1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE
ACT OF 1934 FOR THE PERIOD ENDED March 31, 2001.
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OR
[ ]TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 FOR THE TRANSITION PERIOD From __________ to ___________
Commission File number 1-1000
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SPARTON CORPORATION
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(Exact name of registrant as specified in its charter)
Ohio 38-1054690
------------------------------- -------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
2400 East Ganson Street
Jackson, Michigan 49202
----------------------------------------
(Address of principal executive offices)
(Zip Code)
(517) 787-8600
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(Registrant's telephone number, including area code)
Indicate by checkmark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
--- ---
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practical date.
Common Stock, $1.25 Par Value - 7,648,090 shares as of April 30, 2001.
2
INDEX
SPARTON CORPORATION AND SUBSIDIARIES
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)
Condensed Consolidated Balance Sheets - March 31, 2001 and June 30, 2000. 3
Condensed Consolidated Statements of Operations - Three-Month and Nine-Month
Periods ended March 31, 2001 and 2000. 4
Condensed Consolidated Statements of Cash Flows - Nine-Month Periods ended
March 31, 2001 and 2000. 5
Notes to Condensed Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 8
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 11
Item 6. Exhibits and Reports on Form 8-K 13
Signatures 13
2
3
SPARTON CORPORATION AND SUBSIDIARIES
Condensed Consolidated Balance Sheets (Unaudited)
March 31, 2001 and June 30, 2000
March 31 June 30
------------- -------------
ASSETS
Current assets:
Cash and cash equivalents $ 9,876,956 $ 5,052,405
Investment securities 1,195,000 4,643,704
Income taxes recoverable 307,665 483,598
Accounts receivable 19,668,954 20,677,281
Inventories and costs on contracts in progress, less progress payments
of $11,316,000 at March 31 ($3,309,000 at June 30) 51,683,745 51,189,623
Prepaid expenses 3,566,963 4,295,496
------------- -------------
Total current assets 86,299,283 86,342,107
Deferred income taxes 304,800 304,800
Other assets 10,459,641 10,922,299
Property, plant and equipment - net 10,539,415 11,407,030
------------- -------------
Total assets $ 107,603,139 $ 108,976,236
============= =============
LIABILITIES AND SHAREOWNERS' EQUITY
Current liabilities:
Accounts payable $ 12,561,945 $ 14,251,023
Salaries and wages 3,423,165 3,145,222
Accrued liabilities 4,653,739 4,167,288
------------- -------------
Total current liabilities 20,638,849 21,563,533
Environmental remediation 8,335,553 8,335,553
Shareowners' equity: (Note 5)
Common stock - 7,648,090 shares outstanding at March 31, 2001
(7,828,090 at June 30, 2000) after deducting 286,622 shares in
treasury (106,622 at June 30, 2000) 9,560,113 9,785,113
Capital in excess of par value 483,058 494,427
Accumulated other comprehensive loss - (108,014)
Retained earnings 68,585,566 68,905,624
------------- -------------
Total shareowners' equity 78,628,737 79,077,150
------------- -------------
Total liabilities and shareowners' equity $ 107,603,139 $ 108,976,236
============= =============
SEE ACCOMPANYING NOTES
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4
SPARTON CORPORATION AND SUBSIDIARIES
Condensed Consolidated Statements of Operations (Unaudited)
For the Three-Month and Nine-Month Periods ended March 31, 2001 and 2000
Three-Month Periods Nine-Month Periods
-------------------------------- --------------------------------
2001 2000 2001 2000
------------- ------------- ------------- -------------
Net sales $ 46,457,914 $ 41,756,764 $ 135,696,592 $ 112,968,296
Costs and expenses 45,693,690 45,208,848 135,522,669 129,091,981
------------- ------------- ------------- -------------
764,224 (3,452,084) 173,923 (16,123,685)
Other income (expenses):
Interest and investment income 154,785 116,096 383,037 535,452
Other - net (18,939) 10,273 (225,387) 438,048
------------- ------------- ------------- -------------
Income (loss) before income taxes 900,070 (3,325,715) 331,573 (15,150,185)
Provision (credit) for income taxes 333,000 (1,231,000) 123,000 (5,606,000)
------------- ------------- ------------- -------------
Net income (loss) $ 567,070 $ (2,094,715) $ 208,573 $ (9,544,185)
============= ============= ============= =============
Basic and diluted earnings (loss) per share $ 0.08 $ (0.27) $ 0.03 $ (1.22)
============= ============= ============= =============
