##### Table of Contents



United States
SECURITIES AND EXCHANGE COMMISSION
 Washington, DC 20549
 FORM 10-K
  þ
    
    ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 for the
fiscal year ended December 30, 2007.
 OR
 o
    
    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 0-21682
 SPARTA, Inc.
 
  Delaware
    
    63-0775889(State or other jurisdiction of 
incorporation or organization)
    
    (I.R.S. Employer Identification No.)25531 Commercentre Drive, Suite 120, Lake Forest, CA
    
    92630-8873(Address of principal executive offices)
    
    (Zip Code)
 949) 768-8161
 Common Stock, $.01 par value   Options to Purchase Common Stock
 o þ
 o þ
 þ o
 o
  Large accelerated filer o
    
    Accelerated filer o
    
    Non-accelerated filer þ
    
    Smaller reporting company o(Do not check if a smaller reporting company)
 o þ




---



##### 



SPARTA, Inc.
FORM 10-K
TABLE OF CONTENTS
 PagePART 1ITEM 1.
    
    BUSINESS
    
    
    1ITEM 1A.
    
    RISK FACTORS
    
    
    10ITEM 1B.
    
    UNRESOLVED STAFF COMMENTS
    
    
    17ITEM 2.
    
    PROPERTIES
    
    
    17ITEM 3.
    
    LEGAL PROCEEDINGS
    
    
    17ITEM 4.
    
    SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
    
    
    17PART IIITEM 5.
    
    MARKET FOR REGISTRANTS COMMON EQUITY, RELATED
STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
    
    
    18ITEM 6.
    
    SELECTED FINANCIAL DATA
    
    
    22ITEM 7.
    
    MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
    
    
    23ITEM 7A.
    
    QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
    
    
    34ITEM 8.
    
    FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
    
    
    35ITEM 9.
    
    CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
    
    
    35ITEM 9A.
    
    CONTROLS AND PROCEDURES
    
    
    35ITEM 9B.
    
    OTHER INFORMATION
    
    
    36PART IIIITEM 10.
    
    DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
    
    
    37ITEM 11.
    
    EXECUTIVE COMPENSATION
    
    
    41ITEM 12.
    
    SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT AND RELATED STOCKHOLDER MATTERS
    
    
    54ITEM 13.
    
    CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
    
    
    56ITEM 14.
    
    PRINCIPAL ACCOUNTING FEES AND SERVICES
    
    
    56PART IVITEM 15.
    
    EXHIBITS, FINANCIAL STATEMENT SCHEDULES
    
    
    58EXHIBIT 23.1EXHIBIT 31.1EXHIBIT 31.2EXHIBIT 32.1EXHIBIT 32.2




---



##### Table of Contents



CAUTIONARY STATEMENT
   
 PART I
 
 BUSINESS
 Proposed Merger
   1




---



##### Table of Contents



General
   2




---



##### Table of Contents



Accounting for the Impairment of Long-Lived Assets
  3




---



##### Table of Contents



Industry Background
      4




---



##### Table of Contents



Company Strategy
       5




---



##### Table of Contents



Marketing
    U.S. Government Contracts
   6




---



##### Table of Contents



2007
    
    
    2006
    
    
    2005Amount
    
    
    % of total
    
    
    Amount
    
    
    % of total
    
    
    Amount
    
    
    % of totalCost reimbursement
    
    $
    141,329
    
    
    
    47
    %
    
    $
    158,928
    
    
    
    54
    %
    
    $
    136,044
    
    
    
    51
    %Time and materials
    
    
    56,004
    
    
    
    19
    %
    
    
    54,026
    
    
    
    18
    %
    
    
    60,245
    
    
    
    23
    %Fixed price (level of effort)
    
    
    5,436
    
    
    
    2
    %
    
    
    5,736
    
    
    
    2
    %
    
    
    4,829
    
    
    
    2
    %Firm fixed price
    
    
    94,716
    
    
    
    32
    %
    
    
    78,459
    
    
    
    26
    %
    
    
    65,347
    
    
    
    24
    %Other
    
    
    
    
    
    
    0
    %
    
    
    185
    
    
    
    0
    %
    
    
    108
    
    
    
    0
    %Total
    
    $
    297,485
    
    
    
    100
    %
    
    $
    297,334
    
    
    
    100
    %
    
    $
    266,573
    
    
    
    100
    %
    7




---



##### Table of Contents



Backlog
    December 31
    
    
    December 312007
    
    
    2006(amount in thousands)Annualized funded contract backlog
    
    $
    112,600
    
    
    $
    87,600Annualized unfunded contract backlog
    
    
    113,500
    
    
    
    89,600Total annualized contract backlog
    
    
    226,100
    
    
    
    177,200Expected 12-month value of future funding on proposals
with high probability of winning procurement
    
    
    55,500
    
    
    
    85,100Total annualized Company-defined backlog
    
    $
    281,600
    
    
    $
    262,300Total multi-year contract backlog
    
    $
    555,400
    
    
    $
    434,600Expected value of future funding on proposals with high
probability of winning procurement
    
    
    243,000
    
    
    
