. A final valuation will be based on the actual net tangible and intangible assets of Hunter that existed as of the date of completion of the acquisition. Sparton currently expects that the process of determining the fair values of the tangible and intangible assets acquired and liabilities assumed will be completed within one year of the consummation of the acquisition. During the measurement period (which is not to exceed one year from the acquisition date), Sparton is required to recognize additional assets or liabilities if new information is obtained about facts and circumstances that existed as of the acquisition date that, if known, would have resulted in the recognition of those assets or liabilities as of that date. Sparton may adjust the preliminary purchase price allocation after obtaining additional information regarding, among other things, asset valuations, liabilities assumed and revisions of previous estimates.

These estimated pro forma adjustments only give effect to events that are (i) directly attributable to the Transaction, (ii) factually supportable, and (iii) with respect to the unaudited pro forma statements of income, expected to have a continuing impact on the combined results. The unaudited pro forma condensed combined financial statements do not reflect any net sales enhancements, cost savings from operating efficiencies, synergies or other benefits that could result from the acquisition, or the costs and related liabilities that would be incurred to achieve them.

The unaudited pro forma condensed combined financial statements are provided for illustrative purposes only and do not purport to represent what the actual consolidated results of operations or the consolidated financial position of Sparton would have been had the Transaction occurred on the dates assumed, nor are they necessarily indicative of future consolidated results of operations or the financial position of Sparton.

The unaudited pro forma condensed combined financial statements should be read in conjunction with the consolidated financial statements of Sparton and related notes filed with the Securities and Exchange Commission and with the consolidated financial statements of Hunter and related notes presented herein. All pro forma adjustments and their underlying assumptions are described more fully in the accompanying notes.

SPARTON CORPORATION

PRO FORMA CONDENSED COMBINED BALANCE SHEET

MARCH 31, 2015

(Unaudited)

(Dollars in thousands)



	Sparton			Hunter		Pro Forma Adjustments				Pro Forma Combined
Assets
Current Assets:
Cash and cash equivalents	$	5,581		$	230	$	(575	)	(a)	$	5,236
Accounts receivable	46,332			12,439		—				58,771
Inventories	64,340			19,265		—				83,605
Other current assets	9,205			379		(3		)	(b)(c)	9,581
Total current assets	125,458			32,313		(578		)		157,193
Property, plant and equipment, net	29,777			2,970		—				32,747
Goodwill	54,688			329		22,138			(d)	77,155
Other intangible assets, net	25,383			—		17,600			(e)	42,983
Other long term assets	8,209			237		544			(b)(c)(f)	8,990
Total assets	$	243,515		$	35,849	$	39,704			$	319,068
Liabilities and Shareholders’ Equity
Current Liabilities:
Current portion of long-term debt	$	—		$	5,993	$	(5,993	)	(g)	$	—
Accounts payable	22,239			14,813		—				37,052
Other current liabilities	22,210			2,217		—				24,427
Total current liabilities	44,449			23,023		(5,993		)		61,479
Long-term debt, less current portion	80,000			1,526		54,341			(g)(h)	135,867
Discounted estimated future earnout payment liability	—			—		2,700			(i)	2,700
Other long-term liabilities	7,147			178		—				7,325
Total liabilities	131,596			24,727		51,048				207,371
Commitments and contingencies
Shareholders’ Equity:
Common stock	12,388			706		(706		)	(j)	12,388
Capital in excess of par value	15,800			—		—				15,800
Retained earnings	84,835			10,416		(10,638		)	(j)(k)	84,613
Accumulated other comprehensive loss	(1,104		)	—		—				(1,104		)
Total shareholders’ equity	111,919			11,122		(11,344		)		111,697
Total liabilities and shareholders’ equity	$	243,515		$	35,849	$	39,704			$	319,068

See Notes to pro forma condensed combined financial statements.

SPARTON CORPORATION

PRO FORMA CONDENSED COMBINED BALANCE SHEET

MARCH 31, 2015

Description of Pro Forma Adjustments

(Unaudited)

(Dollars in thousands)


(a)	Represents cash paid for the transaction costs, net of tax ($222) and debt financing costs ($353).


