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, 2002.
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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
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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
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(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 - 7,559,790 shares as of April 30, 2002.
INDEX
SPARTON CORPORATION AND SUBSIDIARIES
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)
Condensed Consolidated Balance Sheets - March 31, 2002 and June 30, 2001. 3
Condensed Consolidated Statements of Operations - Three-Month and Nine-Month
Periods ended March 31, 2002 and 2001. 4
Condensed Consolidated Statements of Cash Flows - Nine-Month Periods ended
March 31, 2002 and 2001. 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
SPARTON CORPORATION AND SUBSIDIARIES
Condensed Consolidated Balance Sheets (Unaudited)
March 31, 2002 and June 30, 2001
March 31 June 30
------------- -------------
ASSETS
Current assets:
Cash and cash equivalents $ 13,560,560 $ 13,034,790
Investment securities 4,652,177 1,175,000
Accounts receivable 24,088,651 23,704,854
Inventories and costs on contracts in progress, less
progress payments of $7,932,000 at March 31
($11,234,000 at June 30) 37,534,977 44,912,886
Prepaid expenses 3,731,243 3,685,831
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Total current assets 83,567,608 86,513,361
Other assets 11,421,308 11,170,575
Property, plant and equipment - net 9,145,049 10,110,569
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Total assets $ 104,133,965 $ 107,794,505
============= =============
LIABILITIES AND SHAREOWNERS' EQUITY
Current liabilities:
Accounts payable $ 5,331,162 $ 13,329,356
Salaries and wages 3,297,144 2,902,324
Accrued liabilities 5,464,938 4,187,044
Income taxes payable 1,019,046 117,457
------------- -------------
Total current liabilities 15,112,290 20,536,181
Deferred income taxes 127,200 127,200
Environmental remediation 7,362,775 7,608,673
Shareowners' equity:
Common stock - 7,559,790 shares outstanding at March 31 after deducting
374,922 shares in treasury and 7,570,090 shares outstanding at June 30
after deducting 364,622 shares in treasury 9,449,737 9,462,613
Capital in excess of par value 477,493 478,144
Accumulated other comprehensive loss (3,121) --
Retained earnings 71,607,591 69,581,694
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Total shareowners' equity 81,531,700 79,522,451
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Total liabilities and shareowners' equity $ 104,133,965 $ 107,794,505
============= =============
SEE ACCOMPANYING NOTES.
3
SPARTON CORPORATION AND SUBSIDIARIES
Condensed Consolidated Statements of Operations (Unaudited)
For the Three-Month and Nine-Month Periods ended March 31, 2002 and 2001
Three-Month Periods Nine-Month Periods
----------------------------- ------------------------------
2002 2001 2002 2001
------------- ------------- ------------- -------------
Net sales $ 34,970,080 $ 46,457,914 $ 116,845,979 $ 135,696,592
Costs and expenses:
Costs of goods sold 31,241,349 42,359,755 104,572,461 123,903,060
Selling and administrative 2,986,577 3,472,660 9,652,468 11,866,779
------------- ------------- ------------- -------------
34,227,926 45,832,415 114,224,929 135,769,839
------------- ------------- ------------- -------------
742,154 625,499 2,621,050 (73,247)
Other income (expenses):
Interest and investment income 82,967 154,785 325,935 383,037
Interest expense -- -- (6,755) --
Other - net 136,363 119,786 369,378 21,783
------------- ------------- ------------- -------------
219,330 274,571 688,558 404,820
------------- ------------- ------------- -------------
Income before income taxes 961,484 900,070 3,309,608 331,573
Provision for income taxes 356,000 333,000 1,225,000 123,000
------------- ------------- ------------- -------------
Net income $ 605,484 $ 567,070 $ 2,084,608 $ 208,573
============= ============= ============= =============
Basic and diluted earnings per share $ .08 $ .08 $ .27 $ .03
============= ============= ============= =============
Dividends $ -0- $ -0- $ -0- $ -0-
============= ============= ============= =============
SEE ACCOMPANYING NOTES
4
SPARTON CORPORATION AND SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows (Unaudited)