    312,300Total multi-year Company-defined backlog
    
    $
    798,400
    
    
    $
    746,900
  Competition
  8




---



##### Table of Contents



Employees
    Available Information
 www.sparta.com
 9




---



##### Table of Contents



RISK FACTORS
 You should carefully consider the risks and uncertainties described below in your evaluation of the
Company and its business. These are not the only risks and uncertainties that we face. If any of
these risks or uncertainties actually occur, our business, financial condition or operating results
could be adversely affected and the price of our common stock could decline.
 RISKS RELATED TO OUR INDUSTRY
 Risks Related to Government Contracting
  
    
    Although many of the programs in which we participate extend for
several years, these programs are normally funded incrementally on
an annual or more frequent basis. Further, the government may
modify, curtail or unilaterally terminate our contracts at its
convenience. New Presidential Administrations, changes in the
composition of Congress, and disagreement or significant delay
between Congress and the Administration in reaching a defense
budget accord can all significantly affect our business. Failure
of Congress to approve funding for a major program or contract, or
a modification, curtailment, or termination of a major program or
contract could have a material adverse effect on our financial
condition and/or results of operations.
    
    Many of our multi-year contracts provide for the exercise by the
government of unilateral options or award terms. There can be no
assurance that the government will exercise such options or award
terms.
    
    Government procurement regulations provide competitors the
opportunity to protest or challenge new contract awards made to us
pursuant to competitive bidding procedures. Such protests or
challenges could cause us to incur additional costs, such as legal
and proposal resubmission costs. Moreover, in the event a protest
were upheld, this could result in termination, reduction or
modification of the awarded contract, which could have a material
adverse effect on our financial condition and/or results of
operations.
    
    U.S. Government contractors are subject to audits, investigations
and inquiries by the DCAA and other government agencies regarding
business practices and contract costs. The results of such
audits, investigations and inquiries could result in the
disallowance of certain costs incurred by us, or the imposition of
civil or criminal penalties, up to and including suspension or
permanent disbarment from conducting business with the government.
We have negotiated final indirect contract costs through fiscal
year 2005. Indirect contract costs subsequent to fiscal year 2005
have been recorded at amounts which we expect to realize upon
final settlement. Cost disallowances in excess of established
reserves, or civil or criminal penalties resulting from
investigations or inquiries, could have a material adverse effect
on our financial condition and/or results of operations.
    
    We are subject to regulations regarding potential Organizational
Conflicts of Interest (OCI). These regulations generally attempt
to prevent the existence of conflicting roles that might bias a
contractors judgment. OCI regulations also attempt to prevent
unfair competitive advantage in situations where a contractor
competing for award of a contract possesses proprietary
information as a result of work performed on another contract, or
source selection information that is relevant to the new contract
but is not available to all competitors. In particular,
contractors such as ourselves who perform systems engineering,
requirements work, and technical analysis may be precluded from
being awarded a contract to supply the system or major components
thereof. Violations of contractual OCI clauses could result in
the U.S. Government terminating a contract for default. We
carefully monitor our contracts and new business pursuits for
potential OCI issues.
    
    A panoply of laws and regulations exist that affect companies that
do business with the U.S. Government. Among the more significant
regulations are the Federal Acquisition Regulations, which provide
comprehensive regulations for the formation, administration, and
performance of U.S. Government contracts; the Truth in
Negotiations Act, which require certification and disclosure of
costs and pricing data in connection with the
 10




---



##### Table of Contents



negotiation of certain contracts; Cost Principles and Cost Accounting Standards, which impose
rules regarding the allowability and allocability of costs to U.S. Government contracts; and a
variety of laws and regulations that govern the dissemination of information that is classified
for national security purposes. These laws and regulations impose added costs on our business,
and significantly affect the manner in which we conduct our business with our customers.
Changes in or significant violations of these laws and regulations could result in unilateral
downward adjustments to contract values, or the imposition of civil and/or criminal penalties,
which could have a material adverse effect on our financial condition and/or results of
operations.
 Base Realignment and Closure (BRAC); MDA Re-Engineering
   Changes in Government Procurement Strategies
    11




---



##### Table of Contents



Competition in the Industry
  Government Security Issues
  RISKS RELATED TO OUR BUSINESS
 Concentration of Revenue with the U.S. Government
  
    
    Changes in budgets, appropriations or administrations affecting U.S. Government spending generally, or specific
agencies with which we do business, or specific programs (such as BMD) in which we participate;
    
    Delays in the governments appropriation process;
    
    Military conflict or international political crises that may result in funding limitations on our contract vehicles;
    
    The impact on U.S. Government tax revenues of possible decline in the general economy.
    
    The impact on current and future defense budgets of projected federal budget deficits.
    
    The impact on current and future defense budgets of the U.S. Governments periodic strategic review of the defense
budget (known as the Quadrennial Defense Review), which could result in significant shifts in DoD budgetary priorities
or reductions in overall defense budgets.
 Contract Performance Risks
  12




---



##### Table of Contents



Loss of Small-Business Status
    Key Personnel
   13




---



##### Table of Contents



Employee Misconduct
  Potential Systems Failures
   Intellectual Property
  Customer Expectations and Relationships
  Reliance on Subcontractors and Prime Contractors
  14




---



##### Table of Contents



Estimated Contract Backlog
  Future Acquisitions
  
    
    We may issue shares of our common stock as consideration in an acquisition, potentially diluting the ownership
interests of existing stockholders;
    
    We may be unable to obtain financing for an acquisition due to the current status of the U.S. credit markets.
    