Dividends $ -0- $ -0- $ -0- $ -0-
============= ============= ============= =============
SEE ACCOMPANYING NOTES
4
5
SPARTON CORPORATION AND SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows (Unaudited)
For the Nine-Month Periods ended March 31, 2001 and 2000
2001 2000
------------ ------------
Cash flows (used) provided by operating activities:
Income (loss) from continuing operations $ 208,573 $ (9,544,185)
Add noncash items affecting operations:
Depreciation 1,469,341 1,640,514
Environmental charge - 10,000,000
Deferred income taxes - (3,431,364)
Add (deduct) changes in operating assets and liabilities:
Other accrued liabilities 1,600,941 1,464,138
Accounts receivable 1,008,327 (2,345,287)
Income taxes 175,933 (1,605,533)
Inventories (494,122) (9,183,627)
Accounts payable (1,689,078) 1,295,479
------------ ------------
Net cash (used) provided by operating activities 2,279,915 (11,709,865)
Cash flows (used) provided by investing activities:
Sales of investment securities-net 3,448,704 13,923,248
Noncurrent other assets 462,658 440,955
Purchases of property, plant and equipment-net (601,726) (1,791,541)
------------ ------------
3,309,636 12,572,662
Cash flows (used) provided by financing activities:
Purchase of common stock for treasury (765,000) -
------------ ------------
Increase in cash and cash equivalents 4,824,551 862,797
Cash and cash equivalents at beginning of period 5,052,405 4,165,758
------------ ------------
Cash and cash equivalents at end of period $ 9,876,956 $ 5,028,555
============ ============
Supplemental disclosures of cash flow information:
Cash paid (refunded) during the period
Income taxes paid (refunded) $ 96,000 $ (573,000)
============ ============
SEE ACCOMPANYING NOTES
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6
SPARTON CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. The accompanying condensed consolidated balance sheet at March 31, 2001, and
the related condensed consolidated statements of operations for the three-month
and nine-month periods ended March 31, 2001 and 2000 and cash flows for the
nine-month periods ended March 31, 2001 and 2000 are unaudited, but include all
adjustments (consisting only of normal recurring accruals) which the Company
considers necessary for a fair presentation of such financial statements. The
results of operations for the period ended March 31, 2001, are not necessarily
indicative of the results that may be expected for the full fiscal year.
2. Long-term contracts are principally government defense contracts. The
accounting for these contracts is based on completed units and their estimated
average contract cost per unit. Accounting for development contracts is based on
percentage of completion. Costs and fees billed under cost-reimbursement-type
contracts are recorded as sales. A provision for the entire amount of a loss on
a contract is charged to operations as soon as the loss is determinable.
Inventories are valued at the lower of cost (first-in, first-out basis) or
market and include costs related to long-term contracts. Inventories, other than
contract costs, are principally raw materials and supplies. The following are
the major classifications of inventory:
March 31, 2001 June 30, 2000
-------------- -------------
Raw materials $38,270,000 $42,419,000
Work in process and finished goods 13,414,000 8,771,000
----------- -----------
Total $51,684,000 $51,190,000
=========== ===========
3. Basic earnings per share were computed using the weighted average number of
shares outstanding. Average shares outstanding for the three-month and
nine-month periods ended March 31, 2001, were 7,684,090 and 7,780,791, respec-
tively. The average shares outstanding for both the three-month and nine-month
periods ended March 31, 2000, were 7,828,090. For purposes of computing diluted
earnings per share differences in the weighted average number of shares
outstanding were due to the inclusion of the dilutive effect of outstanding
employee incentive stock options granted of 149,000 shares, at prices ranging
from $3.750 to $4.250. For the calculation of basic and diluted earnings per
share these differences in the weighted average number of shares outstanding
were not material and resulted in no differences between basic and diluted
earnings per share. Options to purchase 32,000 shares at $6.625 and 116,500
shares at $8.375 were not included in the computation of diluted earnings per
share for any of the periods presented as their exercise prices were greater
than the average market price of the common shares. Therefore, the effect would
be anti-dilutive.