For the Nine-Month Periods ended March 31, 2002 and 2001
2002 2001
------------ ------------
Cash flows provided (used) by operating activities:
Income from continuing operations $ 2,084,608 $ 208,573
Add noncash items affecting operations:
Depreciation 1,228,756 1,469,341
Add (deduct) changes in operating assets and liabilities:
Inventories 7,377,909 (494,122)
Other 1,378,281 1,600,941
Taxes on income 901,589 175,933
Accounts receivable (383,797) 1,008,327
Accounts payable (7,998,194) (1,689,078)
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4,589,152 2,279,915
Cash flows provided (used) by investing activities:
(Purchases) sales of investment securities-net (3,477,177) 3,448,704
Noncurrent other assets (250,733) 462,658
Purchases of property, plant and equipment-net (263,236) (601,726)
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(3,991,146) 3,309,636
Cash flows used by financing activities:
Purchase of common stock for treasury (72,236) (765,000)
------------ ------------
Increase in cash and cash equivalents 525,770 4,824,551
Cash and cash equivalents at beginning of period 13,034,790 5,052,405
------------ ------------
Cash and cash equivalents at end of period $ 13,560,560 $ 9,876,956
============ ============
Supplemental disclosures of cash paid (refunded):
Income taxes ($ 395,000) $ 96,000
============ ============
SEE ACCOMPANYING NOTES
5
SPARTON CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. The accompanying condensed consolidated balance sheet at March 31, 2002, and
the related condensed consolidated statements of operations for the three-month
and nine-month periods ended March 31, 2002 and 2001 and cash flows for the
nine-month periods ended March 31, 2002 and 2001 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, 2002, are not necessarily
indicative of the results that may be expected for the full fiscal year. The
year to date consolidated statement of operation for fiscal 2001 has been
reclassified to be consistent with the fiscal 2002 presentation.
2. Long-term contracts relate principally to government defense contracts. These
contracts are accounted for based on completed units and their estimated average
contract cost per unit. Development contracts are accounted for 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, which are presented net of progress
payments.
March 31 June 30
----------- -----------
Raw materials $19,503,000 $30,122,000
Work in process and finished goods 18,032,000 14,791,000
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Total $37,535,000 $44,913,000
=========== ===========
Work in process and finished goods inventory includes $7.6 million and $5.3
million of sonobuoys at March 31, 2002, and June 30, 2001, respectively.
3. Basic earnings per share were computed using the weighted average number of
shares outstanding. Average shares outstanding were 7,559,817 and 7,670,090 for
the three-month periods; and 7,564,071 and 7,749,090 for the nine-month periods,
respectively, in 2002 and 2001.
Differences in the number of shares outstanding for purposes of computing
diluted earnings per share were due to the inclusion of the dilutive effect of
outstanding employee incentive stock options of 457,500 shares and 455,000
shares, at prices ranging from $3.75 to $7.25 and $7.01, respectively, for the
three-month and nine-month periods in 2002; and 149,000 shares at prices ranging
from $3.75 to $4.25 for both reported periods in 2001. These differences in the
average number of shares outstanding for the calculation of basic and diluted
earnings per share were not material and resulted in no differences in per share
amounts.
Not included in the computation of diluted earnings per share because their
exercise price was greater than the average market price of the common shares
and therefore the effect would be anti-dilutive, were options to purchase 2,500
shares at $7.25 for the nine months ended March 31, 2002; and 148,500 shares at
prices ranging from $6.625 to $8.375 for the three months and nine months ended
March 31, 2001.
In the nine-month period ended March 31, 2002, the Company purchased 10,300
shares of common stock for treasury, at prices ranging from $6.60 to $7.00.
These repurchases have resulted in a net charge to Retained Earnings of $59,000.