    We may be unable to accurately assess the financial impact of an acquired business on our financial position and/or
results of operations;
    
    We may be unable to novate, assign, or otherwise succeed to the acquired businesss U.S. Government contracts;
    
    We may be unable to effectively integrate the acquired business into our existing operations;
    
    We may be unable to retain key employees of the acquired business;
    
    We may be required to devote disproportionate management or other resources to negotiating, integrating, or financing
an acquired business; and
    
    Recently, the government amended certain of its small business regulations to require companies who have small business
set-aside contracts to re-certify as to their eligibility for such contracts upon a change in control. This
re-certification requirement could result in the loss of anticipated acquired revenue streams if we acquired a business
that relied upon small business set-aside programs for a substantial part of its revenues.
  Indemnification of Directors, Officers and Employees
  15




---



##### Table of Contents



RISKS RELATED TO OUR COMMON STOCK AND CAPITAL STRUCTURE
 Lack of Public Market; Restrictions on Transfer or Sale of Stock; Voluntary Repurchase
Program
   Stock Price
  Future Returns on Common Stock
  Possible Retirement Plan Legislation
  Leverage; Restrictive Debt Covenants
  16




---



##### Table of Contents



RISKS RELATED TO THE PROPOSED MERGER
  
 UNRESOLVED STAFF COMMENTS
  
 PROPERTIES
  
 LEGAL PROCEEDINGS
  
 SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
  17




---



##### Table of Contents



PART II
 
 ITEM 5.
    
    MARKET FOR REGISTRANTS COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER
PURCHASES OF EQUITY SECURITIES
 Lack of Public Market; Internal Repurchase Program
    Stock Price
   18




---



##### Table of Contents



SE + SN + CX
  SE =
    Stockholders equity, which includes all common and preferred stockSN =
    Aggregate principal amount of promissory notes (long term portion)CX =
    Aggregate exercise price of vested stock optionsSI =
    Number of shares of common and preferred stock issued and outstandingSV =
    Number of shares subject to vested stock optionsFG =
    The lesser of 1.5 or contract gross profits over the past four fiscal
quarters plus projected contract gross profits over the next four fiscal quarters
divided by contract gross profits over the past eight fiscal quarters, the
quotient of which is squaredA =
    Average annual earnings per share (as defined) for the preceding eight quarters
     19




---



##### Table of Contents



Price Range of Common Stock
  Stock Price per Share of Common Stock2007
    
    2006January 21
    
    $
    42.78
    
    
    January 23
    
    $
    42.53April 22
    
    
    43.86
    
    
    April 21
    
    
    41.25July 22
    
    
    44.93
    
    
    July 21
    
    
    42.49October 21
    
    
    48.77
    
    
    October 21
    
    
    41.39
  Dividend Policy
  Record Holders
  Repurchase Rights of the Company, Restrictions on Transferability
  Issuer Purchases of Equity Securities
  20




---



##### Table of Contents



Maximum Number (orTotal
    
    
    
    
    
    Total Number of Shares
    
    Approximate Dollar Value)Number
    
    Average
    
    Purchased as Part of
    
    of Shares that Mayof Shares
    
    Price Paid
    
    Publicly Announced
    
    yet Be Purchased underPeriod
    
    Purchased
    
    per Share
    

Plans or Programs
    

the Plans or ProgramsOctober(October 1, 2007  October 28, 2007)
    
    
    25,822
    
    
    $
    45.04
    
    
    
    20,071
    
    
    
    November(October 29, 2007  November 25, 2007)
    
    
    31,700
    
    
    
    48.23
    
    
    
    2,050
    
    
    
    December(November 26, 2007  December 30, 2007)
    
    
    9,276
    
    
    
    48.77
    
    
    
    984
    
    
    
    
    21




---



##### Table of Contents



SELECTED FINANCIAL DATA
  Operating Data for the Years Ended December 31
(1) (2)(amounts in thousands except EPS and share data)2007
    
    
    2006
    
    
    2005
    
    
    2004
    
    
    2003Sales
    
    $
    297,485
    
    
    $
    297,334
    
    
    $
    266,573
    
    
    $
    240,289
    
    
    $
    190,116Income from continuing operations
    
    $
    21,867
    
    
    $
    17,046
    
    
    $
    17,088
    
    
    $
    15,854
    
    
    $
    11,003Income from discontinued operations
    
    
    
    
    
    
    166
    
    
    
    15
    
    
    
    133
    
    
    
    186Net income
    
    $
    21,867
    
    
    $
    17,212
    
    
    $
    17,103
    
    
    $
    15,987
    
    
    $
    11,189Earnings per shareBasicIncome from continuing operations
    
    $
    4.53
    
    
    $
    3.31
    
    
    $
    3.26
    
    
    $
    3.04
    
    
    $
    2.18Income from discontinued operations
    
    
    
    
    
    
    0.03
    
    
    
    
    
    
    
    0.03
    
    
    
    0.04$
    4.53
    
    
    $
    3.34
    
    
    $
    3.26
    
    
    $
    3.07
    
    
    $
    2.22Diluted earnings per shareIncome from continuing operations
    
    $
    4.34
    
    
    $
    3.12
    
    
    $
    2.98
    
    
    $
    2.80
    
    
    $
    2.02Income from discontinued operations
    
    
    