4. Comprehensive income includes net income, as well as unrealized gains and
losses, which are excluded from net income. They are however, reflected as a
direct charge or credit to stockholders' equity. A summary of comprehensive
income for the three-month and nine-month periods ended March 31, 2001 and 2000
was as follows:
Three Months Ended Nine Months Ended
--------------------------- ----------------------------
2001 2000 2001 2000
----------- ----------- ----------- -----------
Net income (loss) $ 567,000 $(2,095,000) $ 209,000 $(9,544,000)
Other Comprehensive Income:
Unrealized gains (losses) on investment securities - 4,000 108,000 (38,000)
----------- ----------- ----------- -----------
Comprehensive income (loss) $ 567,000 $(2,091,000) $ 317,000 $(9,582,000)
=========== =========== =========== ===========
5. Cash and cash equivalents consist of demand deposits and highly liquid
investments with an original maturity date of less than three months. A large
majority of the investment portfolio has an original maturity date of less than
two years and a daily market exists for all the investment securities. The
Company believes that the impact of fluctuations in interest rates on its
investment portfolio should not have a material impact on financial position or
results of operations. It is the Company's intention to use these investment
securities to provide working capital and to otherwise fund the expansion of its
business.
6
7
For the nine months ended March 31, 2001 and 2000, the Company had sales of
investment securities totaling $3,449,000 and $13,923,000, respectively. There
were no purchases of investment securities in either period. The Company had no
unrealized gains and losses from investment securities for the three-month
period ended March 31, 2001.
In January 2001, the Company repurchased 180,000 shares of common stock at $4.25
per share for its treasury at a cost of $765,000. The following summarizes the
activity in the shareholders' equity accounts for the nine months ended March
31, 2001.
Accumulated
Capital in other
Common stock, excess comprehensive Retained
$1.25 par value of par value income (loss) earnings Total
--------------------- ------------ ------------- ---------- -----------
Shares Amount
--------- ---------
Balance June 30, 2000 7,828,090 $9,785,113 $494,427 $(108,014) $68,905,624 $79,077,150
Net Income 208,573 208,573
Other comprehensive income:
Net unrealized gains in marketable securities 108,014 108,014
-----------
Comprehensive net income 316,587
Purchase of common stock for treasury (180,000) (225,000) (11,369) (528,631) (765,000)
--------- ---------- -------- -------- ----------- -----------
Balance March 31, 2001 7,648,090 $9,560,113 $483,058 $ - $68,585,566 $78,628,737
========= ========== ======== ======== =========== ===========
6. One of Sparton's facilities, located in Albuquerque, New Mexico, has been the
subject of ongoing investigations conducted with the Environmental Protection
Agency (EPA) under the Resource Conservation and Recovery Act (RCRA). The
investigation began in the early 1980's and involved a review of on-site and
off-site environmental impacts.
At March 31, 2001, Sparton has accrued $8,970,000 as its estimate of the minimum
future undiscounted financial liability with respect to this matter, of which
$634,000 is included in accrued liabilities. The Company's cost estimate is
based upon existing technology and excludes legal and related consulting costs.
The Company's estimate includes equipment and operating costs for on-site and
off-site pump and treat containment systems, a soil vapor extraction program and
continued on-site and off-site monitoring. Legal and related consulting costs
are expensed as incurred.
Uncertainties associated with environmental remediation contingencies are
pervasive and often result in wide ranges of reasonably possible outcomes.
Estimates developed in the early stages of remediation can vary significantly.