4. The reporting of comprehensive income requires disclosure of total
non-shareowner changes in equity in interim periods and additional disclosures
of the components of non-shareowner changes in equity on an annual basis. Total
non-shareowner changes in equity include all changes in equity during a period
except those resulting from investments by and distributions to shareowners.
Comprehensive income for the three-month and nine-month periods ending March 31,
2002 and 2001 was as follows:
6
Three Months Ended Nine Months Ended
-------------------------- --------------------------
2002 2001 2002 2001
----------- ----------- ----------- -----------
Net income $ 605,000 $ 567,000 $ 2,085,000 $ 209,000
Other comprehensive income (loss):
Unrealized gains (losses) on investment securities (3,000) -- (3,000) 108,000
----------- ----------- ----------- -----------
Comprehensive income $ 602,000 $ 567,000 $ 2,082,000 $ 317,000
=========== =========== =========== ===========
5. Cash and cash equivalents consist of demand deposits and other highly liquid
investments. The investment portfolio has original maturity dates between 2 and
30 years and a daily market exists for all of 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, fund the expansion of its business and
for other business purposes.
For the nine months ended March 31, 2002 and 2001, the Company had sales of
investment securities totaling $25,000 and $3,449,000, respectively. Purchases
of investment securities totaled $3,502,000 for the nine months ended March 31,
2002. There were no purchases of investment securities in the nine months ended
March 31, 2001.
6. One of Sparton's facilities, located in Albuquerque, New Mexico, has been the
subject of ongoing investigations conducted with the United States Environmental
Protection Agency (EPA) under the Resource Conservation and Recovery Act (RCRA).
This EPA compliance issue involves an idled facility now leased to others. The
investigation began in the early 1980s and involved a review of on-site and
off-site environmental impacts.
At March 31, 2002, Sparton has a remaining accrual of $8,129,000 as its estimate
of the future undiscounted minimum financial liability with respect to this
matter, of which $766,000 is classified as a current liability and included in
accrued liabilities. The Company's minimum 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 costs 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.
Factors which cause uncertainties for the Company include, but are not limited
to, the effectiveness of the current work plans in achieving targeted results
and proposals of regulatory agencies for desired methods and outcomes. It is
possible that cash flows and results of operations could be significantly
affected by the impact of changes associated with the ultimate resolution of
this contingency.
Amounts charged to operations, principally legal and consulting, for the nine
months ended March 31, 2002 and 2001 were $431,000 and $695,000, respectively.
These costs were generally incurred in pursuit of various claims for
reimbursement.
Settlement discussions on several of these claims for reimbursement continue.
7. Deferred tax assets and liabilities are determined based on 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.
7
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 worldwide.
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, availability of 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. An additional risk factor is the availability and cost of
materials. The Company has encountered availability and extended lead time
issues on some electronic components in the past, which have resulted in higher
prices and late deliveries. Finally, the timing of sonobuoy sales is dependent
upon access to, and successful passage of, product tests performed by the U.S.
Navy. Reduced governmental budgets have made access to the test range less
predictable and frequent than in the past. Management cautions readers not to
place undue reliance on forward-looking statements, which are subject to
influence by the enumerated risk factors as well as unanticipated future events.
RESULTS OF OPERATIONS
NINE-MONTH PERIODS
Sales for the nine-month period ended March 31, 2002, totaled $116,846,000, a
decline of $18,851,000 (14%) from last year. Overall, sales were below the
Company's original plan, but in line with revised expectations given the current
economic environment. Government EMS sales for the nine months increased 44% to
$41,483,000, while commercial EMS sales declined 29%. The increase in government
sales was due to accelerated sonobuoy production, which should continue through
fiscal year end, June 30, 2002, and higher than expected foreign sonobuoy sales.
The decline in commercial EMS sales reflects the continued market uncertainties
following the tragedy on September 11, 2001, and the general economic recession.
The uncertainty of demand in the commercial markets led to additional measures
to monitor and control costs and expenses.