    
    
    
    0.03
    
    
    
    
    
    
    
    0.02
    
    
    
    0.03$
    4.34
    
    
    $
    3.15
    
    
    $
    2.98
    
    
    $
    2.82
    
    
    $
    2.05Weighted average commonshares outstanding
    
    
    4,829,772
    
    
    
    5,156,151
    
    
    
    5,242,151
    
    
    
    5,206,838
    
    
    
    5,049,098
 Balance Sheet Data as of December 31(1) (2)(amounts in thousands except EPS and share data)2007
    
    2006
    
    2005
    
    2004
    
    2003Total assets
    
    $
    137,451
    
    
    $
    118,355
    
    
    $
    112,546
    
    
    $
    96,011
    
    
    $
    76,958Working capital
    
    $
    77,140
    
    
    $
    54,125
    
    
    $
    59,717
    
    
    $
    46,356
    
    
    $
    34,837Long term liabilities
    
    $
    8,234
    
    
    $
    8,083
    
    
    $
    6,587
    
    
    $
    8,380
    
    
    $
    5,991Stockholders equity
    
    $
    85,171
    
    
    $
    61,412
    
    
    $
    68,042
    
    
    $
    50,727
    
    
    $
    39,267
 
 (1)
    
    The Companys fiscal year is the 52 or 53 week period ending on the Sunday closest to
December 31. The last five fiscal years have ended on December 30, 2007; December 31,
2006; January 1, 2006; January 2, 2005; and December 28, 2003. For ease of presentation of
summary financial data, the year-ends have been presented as December 31. Fiscal year 2004
comprises a 53-week period; all other fiscal years presented comprise a 52-week period.(2)
    
    As discussed in Note 11 to the consolidated financial statements, the Company completed
the divestiture of its wholly-owned subsidiary, Spiral, in December 2006. The financial
statements for all prior periods have been restated to reflect the results of operations of
the wholly-owned subsidiary in discontinued operations. 22




---



##### Table of Contents



MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
  Overview
    23




---



##### Table of Contents



Accounting for the Impairment of Long-Lived Assets
  Subsequent Event
  24




---



##### Table of Contents



Results of Operations
  Operating Results(amounts in thousands, except percentages)2007
    
    
    2006
    
    
    2005Sales
    
    $
    297,485
    
    
    $
    297,334
    
    
    $
    266,573Sales by business area, as a
percentage of total salesBMD
    
    
    52
    %
    
    
    48
    %
    
    
    46
    %Other DoD and Intelligence
    
    
    46
    %
    
    
    49
    %
    
    
    51
    %Non-DoD
    
    
    2
    %
    
    
    3
    %
    
    
    3
    %Operating income
    
    $
    28,929
    
    
    $
    28,593
    
    
    $
    28,359Operating margin
    
    
    9.7
    %
    
    
    9.6
    %
    
    
    10.6
    %Income from continuing operations
    
    $
    21,867
    
    
    $
    17,046
    
    
    $
    17,088Income from discontinued operations
    
    $
    
    
    
    $
    166
    
    
    $
    15Net income
    
    $
    21,867
    
    
    $
    17,212
    
    
    $
    17,103
 2007 compared to 2006
   Share-Based Payment
  25




---



##### Table of Contents



2006 compared to 2005
      26




---



##### Table of Contents



Backlog
    December 31
    
    
    December 312007
    
    
    2006(amount in thousands)Annualized funded contract backlog
    
    $
    112,600
    
    
    $
    87,600Annualized unfunded contract backlog
    
    
    113,500
    
    
    
    89,600Total annualized contract backlog
    
    
    226,100
    
    
    
    177,200Expected 12-month value of future funding on proposals
with high probability of winning procurement
    
    
    55,500
    
    
    
    85,100Total annualized Company-defined backlog
    
    $
    281,600
    
    
    $
    262,300Total multi-year contract backlog
    
    $
    555,400
    
    
    $
    434,600Expected value of future funding on proposals with high
probability of winning procurement
    
    
    243,000
    
    
    
    312,300Total multi-year Company-defined backlog
    
    $
    798,400
    
    
    $
    746,900Annualized Company-defined backlog
(by business area):BMD
    
    $
    140,700
    
    
    $
    136,900Other DoD and Intelligence
    
    
    136,800
    
    
    
    120,400Non-DoD
    
    
    4,100
    
    
    
    5,000Total annualized Company-defined backlog
    
    $
    281,600
    
    
    $
    262,300
  27




---



##### Table of Contents




    
    Sole-source prime contract with the Missile Defense Agency (MDA) for the Systems
Engineering Scientific, Engineering and Technical Assistance (SETA) program, estimated
value of $154.0 million over a performance period of five years.
    
    Six sole source priced options, each with a performance period of one year, were
exercised on existing MDA prime contracts for support to the Deputy for Test (DT) program;
the Systems Engineering and Integration SETA program; the Command, Control, Battle
Management and Communications SETA program and the Deputy for International Affairs
Program, for a combined estimated value of $100.2 million.
    