Normally a finite estimate of cost does not become fixed and determinable at a
specific point in time. Rather, the costs associated with environmental
remediation become estimable over a continuum of events and activities that help
to frame and define a liability. It is possible that cash flows and results of
operations could be materially affected by the impact of the ultimate resolution
of this contingency.
7. Deferred tax assets and liabilities are determined by the differences between
financial reporting and the tax bases of assets and liabilities. Accrued
environmental contingencies are a significant component of the Company's
deferred tax assets.
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8
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following is management's discussion and analysis of certain significant
events affecting the Company's earnings and financial condition during the
periods included in the accompanying financial statements. The Company's
operations are in one line of business, electronic manufacturing services (EMS).
This includes the design, development and/or manufacture of electronic parts and
assemblies for both government and commercial customers.
The Private Securities Litigation Reform Act of 1995 reflects Congress'
determination that the disclosures of forward- looking information is desirable
for investors and encourages such disclosure by providing a safe harbor for
forward- looking statements by corporate management. The following discussion
about the Company's results of operations and financial condition contains
forward-looking statements that involve risk and uncertainty. The Company notes
that a variety of factors could cause the actual results and experience to
differ materially from anticipated results or other expectations expressed in
the Company's forward-looking statements. The risks and uncertainties that may
affect the operations, performance, growth forecasts and results of the
Company's business include, but are not limited to, timing and fluctuations in
U.S. and/or world economies, customer demand for products, competition in the
overall EMS business, the availability and cost of materials, production labor
and management services under terms acceptable to the Company, Congressional
budget outlays for sonobuoy development and production, Congressional
legislation, changes in the interpretation of environmental laws and the
uncertainties of environmental remediation. The Company has encountered
availability and extended lead time issues on some electronic components.
Shortages on some key electronic components have resulted in higher prices. This
shortage on some critical electronic components could materially impact the
electronics industry, and Sparton specifically, for some time. Availability of
components could adversely affect the Company's ability to meet customers'
production schedules. In addition, the ability to recover increasing material
costs from customers will be a factor in future operating results. Management
cautions readers not to place undue reliance on forward-looking statements,
which are subject to influence by these enumerated risk factors as well as
unanticipated future events.
RESULTS OF OPERATIONS
- ---------------------
Three-Month Periods
- -------------------
Sales for the three-month period ended March 31, 2001, totaled $46,458,000, an
increase of $4,701,000 (11%) from the similar quarter last year. Commercial EMS
sales increased $7,536,000 while government EMS sales declined $2,835,000. The
increases in sales occurred at Sparton Technology and Sparton of Canada. Sparton
Electronics sales were consistent with the corresponding period last year. In
the current quarter, new government sonobuoy contracts awards were announced.
Sparton received various contracts totaling $21,300,000.
An operating profit of $764,000 was reported for the three months ended March
31, 2001, compared to an operating loss of $3,452,000 for the same period last
year. These earnings were below plan. During the quarter there was a net pickup
of $728,000 relating to changes in estimates. These changes include contract
cost estimates on major sonobuoy contracts and reserve reversals on several
programs, as they were no longer applicable. Production delays and higher than
expected material costs resulted in the cost estimates on two current production
sonobuoy contracts projecting a loss position. As of March 31, 2001, these
estimated losses have been recorded. These two contracts have a sales backlog
value of $14,800,000. Costs and expenses also include $18,000 in 2001 and
$73,000 in 2000, related to the New Mexico environmental remediation effort. The
Company also continues to experience adverse variances which reflect our
continuing expenditures to support future growth.
Interest and Investment Income increased $39,000 to $155,000 in 2001 due to
investments activities. Other Expense-Net was $19,000 in 2001 compared to Other
Income-Net of $10,000 for the corresponding three-month period last year.
The Company reported a net profit of $567,000 ($0.08 per share) for the three
months ended March 31, 2001, compared to a net loss of $2,095,000 (($0.27) per
share) for the corresponding period last year.
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9
Nine-Month Periods
- ------------------
Sales for the nine-month period totaled $135,697,000. While lower than
originally expected, sales were above last year by $22,728,000 (20%). Overall,
commercial EMS sales increased (29%), while governmental sales decreased (21%).