(b)	Elimination of Hunter deferred taxes ($56 current asset and $75 long-term asset) as the acquisition was an asset purchase for tax purposes.


(c)	Record $319 of prepaid insurance under a representations and warranties policy obtained in conjunction with and recorded as part of the Transaction ($53 current, $266 non-current).


(d)	The elimination of Hunter's historical goodwill ($329) in accordance with acquisition accounting and the establishment of estimated goodwill resulting from the acquisition ($22,467) had the Transaction occurred on March 31, 2015. The preliminary fair value determination of goodwill at the acquisition date, April 14, 2015, is $24,260.


(e)	The increase in Hunter's intangible assets (customer relationships ($16,000) and non-compete agreements ($1,600)) based on a preliminary fair value determination.


(f)	Capitalized debt issuance costs incurred in connection with the acquisition ($353).


(g)	Eliminate Hunter's current portion of long term debt ($5,993) and non-current portion of long-term debt ($1,526), which were not included in the acquisition.


(h)	Reflects $55,867 in borrowings from the revolving credit facility incurred in connection with the acquisition.


(i)	Reflects $2,700 discounted estimated future earnout payment liability based on management's preliminary determination.


(j)	Elimination of shareholders' equity accounts of Hunter.


(k)	Transaction costs of the Transaction, net of tax, ($222) incurred after March 31, 2015.

SPARTON CORPORATION

PRO FORMA CONDENSED COMBINED STATEMENT OF INCOME

FOR THE TWELVE MONTHS ENDED JUNE 30, 2014

(Unaudited)

(Dollars in thousands, except per share amounts)



	Sparton			Hunter			Pro Forma Adjustments				Pro Forma Combined
Net sales	$	336,501		$	64,955		$	—			$	401,456
Cost of goods sold	271,686			58,814			—				330,500
Gross profit	64,815			6,141			—				70,956
Operating Expense (Income)
Selling and administrative expenses	35,698			4,907							40,605
Internal research and development expenses	1,169			—			—				1,169
Amortization of intangible assets	3,287			—			3,709			(a)	6,996
Restructuring charges	188			—			—				188
EPA related - net environmental remediation	4,238			—			—				4,238
Gain on acquisition of NBS	—			(3,601		)	—				(3,601		)
Gain on acquisition of Spectral	—			(2,923		)	—				(2,923		)
Other operating expense, net	(16		)	—			94			(b)(c)	78
Total operating expense (income), net	44,564			(1,617		)	3,803				46,750
Operating income	20,251			7,758			(3,803		)		24,206
Other income (expense):
Interest expense	(838		)	(234		)	(686		)	(d)(e)(f)	(1,758		)
Other, net	189			—			—				189
Total other income (expense), net	(649		)	(234		)	(686		)		(1,569		)
Income before provision for income taxes	19,602			7,524			(4,489		)		22,637
Provision for income taxes	6,615			54			(1,230		)	(g)	5,439
Net income	$	12,987		$	7,470		$	(3,259	)		$	17,198
Income per share of common stock:
Basic	$	1.28									$	1.70
Diluted	$	1.28									$	1.70
Weighted average shares of common stock outstanding:
Basic	10,109,915										10,109,915
Diluted	10,141,395										10,141,395

See Notes to pro forma condensed combined financial statements.

SPARTON CORPORATION

PPRO FORMA CONDENSED COMBINED STATEMENT OF INCOME

FOR THE TWELVE MONTHS ENDED JUNE 30, 2014

Description of Pro Forma Adjustments

(Unaudited)

(Dollars in thousands)


(a)	Additional amortization expense on an accelerated basis using a ten year life for customer relationships and on a straight-line basis using a two year life for non-compete agreements based on a preliminary fair value determination.


(b)	Increase in discounted estimated future earnout payment liability due to the passage of time ($41).


(c)	Additional amortization expense relating to prepaid representations and warranties insurance policy on a straight-line basis over six years ($53).