An operating profit of $2,621,000 was reported for the nine months ended March
31, 2002, compared to an operating loss of ($73,000) for the corresponding
period last year. The higher gross margin for the current period was reflective
of a more favorable mix of government sales and cost containment measures.
Margins on government programs are improving as the Company concludes production
of sonobuoy contracts that were loss contracts. These contracts carried no gross
margin and their revenues totaled $17.9 million for this nine-month period. At
March 31, 2002, the remaining backlog of these loss contracts approximated $1.9
million. Selling and administrative expenses were significantly below last year
as the Company continues to focus on cost control. Included were charges against
income related to the New Mexico environmental remediation effort , principally
litigation, of $431,000 in 2002 and $695,000 in 2001.
Interest and Investment Income decreased $57,000 to $326,000 in 2002 due to
lower yields. Other Income-Net was $369,000 in 2002 and $22,000 in 2001. Other
Income-Net of $369,000 in 2002 includes a one-time gain of $292,000. The Company
received shares in a former insurer as part of that company's conversion to a
stock company from a mutual company. The shares received have been sold and a
gain reported. In liquidating investments in the first quarter of fiscal 2001,
the Company incurred a loss of $147,000.
8
The Company reported net income of $2,085,000 ($.27 per share) for the nine
months ended March 31, 2002, compared to $209,000 ($.03 per share) for the
corresponding period last year.
THREE-MONTH PERIODS
Sales for the three-month period ended March 31, 2002, totaled $34,970,000, a
decline of $11,488,000 (25%) from the same quarter last year. Government EMS
sales increased $5,052,000, while commercial EMS sales decreased $16,540,000. In
addition to higher than expected foreign sales, the improvement in government
sales reflects increased sonobuoy production and shipments. The accelerated rate
of sonobuoy production is expected to continue through June 30, 2002. The
decline in commercial EMS sales reflects current economic and market
uncertainties as a result of the events following the tragedy on September 11,
2001, and the general economic recession. In response to the decline in the
commercial market, the Company continues to take additional actions to reduce
costs and expenses.
Operating profits of $742,000 and $625,000 were reported for the three months
ended March 31, 2002 and 2001, respectively. Given the decline in sales, the
operating results were viewed positively. Gross margins for the period improved
over 1.5%, reflecting the product mix and the continuing affect of cost control
measures previously initiated. In addition, one sonobuoy contract was concluded
at higher than anticipated margins, further contributing to this quarter's
earnings. Selling and administrative expenses were significantly below last year
as the Company continues to monitor costs and expenses. Sales and administrative
expense includes charges for the three months related to the New Mexico
environmental remediation effort, principally litigation, of $130,000 in 2002
and $18,000 in 2001.
Interest and Investment Income decreased $72,000 to $83,000 in 2002 due to lower
interest rates. There was no interest expense for three months ended March 31,
2002 and 2001. Other Income-Net was $136,000 in 2002 and $120,000 in 2001.
The Company reported a net income of $605,000 ($.08 per share) for the three
months ended March 31, 2002, consistent with $567,000 ($.08 per share) for the
corresponding period last year.
FINANCIAL POSITION
For the nine-month period ended March 31, 2002, Cash and Cash Equivalents
increased $526,000 to $13,561,000. Operating activities provided $4,589,000 in
net cash flows. The principal sources of cash flow from operating activities
were income from operations and a reduction in inventories. The principle use of
cash flow from operating activities was a reductions in accounts payable,
including $1,700,000 of payments to one customer which were in negotiations at
year end. Cash flows used by investing activities totaled $3,991,000,
principally from the purchase of investments.
Cash flows used by financing activities totaled $72,000. These funds were used
to purchase shares of common stock for the treasury. During the quarter ended
March 31, 2002, the Company purchased 800 shares for the corporate treasury.
Additionally, some 23,000 shares were purchased by the Sparton employees 401(K)
plan. These purchases represent about 10% of the total activity for the quarter.