In general, the sales improvement came from existing customers. Governmental EMS
sales continue below forecast due to qualification and production delays on
several major sonobuoy programs. All new production sonobuoy programs are now
qualified and production ready. Sonobuoy sales should accelerate through the
fourth quarter of the current fiscal year and the first quarter of the new year
starting on July 1, 2001. Government sales include shipments on several
government contracts which the Company expected to ship last year. These
sonobuoy shipments increased reported sales by $6,100,000 but carried no gross
margin, due to incurred cost overruns in the prior year. Sales and profit for
the nine months include the recovery of $1.9 million of costs incurred on a new
program start-up last year, which was recognized in December 2000. Customer
orders and shipping schedules have remained fairly consistent despite the recent
slowing of the economy.
An operating profit of $174,000 was reported for the nine months ended March 31,
2001, compared to an operating loss of $16,124,000 for the same period last
year. Included in these results were charges against income of $695,000 in 2001
and $10,560,000 in 2000 related to the New Mexico environmental remediation
efforts. The 2000 charge reflects the Company's estimate of the minimum expected
costs of the remediation activities contained in the Consent Decree executed and
lodged with the Court in January 2000. At March 31, 2001, the balance accrued
for such costs approximates $8,970,000. The Company's operating results also
include adverse manufacturing variances, which in part reflect continuing
investments to support its future growth. During the past nine months, Sparton
has experienced a number of material pricing and availability issues. These
conditions now appear to be easing slightly.
Interest and Investment Income declined $152,000 to $383,000 in 2001 due to
lower average investments. Other Expense- Net was $225,000 in 2001 compared to
Other Income-Net of $438,000 for the corresponding nine-month period last year.
In liquidating investments during the first quarter of fiscal 2001, the Company
incurred a loss of $147,000. Included within 2000 Other Income-Net was a gain of
$443,000 from the sale of equipment and other assets at the Canadian operating
unit.
The Company reported a net profit of $209,000 ($0.03 per share) for the nine
months ended March 31, 2001, compared to a net loss of $9,544,000 (($1.22) per
share) for the corresponding period last year.
FINANCIAL POSITION
- ------------------
For the nine-month period ended March 31, 2001, Cash and Cash Equivalents
increased $4,825,000 to $9,877,000. Operating activities provided $2,280,000 in
net cash flows. The principal source of cash flow from operating activities was
an increase in other accrued liabilities and a decrease in accounts receivable.
Cash flows provided by investing activities totaled $3,310,000, principally from
the sale of investments. Cash flows used by financing activities totaled
$765,000. These funds were used for the repurchase of shares of common stock for
the treasury.
At March 31, 2001, and June 30, 2000, the aggregate government EMS backlog was
approximately $67 million and $64 million, respectively. A majority of the 2001
backlog is expected to be realized in the next 12-15 months. Commercial EMS
sales are not included in the backlog. The Company does not believe the amount
of commercial sales covered by purchase orders received is a meaningful measure
of future sales, as such orders may be rescheduled or cancelled without
significant penalty.
At March 31, 2001, the Company had $78,629,000 in recorded shareowners' equity
($10.24 per share), $65,660,000 in working capital, and a 4.18:1.00 working
capital ratio. No dividends were declared in either period presented.
OTHER
- -----
One of Sparton's facilities, located in Albuquerque, New Mexico, has been the
subject of ongoing investigations conducted with the Environmental Protection
Agency (EPA) under the Resource Conservation and Recovery Act (RCRA). The
investigation began in the early 1980's and involved a review of on-site and
off-site environmental impacts.
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10
At March 31, 2001, Sparton has accrued $8,970,000 as its estimate of the minimum
future undiscounted financial liability with respect to this matter, of which
$634,000 is included in accrued liabilities. The Company's cost estimate is
based upon existing technology and excludes legal and related consulting costs.
The Company's estimate includes equipment and operating costs for on-site and
off-site pump and treat containment systems, a soil vapor extraction program and
continued on-site and off-site monitoring. Legal and related consulting costs
are expensed as incurred.
