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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported) January 19, 2000
Commission File Number 1-1000
SPARTON CORPORATION
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(Exact name of registrant as specified in its charter)
Ohio 38-1054690
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(State or other jurisdiction (IRS Employer Identification No.)
of incorporation)
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)
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Item 5. Other Events
One of Sparton's facilities, located in New Mexico, has been the subject of
ongoing investigations conducted with the Environmental Protection Agency (EPA)
under the Resource Conservation and Recovery Act (RCRA). This EPA compliance
issue is related to continuing operations, but involves a largely idled
facility. The investigation began in the early 1980's and involved a review of
on-site and off-site environmental impacts. In 1988, an Administrative Order on
Consent (AOC) was executed with the EPA related to further investigation and
proposing a means of dealing with environmental impacts.
The remedial investigation called for in the AOC has been completed and
approved. In May 1996, Sparton submitted to the EPA a final corrective measure
study, based on the results of its investigations, as required in the AOC. In
June 1996, the EPA issued its final decision selecting a corrective action at
the site, different from what Sparton had proposed. In Sparton's judgment, the
remedies proposed by the EPA were either unnecessary or technically
impracticable. Sparton vigorously challenged the EPA's remedy selection and
filed suit in Federal District Court in Dallas asserting that the EPA's decision
on remedy selection violated the AOC.
In September 1996, the EPA issued an initial administrative order under RCRA
ordering Sparton to undertake additional testing to justify the implementation
of the remedy selected by the agency in June 1996, and then to implement that
remedy. Sparton vigorously contested that order administratively, but on
February 10, 1998, the EPA issued a Final Administrative Order that in all
material respects followed the initial administrative order issued in September
1996. Sparton refused to implement those portions of that order that it believed
were unjustified.
In February 1997, three lawsuits were filed against Sparton 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's Coors Road facility presented an imminent
and substantial threat to human health or the environment. Through these
lawsuits, the plaintiffs sought to compel Sparton to undertake additional
testing and to implement the same remedy selected by the EPA in June of 1996,
now incorporated in the Final Administrative Order, and referred to in the
preceding paragraph. In March 1997, the plaintiffs in these three lawsuits filed
a motion for preliminary injunction and in July of 1997, the action in Dallas
was transferred to Federal District Court in Albuquerque and consolidated with
the three lawsuits filed in February 1997.
A proposed Consent Decree that would resolve all disputes related to the Final
Administrative Order dated February 10, 1998, and the litigation in Albuquerque
was lodged with the Court on January 18, 2000. This Consent Decree is subject to
a 30-day public comment period after which the Company anticipates that it will
become final.
The Consent Decree represents a judicially enforceable settlement agreement that
requires Sparton Technology, Inc. to pay $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 the Final Administrative Order, and $200,000
for reimbursement of the litigation costs of certain plaintiffs. The Consent
Decree also contains work plans describing remedial activity Sparton Technology,
Inc. agreed to undertake. In exchange for the monetary payment and an agreement
to implement the work plans, Sparton Technology, Inc. is receiving 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
facility that was the subject of the existing legal proceedings.
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The work plans provide for the installation of an off-site containment well
(already completed and operating), an on-site containment well and an
enhancement to an on-site soil vapor extraction system (in operation). The
purpose of the containment wells is to restrict further migration of impacted
groundwater. The soil vapor extraction system removes solvents in the on-site
soil above the groundwater. The installation and operation of the two
containment wells and the enhanced soil vapor extraction system are dependent
upon various permits, licenses and approvals from regulatory agencies and third
parties. It is anticipated that these remediation activities will operate for a
period of time during which the Company and the regulatory agencies will analyze
their effectiveness. The Company believes that it will take at least three to
five years before the effectiveness of the groundwater extraction wells can be
established. Until then, in the Company's judgment, no definitive conclusion can
be reached on whether additional remediation activities may be required.
As a result of having reached an understanding between the various parties and
upon entering into the Consent Decree, the Company has reviewed its estimates of
the future minimum costs expected to be incurred in its remediation effort over
the next 20-30 years. Given the nature and extent of the various work plans and
the probable continued operation of the containment wells for a number of years
as well as an extensive monitoring and reporting responsibilities, the Company
will be increasing its accrual for its EPA remediation by $10,000,000, pre-tax,
in December 1999. At December 31, 1999, the estimated future undiscounted
minimum accrual for EPA remediation will approximate $11,300,000 of which
$2,000,000 is expected to be incurred in the next 12 months with the remainder
payable over the next 20-30 years. The current portion of the liability includes
the $1,675,000 in costs and damages, described above, payable to the various
plaintiff parties. The Company's estimate of the minimum amount is based upon
existing technology, current costs and is not 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. The estimate does not reflect any offset or reduction
for monies recovered from various parties which the Company is currently
pursuing as described below.
Uncertainties associated with environmental remediation contingencies are
pervasive and often result in wide ranges of 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 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 affected by the
impact of the ultimate resolution of this contingency.
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.
On February 11, 1998, Sparton Technology, Inc. commenced litigation in the
United States Court of Federal
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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 through
its agreements with Sandia Corporation and Allied Signal, Inc. On February 9,
1999, the Court of Federal Claims dismissed Sparton's complaint based on its
determination 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 believes that the court
erred in its decision and filed its notice of appeal on April 9, 1999. Briefing
to the U.S. Court of Appeals for the Federal Circuit has been completed, and
oral argument is set for February 7, 2000.
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 the Company to amend its
complaint to add Sandia Corporation and the DOE as defendants. Limited discovery
has been completed. This case is currently scheduled for trial in the Spring of
2001.
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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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
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Registrant
Date: January 19, 2000 /s/ David W Hockenbrocht
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David W Hockenbrocht, President and Chief
Operating Officer
Date: January 19, 2000 /s/ Richard Langley
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Richard Langley, Vice President/Treasurer and
Principal Financial Officer