(d)	Elimination of pre-existing interest expense on Hunter's debt, which was not assumed by Sparton ($234).


(e)	Interest expense on the $55,867 borrowings on the revolving credit facility ($849) to finance the acquisition.


(f)	Additional amortization expense for capitalized debt issuance costs on a straight-line basis over approximately 4 1/2 years ($71).

(g)

Sparton's estimated effective tax rate of 33.7% was used to estimate tax expense on the above adjustments and to provide incremental tax expense on Hunter stand-alone results, after giving effect to permanent tax attributes of the gains on acquisitions. The combined provision for income taxes does not necessarily reflect the amounts that would have resulted had Sparton and Hunter filed consolidated returns for the period presented.

SPARTON CORPORATION

PRO FORMA CONDENSED COMBINED STATEMENT OF INCOME

FOR THE NINE MONTHS ENDED MARCH 31, 2015

(Unaudited)

(Dollars in thousands, except per share amounts)



	Sparton			Hunter			Pro Forma Adjustments				Pro Forma Combined
Net sales	$	255,732		$	58,946		$	—			$	314,678
Cost of goods sold	209,116			51,521			—				260,637
Gross profit	46,616			7,425			—				54,041
Operating Expense (Income)
Selling and administrative expenses	33,288			5,636			(102		)	(a)	38,822
Internal research and development expenses	715			—			—				715
Amortization of intangible assets	4,209			—			2,564			(b)	6,773
Gain on acquisition of Spinnaker	—			(981		)	—				(981		)
Other operating expense (income), net	(39		)	—			40			(c)	1
Total operating expense, net	38,173			4,655			2,502				45,330
Operating income	8,443			2,770			(2,502		)		8,711
Other income (expense):
Interest expense	(1,559		)	(249		)	(472		)	(d)(e)(f)	(2,280		)
Other, net	127			—			—				127
Total other income (expense), net	(1,432		)	(249		)	(472		)		(2,153		)
Income before provision for income taxes	7,011			2,521			(2,974		)		6,558
Provision for income taxes	1,120			20			(174		)	(g)	966
Net income	$	5,891		$	2,501		$	(2,800	)		$	5,592
Income per share of common stock:
Basic	$	0.59									$	0.56
Diluted	$	0.59									$	0.56
Weighted average shares of common stock outstanding:
Basic	9,874,185										9,874,185
Diluted	9,888,905										9,888,905

See Notes to pro forma condensed combined financial statements.

SPARTON CORPORATION

PPRO FORMA CONDENSED COMBINED STATEMENT OF INCOME

FOR THE NINE MONTHS ENDED MARCH 31, 2015

Description of Pro Forma Adjustments

(Unaudited)

(Dollars in thousands


(a)	Eliminate historical non-recurring transaction costs associated with the Transaction ($102).


(b)	Additional amortization expense on an accelerated basis using a ten year life for customer relationships and on a straight-line basis using a two year life for non-compete agreements based on a preliminary fair value determination.


(c)	Additional amortization expense relating to prepaid representations and warranties insurance policy on a straight-line basis over six years ($40).


(d)	Elimination of pre-existing interest expense on Hunter's debt, which was not assumed by Sparton ($249).


(e)	Interest expense on the $58,608 borrowings, which includes an estimated $2,741 earnout payment, on the revolving credit facility ($677) to finance the acquisition.


(f)	Additional amortization expense for capitalized debt issuance costs on a straight-line basis over approximately 4 1/2 years ($44).


(g)	Sparton's estimated effective tax rate of 34.0% was used to estimate tax expense on the above adjustments and to provide incremental tax expense on Hunter stand-alone results. The combined provision for income taxes does not necessarily reflect the amounts that would have resulted had Sparton and Hunter filed consolidated returns for the period presented.