    Prime contract with the Missile and Space Intelligence Center (MSIC) for the Joint
Research Assessment and Analysis Center (JRAAC) Support Program, estimated value of $77.6
million over five years.
    
    Five sole-source add-ons to existing MDA prime contracts for the Decision Architecture
program, the Joint Staff/Service Integration SETA program, the Targets and Countermeasures
program and the Test and Assessment program with a combined estimated value of $60.0
million over performance periods ranging from one to two years.
    
    Subcontract with the National Security Agency (NSA) Chief Technology Organization to
provide information technology support, estimated value of $30.0 million over five years.
    
    Eight sole source add-ons to existing prime contracts with classified customers, total
estimated value of $25.1 million with individual performance periods ranging from nine
months to one year.
    
    Competitive subcontract with an estimated value of $20.0 million covering a ten-year
period on the Warfighter Focus program for the U.S. Army Program Executive Office for
Simulation, Training and Instrumentation.
    
    Competitive subcontract with the NSA for the Space Special Program Office SETA,
estimated value of $17.4 million over five years.
    
    Two prime contracts with the U.S. Air Force for the System Engineering and Technical
Support and Acquisition Support and System Engineering Programs, estimated value totaling
$11.2 million over one year.
    
    Subcontract and sole source add-on to the subcontract in support of the U.S. Army
Tube-launched, Optically-tracked, Wire-guided (TOW) Wireless program, with a combined
estimated value of $10.1 million over performance periods of two years and 40 months,
respectively.
    
    Prime contract with the U.S. Army Yuma Counterinsurgency Test and Evaluation program,
estimated value of $9.9 million over three years.
    
    Competitive subcontract for the U.S. Army Installation Management Command (IMCOM) for
the Installation Management program, estimated value of $8.0 million over five years.
    
    Competitive subcontract with the NSA for the Electronic Intelligence (ELINT)
Modernization Information Management and Storage System Design & Development program,
estimated value of $7.9 million over 46 months.
    
    Five sole source add-ons to existing prime contracts with the Federal Bureau of
Investigation (FBI) for a combined estimated value of $7.9 million over performance periods
ranging from six months to one year.
    
    Subcontract for the U.S. Army Counter Narco-Terrorism Protection Program, estimated value of $5.0 million over five years.
    
    Sole source prime contract with a classified customer, estimated value of $5.0 million over nine months.
 28




---



##### Table of Contents




    
    Sole source prime contract with the NSA for the Advanced Networking Office/Joint
Communications Security (COMSEC) Monitoring Activity Support program, estimated value of
$5.0 million over a performance period of 3 years.
 Liquidity and Capital Resources
 Overview
      29




---



##### Table of Contents



Balance at December 312007
    
    2006
    
    2005Cash and cash equivalents
    
    $
    37,163,000
    
    
    $
    23,379,000
    
    
    $
    29,254,000Short-term investments
    
    $
    15,447,000
    
    
    $
    14,861,000
    
    
    $
    Stockholders equity
    
    $
    85,171,000
    
    
    $
    61,412,000
    
    
    $
    68,042,000Notes payable
    
    $
    11,344,000
    
    
    $
    12,486,000
    
    
    $
    8,425,000Borrowings under line of credit
    
    
    
    
    
    
    
    
    
    
    Current ratio
    
    
    2.80
    
    
    
    2.10
    
    
    
    2.60
 Cash Flow Information
   Share-Based Payment
     30




---



##### Table of Contents



Payments Due by Period(amounts in thousands)Less than 1
    
    
    
    
    
    
    
    
    
    
    More than 5Contractual Obligations
    
    Total
    
    
    year
    
    

13years
    
    
    4-5 years
    
    
    yearsPromissory Notes
    
    $
    11,344
    
    
    $
    3,110
    
    
    $
    6,567
    
    
    $
    1,667
    
    
    $
    Operating Leases
    
    
    42,692
    
    
    
    9,681
    
    
    
    18,121
    
    
    
    6,235
    
    
    
    8,655Total Contractual Obligations
    
    $
    54,036
    
    
    $
    12,791
    
    
    $
    24,688
    
    
    $
    7,902
    
    
    $
    8,655
 Effects of Inflation
  Effects of Federal Funding for Defense Programs
  31




---



##### Table of Contents



Critical Accounting Policies and Estimates
  Accounting for Performance of Construction-Type and
Production-Type Contracts
    32




---



##### Table of Contents



33




---



##### Table of Contents



Recent Accounting Pronouncements
 Business Combinations
 Noncontrolling Interests in Consolidated Financial Statements  an amendment of Accounting
Research Bulleting No. 51
 The Fair
Value Option for Financial Assets and Financial Liabilities  Including an amendment of FASB
Statement No. 115
 Fair
Value Measurements
 
 QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
    34




---



##### Table of Contents



FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
  
 CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE
  
 CONTROLS AND PROCEDURES
 Evaluation of Disclosure Controls and Procedures
  35




---



##### Table of Contents



Changes in Internal Control Over Financial Reporting
  Managements Report on Internal Control Over Financial Reporting
  
    
    Pertain to the maintenance of records that in reasonable detail accurately and fairly
reflect the transactions and dispositions of our assets;
    
    Provide reasonable assurance that transactions are recorded as necessary to permit the
preparation of financial statements in accordance with generally accepted accounting
principles, and that our receipts and expenditures are being made only in accordance with
authorizations of management or our Board of Directors; and
    
    Provide reasonable assurance regarding the prevention or timely detection of
unauthorized acquisition, use or disposition of our assets that could have a material
adverse effect on our financial statements.
  Internal Control  Integrated Framework
  
 OTHER INFORMATION
  36




---



##### Table of Contents



PART III
 
 DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
  FirstName
    
    Positions with the Company
    
    Age
    
    ElectedWayne R. Winton
    
    Chairman of the Board of Directors
    
    
    72
    
    
    
    1979Robert C. Sepucha, Ph.D.
    