The Company's market risk exposure to foreign currency exchange and interest
rates are not considered to be material due principally to short term investment
and minimal receivables and payables denominated in foreign currency.
The U.S. Navy has announced the award of the Q53F and Q62E sonobuoys for the
governmental 2002 contract year. The Company has received awards totaling $23
million, which is approximately half of the awards announced.
At March 31, 2002, the aggregate government EMS backlog was approximately $65.8
million, including the $23 million discussed above. A majority of this backlog
is expected to be realized in the next 12 months. The current
work-in-process/finished goods inventory of $18 million includes $8 million of
government sonobuoys. 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.
9
At March 31, 2002, the Company had $81,532,000 in recorded shareowners' equity
($10.78 per share), $68,455,000 in working capital, and a 5.53:1 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.
At March 31, 2002, Sparton has an accrual of $8,129,000 as its estimate of the
future undiscounted minimum financial liability with respect to this matter. 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.
This estimate is based on existing methodology. 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 affected by the impact of the ultimate resolution of this
contingency.
10
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 New Mexico Office of Natural Resources Trustee 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 remediation activities called for by the work plans have been installed and
are either completed, in the case of soil vapor extraction, or in operation, in
the case of offsite and onsite containment wells. It is anticipated that ongoing
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, dated March 3, 2000, before the effectiveness of the
groundwater containment 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, 2002, the remaining undiscounted minimum
accrual for EPA remediation approximates $8,129,000. 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 expected to close on
May 31, 2002.
11
In 1998, Sparton Technology, Inc. commenced litigation in two courts seeking
reimbursement of Sparton's costs incurred in complying with, and defending
against, Federal and state environmental requirements with respect to its former
plant on Coors Road in Albuquerque, New Mexico. Sparton also sought to recover
future costs being incurred by the Company on an ongoing basis as a result of
continuing remediation at the Coors Road facility. The first suit was commenced
on February 11, 1998 in the United States Court of Federal Claims against the
United States Department of Energy (DOE), alleging that is liable for
reimbursement of Sparton's environmental costs because DOE prescribed certain
mandatory performance requirements which were then imposed on Sparton Technology
through its agreements with Sandia Corporation and Allied Signal, Inc. This case
was initially dismissed by the Court of Federal Claims on the basis of a lack of
jurisdiction, but this decision was reversed on April 18, 2000 by the Federal
Circuit and the case was reinstated. The parties have conducted limited
discovery on the issue of jurisdiction only. DOE has filed its motion for
summary judgment seeking a dismissal of Sparton's complaint for lack of
jurisdiction, and Sparton has opposed that motion and crossed moved for summary
judgment in Sparton's favor on the issue of jurisdiction. The motions are now
pending. The Court of Federal Claims has ordered a stay in all proceedings until
May 10, 2002.
In the second lawsuit, filed on September 21, 1998, Sparton Technology also
seeks to recover environmental costs incurred in connection with the Coors Road
facility. This suit names DOE, Sandia Corporation and Allied Signal as
defendants, and seeks recovery of Sparton's costs under both contract theories
and Federal environmental law theories. The case was originally filed in the
United States District Court in Kansas City, Missouri, but was transferred to
the United States District Court in Albuquerque, New Mexico in March, 2000.
Discovery has been conducted in this case, but all proceedings in the case were
recently stayed.
Proceedings in both of these cases have been stayed because the attorneys for
the parties in both the Federal Court of Claims and the Albuquerque District
Court case are engaged in settlement negotiations, which are ongoing.
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.
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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-K for the
year ended June 30, 1981, and an amend ment 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 2002: 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 10, 2002 /s/ David W. Hockenbrocht
------------ ----------------------------------------
David W. Hockenbrocht, CEO and President
Date: May 10, 2002 /s/ Richard Langley
------------ ----------------------------------------
Richard Langley, Chief Financial Officer
13