Uncertainties associated with environmental remediation contingencies are
pervasive and often result in wide ranges of reasonably possible outcomes.
Estimates developed in the early stages of remediation can vary significantly.
Normally a finite estimate of cost does not become fixed and determinable at a
specific point in time. Rather, the costs associated with environmental
remediation become estimable over a continuum of events and activities that help
to frame and define a liability. It is possible that cash flows and results of
operations could be materially affected by the impact of the ultimate resolution
of this contingency.
10
11
OTHER INFORMATION
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
Various litigation is pending against the Company, in many cases involving
ordinary and routine claims incidental to the business of the Company and in
others presenting allegations that are non-routine. The Company and its
subsidiaries are also involved in certain compliance issues with the United
States Environmental Protection Agency (EPA) and various state agencies,
including being named as a potentially responsible party at several sites.
Potentially responsible parties (PRPs) can be held jointly and severally liable
for the cleanup costs at any specific site. The Company's past experience,
however, has indicated that when it has contributed only relatively small
amounts of materials or waste to a specific site relative to other PRPs, its
ultimate share of any cleanup costs has been minor. Based upon available
information, the Company believes it has contributed only small amounts to those
sites in which it is currently viewed a potentially responsible party.
In February 1997, three lawsuits were filed against Sparton's wholly owned
subsidiary, Sparton Technology, Inc., in Federal District Court in Albuquerque,
one by the United States on behalf of the EPA, the second by the State of New
Mexico and the third by the City of Albuquerque and the County of Bernalillo.
All three actions alleged that the impacts to soil and groundwater associated
with Sparton Technology's Coors Road facility presented an imminent and
substantial threat to human health or the environment. On March 3, 2000, a
Consent Decree was entered, settling the lawsuits as well as a related
administrative enforcement action. The Consent Decree represents a judicially
enforceable settlement agreement under which Sparton Technology has paid
$1,000,000 to resolve claims for damages to natural resources, $475,000 to
resolve claims for civil penalties for alleged violations of state law and an
order entered in the related administrative enforcement action, and $200,000 for
reimbursement of the litigation costs of certain plaintiffs. The Consent Decree
also contains work plans describing remedial activity Sparton Technology agreed
to undertake. In exchange for the monetary payment and an agreement to implement
the work plans, Sparton Technology received covenants not to sue that, except in
fairly extraordinary circumstances, prevent any further administrative or
judicial action by state and federal entities in connection with the impacts to
the environment associated with past activities at the Coors Road facility.
The work plans provide for the installation of an off-site containment well
(already completed and operating), enhancement to an on-site soil vapor
extraction system (in operation) and an on-site containment well. It is
anticipated that these remediation activities will operate for a period of time
during which Sparton Technology and the regulatory agencies will analyze their
effectiveness. The Company believes that it will take at least three to five
years from the date of the Consent Decree before the effectiveness of the
groundwater extraction wells can be established. If ineffective, additional
remedies may be imposed at a significantly increased cost. There is no assurance
that additional costs greater than the amount accrued will not be incurred or
that changes in environmental laws or their interpretation will not require that
additional amounts be spent.
Upon entering into the Consent Decree, the Company reviewed its estimates of the
future costs expected to be incurred in connection with its remediation of the
environmental issues associated with its Coors Road Plant over the next 30
years. The Company increased its accrual for the cost of addressing
environmental impacts associated with its Coors Road Plant by $10,000,000,
pre-tax, in December 1999. At March 31, 2001, the remaining undiscounted minimum
accrual for EPA remediation approximates $8,970,000. The Company's estimate is
based upon existing technology and current costs which have not been discounted.
The estimate includes equipment and operating and maintenance costs for the
on-site and off-site pump and treat containment systems, a soil vapor extraction
program and continued on-site and off-site monitoring. It also includes the
required periodic reporting requirements. This estimate does not include legal
and related consulting costs which are expensed as incurred. The estimate does
not reflect any offset or reduction for monies recovered from various parties
which the Company is currently pursuing as described below.