Notes to Pro Forma Condensed Combined Financial Statements

(Unaudited)

Note 1. Conforming Periods

Sparton’s fiscal year end is June 30, while Hunter's fiscal year end was December 31. The latest interim period for Sparton is its nine months ended ended March 31, 2015, while Hunter’s latest interim period is its three months ended March 31, 2015. In order for the unaudited fiscal year pro forma results of Hunter to be comparative to the audited fiscal year results of Sparton, the unaudited pro forma condensed combined statement of income for the year ended June 30, 2014, is presented based on Sparton’s audited results for the fiscal year ended June 30, 2014 and Hunter’s unaudited results for its twelve months ended June 30, 2014. In order for the unaudited interim pro forma results of Hunter to be comparative to the unaudited interim pro forma results of Sparton, the unaudited interim results of Hunter reflect its nine months ended March 31, 2015.

Note 2. Basis of Presentation

The unaudited pro forma condensed combined financial statements have been prepared using the historical consolidated financial statements of Sparton and Hunter with the acquisition accounted for using the acquisition method of accounting in accordance with Accounting Standards Codification (“ASC”) 805-10. Certain reclassifications of prior period amounts have been made to conform to the current year presentation.

Note 3. Significant Accounting Policies

The unaudited pro forma condensed combined financial statements of Sparton do not assume any differences in accounting policies between Sparton and Hunter. Sparton will review certain accounting policies of Hunter and, as a result of that review, Sparton may identify differences between the accounting policies of the two companies, that if conformed, could have a material impact on the unaudited pro forma condensed combined financial statements. At this time, Sparton is not aware of any differences that would have a material impact on the unaudited pro forma condensed combined financial statements.

Note 4. Preliminary Purchase Price Allocation

The Company’s acquisition of Hunter was accounted for as a purchase on April 14, 2015. The Company is in the process of obtaining valuations of certain tangible and intangible assets. The Transaction provides for additional consideration of up to $13.0 million contingent upon Hunter attaining certain performance thresholds during the twelve month period following the Transaction. The Company is in the process of obtaining a valuation of this contingent consideration liability as well. The preliminary purchase price presented here includes a preliminary $2.7 million discounted estimated fair value of additional consideration. Assets and liabilities are reflected here at their estimated fair values based on the following the contingent allocation of the preliminary purchase price (in thousands).



Cash	$	719
Accounts receivable, net	10,354
Inventory	20,632
Prepaid expenses and other current assets	470
Property, plant and equipment	2,221
Goodwill	24,260
Other intangible assets	17,600
Other non-current assets	396
Total assets acquired	76,652
Accounts payable	15,799
Other current liabilities	2,112
Other non-current liabilities	174
Total liabilities assumed	18,085
Total preliminary purchase price	$	58,567

Due to actual Hunter net asset balances as of March 31, 2015 being $1,793 higher than those balances as of the April 14, 2015 acquisition date, the projected goodwill balance reflected above of $24,260, is greater than displayed in the accompanying Pro Forma Condensed Combined Balance Sheet ($22,467).

Note 5. Transaction Costs

Sparton estimated that professional expenses related to the Transaction were approximately $438. These costs included fees for legal, accounting, financial advisory, due diligence, tax, valuation, printing and other various services necessary to complete the Transaction. In accordance with ASC 805-10, these fees were expensed as incurred. Sparton’s financial results for the nine months ended March 31, 2015 include $102 of expenses related to the Transaction. These costs have been eliminated in the pro forma adjustments to the nine months statement of income as these expenses will not have a continuing impact. Related costs incurred by Sparton after March 31, 2015, of $336 thousand have been reflected, net of income taxes, as a pro forma decrease in retained earnings in the pro forma condensed combined balance sheet.

Serious News for Serious Traders! Try StreetInsider.com Premium Free!

Create E-mail Alert Related Categories

SEC Filings

Sign up for StreetInsider Free!

Receive full access to all new and archived articles, unlimited portfolio tracking, e-mail alerts, custom newswires and RSS feeds - and more!

Form 8-K/A SPARTON CORP For: Apr 14

You May Also Be Interested In

Create E-mail Alert Related Categories

Sign up for StreetInsider Free!

Free News Feed