    Chief Executive Officer and Director
    
    
    64
    
    
    
    1993Rockell N. Hankin
    
    Director and Chairman of the Audit Committee
    
    
    61
    
    
    
    1989General John L. Piotrowski
(USAF Retired)
    
    Director and Chairman of the Compensation Committee
    
    
    74
    
    
    
    1991Gerald A. Zionic
    
    Director
    
    
    65
    
    
    
    1999William E. Cook
    
    Director
    
    
    59
    
    
    
    1999Maureen A. Baginski
    
    Corporate Senior Vice President and Sector President
    
    
    53
    
    
    
    2006Troy A. Crites
    
    Corporate Senior Vice President and Sector President
    
    
    50
    
    
    
    2002Randy N. Morgan
    
    Corporate Senior Vice President and Sector President
    
    
    46
    
    
    
    2005David E. Schreiman
    
    Corporate Vice President, Chief Financial Officer and Treasurer
    
    
    47
    
    
    
    2002Jerry R. Fabian
    
    Corporate Vice President, Chief Administrative Officer and
Secretary
    
    
    59
    
    
    
    1989Raymond C. Gretlein, Jr.
    
    Corporate Vice President and Chief Information Officer
    
    
    54
    
    
    
    2003Jody L. Chiaro
    
    Vice President and Director of Human Resources
    
    
    55
    
    
    
    2004Dorothy H. Hoffmann
    
    Vice President and Director of Strategic Planning
    
    
    52
    
    
    
    2006
 Biographical Information
 Wayne R. Winton
 Robert C. Sepucha, Ph.D
 Rockell N. Hankin
 37




---



##### Table of Contents



John L. Piotrowski, General USAF Retired
 Gerald A. Zionic
 William E. Cook
 Maureen A. Baginski
 Troy A. Crites
 38




---



##### Table of Contents



Randy N. Morgan
 David E. Schreiman
 Jerry R. Fabian
 Raymond C. Gretlein
 Jody L. Chiaro
 Dorothy H. Hoffmann
 Audit Committee
  39




---



##### Table of Contents



Other Board Committees
    Compliance with Section 16(a) of the Exchange Act
    40




---



##### Table of Contents



Code of Ethics
  
 EXECUTIVE COMPENSATION
 Compensation Committee Discussion and Analysis (CD&A)
   
    
    Annual base salaries
    
    Annual incentive compensation (bonus)
    
    Long-term equity compensation
    
    Retirement plan contributions
    
    Fringe benefits
   Base salaries.
 41




---



##### Table of Contents



Pre-February
    
    Post-February2007 Annual
    
    2007 Annual
    
    PercentageNamed Executive Officer and Principal Position
    
    Base Salary
    
    Base Salary
    
    IncreaseRobert C. Sepucha, Ph. D.
Chief Executive Officer
    
    $
    291,000
    
    
    $
    296,000
    
    
    
    1.7
    %David E. Schreiman
Corporate Vice President,
Chief Financial Officer and Treasurer
    
    $
    193,000
    
    
    $
    202,000
    
    
    
    4.7
    %Troy A. Crites
Corporate Senior Vice President
Sector President
    
    $
    235,000
    
    
    $
    240,000
    
    
    
    2.1
    %Randy N. Morgan
Corporate Senior Vice President
Sector President
    
    $
    231,000
    
    
    $
    242,000
    
    
    
    4.8
    %Maureen A. Baginski
Corporate Senior Vice President
Sector President
    
    $
    239,990
    
    
    $
    239,990
    
    
    
    N/A
  th th
 Incentive Bonus Plan .
  42




---



##### Table of Contents




    
    Year-Over-Year Profit Growth  For purposes of the CEO Bonus Plan, profit is defined as net earnings as used in our
stock price formula. This measure is generally net income, as shown in our consolidated financial statements, adjusted
for compensation expense arising from our equity compensation plans.
 
    
    Year-Over-Year Backlog Growth  For purposes of the CEO Bonus Plan, backlog is defined as annualized contract backlog.
This measure differs from traditional measures of backlog, which measures the expected sales on current contracts.
Annualized contract backlog measures the expected sales during the next 12 months on all current contracts, plus the
expected value of future incremental funding on certain proposals where we expect a high probability of winning the
procurement. We believe that this metric is more indicative of our expected future revenues.
 
    
    Performance Against Specified Objectives  Each year, we publish an annual Corporate Business Plan, which includes
several specific quantitative and qualitative objectives. The Compensation Committee prepares an assessment of our
progress in achieving these objectives in determining the amount of the annual bonus for the Chief Executive Officer.
 