In 1995 Sparton Corporation and Sparton Technology, Inc. filed a Complaint in
the Circuit Court of Cook County, Illinois, against Lumbermens Mutual Casualty
Company and American Manufacturers Mutual Insurance Company demanding
reimbursement of expenses incurred in connection with its remediation efforts at
the Coors Road facility based on various primary and excess comprehensive
general liability policies in effect between 1959 and 1975. In 1999 the
Complaint was amended to add various other excess insurers, including certain
London market insurers and Fireman's Fund Insurance Company. The case is
currently in the discovery stage, with discovery currently set to close on July
31, 2001.
11
12
On February 11, 1998, Sparton Technology, Inc. commenced litigation in the
United States Court of Federal Claims alleging that the Department of Energy
(DOE), acting through its contractors, Sandia Corporation and Allied Signal,
Inc., is liable for reimbursement of Sparton's costs incurred in defending
against and complying with federal and state regulatory requirements. The DOE
prescribed certain mandatory performance requirements that were then imposed
upon Sparton Technology through its agreements with Sandia Corporation and
Allied Signal, Inc. On February 9, 1999, the Court of Federal Claims dismissed
Sparton Technology's complaint on the basis of a lack of jurisdiction concluding
that an agency relationship did not exist between Sandia Corporation and Allied
Signal, Inc. and the United States for purposes of reimbursing costs incurred
during litigation. Sparton Technology believed that the court erred in its
decision and filed its notice of appeal on April 9, 1999. On April 18, 2000, the
Federal Circuit Court reversed the lower court's decision and reinstated Sparton
Technology's claim for purposes of examining whether the Court of Federal Claims
does indeed have jurisdiction. Sparton Technology is now proceeding with
discovery on the jurisdiction related issues.
Sparton Technology, Inc. filed a complaint on September 21, 1998, against Allied
Signal, Inc. in U.S. District Court in Kansas City seeking to recover costs
incurred to investigate and remediate impacts to the environment at its Coors
Road facility. In July 1999, the Court allowed Sparton Technology to amend its
complaint to add Sandia Corporation and the DOE as defendants. In March 2000,
the case was transferred to the United States District Court in Albuquerque, New
Mexico. Written discovery commenced, but was stayed on July 13, 2000, so that a
court-ordered mediation could be conducted. That did not result in settlement,
and on December 20, 2000, the Court entered a new discovery scheduling order
whereby fact discovery ends in December 2001 and expert witness discovery ends
in July 2002. Dispositive motions are due at that time. Trial is not yet
scheduled, but normally takes place within six months of dispositive motions.
Active discovery is now taking place.
At this time, the Company is unable to predict the amount or timing of recovery,
if any, that may result from the pursuit of these before-mentioned three claims.
12
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OTHER INFORMATION
-----------------
PART II.
Item 6. Exhibits and Reports on Form 10-K and 10-Q
(a) Exhibits
3 & 4 Instruments defining the rights of security holders have been
previously filed as follows:
Articles of Incorporation of the Registrant were filed on form
10-K for the year ended June 30, 1981, and an amendment thereto
was filed on Form 10-Q for the three-month period ended December
31, 1983, and are incorporated herein by reference.
By-Laws of the Registrant were filed on Form 10-Q for the year
ended June 30, 1981, and an amendment thereto was filed on Form
10-Q for the three-month period ended December 31, 2000, and are
incorporated herein by reference.
Code of Regulation of the Registrant was filed on Form 10-K for
the year ended June 30, 1981, and an amendment thereto was filed
on Form 10-Q for the three-month period ended September 30, 1982,
and are incorporated herein by reference.
(b) Reports on Form 8-K filed in the Third Quarter of Fiscal 2001: None
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 thereunto duly authorized.
SPARTON CORPORATION
-------------------
Registrant
Date: May 11, 2001 /s/ David W. Hockenbrocht
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David W. Hockenbrocht, CEO and President
Date: May 11, 2001 /s/ Richard Langley
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Richard Langley, Chief Financial Officer
13