    
    Special Objectives and Exceptional Accomplishments  The Compensation Committee also assesses the Chief Executive
Officers management performance with respect to specific business development targets, and can also award bonus for
exceptional accomplishments by the Chief Executive Officer with respect to unusual matters that arise over the course
of the year.
 
    
    The following table presents the minimum and maximum bonus amounts under each component of the CEO Bonus Plan.
 Minimum
    
    MaximumYear-Over-Year Profit Growth
    
    
    ($15,000
    )
    
    $
    50,000Year-Over-Year Backlog Growth
    
    
    (15,000
    )
    
    
    50,000Performance Against Specified Objectives
    
    
    
    
    
    
    45,000Special Objectives and Exceptional Accomplishments
    
    
    
    
    
    
    50,000
    
    
    Year-Over-Year Profit Growth  For purposes of the Corporate
Bonus Plan, profit is defined as income before income taxes for
the applicable operating unit, excluding compensation expense
arising from our equity compensation plans.
 
    
    Year-Over-Year Growth in Projected Contract Gross Profits  For
purposes of the Corporate Bonus Plan, projected contract gross
profits are determined in a manner consistent with the Companys
formula stock price calculation, as described under Market for
Registrants Common Equity, Related Stockholder Matters and Issuer
Purchases of Equity Securities  Stock Price.
 
    
    Performance Against Spend Rate  Spend rate is a measure we use
to monitor indirect spending relative to the provisional indirect
rates we use for government contracting purposes. As such, a
Sectors spend rate is a measure of how well the Sector controls
its costs relative to its business base.
 
    
    General Management Performance  The Chief Executive Officer
assesses each Sector Presidents management performance across a
wide spectrum of management factors, including their support of
our
 43




---



##### Table of Contents



corporate goals; initiative, innovation and aggressiveness in developing new business;
achievement of Sector objectives; increases in multi-year contract backlog; and interaction
with the senior management team.
  Minimum
    
    MaximumYear-Over-Year Profit Growth
    
    
    ($20,000
    )
    
    $
    40,000Year-Over-Year Projected Contract Profit Growth
    
    
    (20,000
    )
    
    
    40,000Performance Against Specified Objectives
    
    
    (30,000
    )
    
    
    Overall Management Performance
    
    
    (30,000
    )
    
    
    50,000
    Retirement Plan.
   Equity Compensation Plan.
 44




---



##### Table of Contents



Percentage of AggregateAnnual Share Awards andEquity Compensation Plan Component
    
    Option GrantsBusiness stock options
    
    60%  65%All other stock options
    
    15%  20%Annual bonus stock awards
    
    3%  5%Discretionary profit sharing and matching
retirement plan contributions
    
    15%  20%Restricted stock awards
    
    Less than 1%
  
    
    New-hire stock options  We grant new-hire stock options to most
newly hired full-time (or near full-time) employees as of the date
they commence employment.
    
    Business stock options  We grant business stock options
semi-annually. The number of business stock options granted to a
recipient depends on (1) the recipients proportional contribution
to the award of a contract or task order, as determined by the
applicable Proposal Manager, Operation Manager and Sector
President, (2) the contract profits earned on the contract or task
order during the semi-annual period preceding the grant date, and
(3) the business stock option rate determined annually by the
Board of Directors. The business stock option rate is determined
based on the targeted number of business stock options to be
granted during the year and on the estimated contract profits to
be earned during the year.All full-time (or near full-time) employees are eligible to receive business stock options. An
individuals contribution to the award of a contract or task order may take many forms,
including identification of an opportunity, pre-proposal marketing activities, participation in
the proposal process, or outstanding technical achievement that lays the foundation for the
award of a follow-on contract or task order. For most employees with operating responsibility,
including executive officers who are Sector Presidents, business stock options are the primary
means of earning equity compensation.
    
    Performance stock options  We grant performance stock options annually to employees who
typically do not have the opportunity to earn business stock options. Performance stock
option grants for executive officers who manage corporate administrative functions (i.e., the
Chief Executive Officer, the Chief Financial Officer, the Chief Administrative Officer, the
Chief Information Officer, the Director of Human Resources, and the Director of Strategic
Planning) are governed by the CEO and Corporate Bonus Plans. These plans prescribe
quantitative and qualitative objectives against which such executives are evaluated for
purposes of determining the number of stock options to be granted. Performance stock option
grants for all other employees are based on their performance during the year, as assessed by
senior management.
    
    401(k) matching stock options  Employees who receive shares of common stock in connection
with a matching retirement plan contribution (see Retirement Plan section above) also
receive an equal number of
stock options. Currently, none of the Named Executive Officers receives a matching retirement
plan contribution or 401(k) matching stock options.
 45




---



##### Table of Contents




    
    Supplemental stock options  Certain newly hired members of senior management, including
executive officers, may be eligible for a supplemental stock option grant. Such supplemental
stock option grants are negotiated between the Chief Executive Officer and the senior manager
prior to the commencement of employment and typically cover the first one to two years of
employment. Supplemental stock option grants are based on the senior manager meeting certain
performance criteria, as negotiated between the Chief Executive Officer and the senior manager
at the time of the grant of the option. Currently, none of the Named Executive Officers is
party to a supplemental stock option grant.
   Accounting and Income Tax Consideration.
  Employment Agreements and Change in Control.
 Fringe Benefits.
 46




---



##### Table of Contents



Executive Perquisites.
 Summary Compensation Table
  Stock
    
    Option
    
    All OtherSalary
    
    Bonus
    
    Awards(1)(2)
    
    Awards (1)
    
    Compensation (8)
    
    TotalName and Principal Position
    
    Year
    
    ($)
    
    ($)
    
    ($)
    
    ($)
    
    ($)
    
    ($)Robert C. Sepucha, Ph.D. (3)
    
    
    2007
    
    
    
    213,017
    
    
    
    42,500
    
    
    
    
    
    
    
    1,071
    
    
    
    30,054
    
    
    
    286,642Chief Executive Officer
    
    
    2006
    
    
    
    289,308
    
    
    
    20,400
    
    
    
    
    
    
    
    74
    
    
    
    43,059
    
    
    
    352,841David E. Schreiman (4)
    
    
    2007
    
    
    
    200,616
    
    
    
    105,200
    
    
    
    
    
    
    
    3,858
    
    
    
    59,122
    
    
    
    368,796Corporate Vice President, Chief
    
    
    2006
    
    
    
    191,462
    
    
    
    43,075
    
    
    
    
    
    
    
    
    
    
    
    51,695
    
    
    
    286,232Financial Officer and TreasurerTroy A Crites (5)
    
    
    2007
    
    
    
    239,231
    
    
    
    51,900
    
    
    
    13,996
    
    
    
    5,377
    
    
    
    37,787
    
    
    
    348,291Corporate Senior Vice President
    
    
    2006
    
    
    
    233,231
    
    
    
    5,200
    
    
    
    13,996
    
    
    
    578
    
    
    
    54,100
    
    
    
    307,105Sector PresidentRandy N. Morgan (6)
    
    
    2007
    
    
    
    239,419
    
    
    
    92,100
    
    
    
    14,996
    
    
    
    15,492
    
    
    
    91,507
    
    
    
    453,514Corporate Senior Vice President
    
    
    2006
    
    
    
    224,543
    
    
    
    29,400
    
    
    
    14,996
    
    
    
    1,386
    
    
    
    65,610
    
    
    
    335,935Sector PresidentMaureen A. Baginski (7)
    
    
    2007
    
    
    
    239,990
    
    
    
    35,800
    
    
    
    
    
    
    
    5,411
    
    
    
    12,347
    
    
    
    293,548Corporate Senior Vice President
    
    
    2006
    
    
    
    36,921
    
    
    
    40,000
    
    
    
    
    
    
    
    672
    
    
    
    
    
    
    
    77,593Sector President
 
 (1)
    
    The value of stock awards and option awards was determined as required by Financial
Accounting Standards Board Statement of Financial Accounting Standards No. 123 (revised 2004),
Share Based Payment [SFAS No. 123(R)]. See Note 10 to the Consolidated Financial Statements
for details on assumptions used in the valuation.(2)
    
    Represents compensation expense recorded during 2007 and 2006 pursuant to SFAS No. 123(R) for
restricted stock awards in 2003 (Mr. Crites) and 2005 (Mr. Morgan) under the Companys Stock
Compensation Plan.(3)
    
    2006 bonus included $4,064 in shares of the Companys common stock.(4)
    
    2006 bonus included $7,144 in shares of the Companys common stock.(5)
    
    2006 bonus included $1,027 in shares of the Companys common stock.(6)
    
    2006 bonus included $5,861 in shares of the Companys common stock.(7)
    
    Ms. Baginski commenced employment with the Company on October 23, 2006.(8)
    
    See table (All Other Compensation) below. 47




---



##### Table of Contents



All Other CompensationProfit SharingAbsence
    
    Plan
    
    Total OtherPayout
    
    Contribution
    
    CompensationName
    
    Year
    
    ($)
    
    ($)
    
    ($)Robert C. Sepucha
    
    
    2007
    
    
    
    
    
    
    
    30,054
    
    
    
    30,0542006
    
    
    
    10,059
    
    
    
    33,000
    
    
    
    43,059David E. Schreiman
    
    
    2007
    
    
    
    25,372
    
    
    
    33,750
    
    
    
    59,1222006
    
    
    
    18,695
    
    
    
    33,000
    
    
    
    51,695Troy A. Crites
    
    
    2007
    
    
    
    4,037
    
    
    
    33,750
    
    
    
    37,7872006
    
    
    
    21,100
    
    
    
    33,000
    
    
    
    54,100Randy N. Morgan
    
    
    2007
    
    
    
    57,757
    
    
    
    33,750
    
    
    
    91,5072006
    
    
    
    32,610
    
    
    
    33,000
    
    
    
    65,610Maureen A. Baginski
    
    
    2007
    
    
    
    
    
    
    
    12,347
    
    
    
    12,3472006
    
    
    
    
    
    
    
    
    
    
    
    
 Grants of Plan-Based Awards Table
  Number of
    
    ExerciseSecurities
    
    Price of
    
    Grant Date Fair ValueUnderlying
    
    Option
    
    of Stock and OptionOptions
    
    Awards
    
    AwardsName
    
    Grant Date
    
    (#)
    
    ($/share)
    
    ($)Robert C. Sepucha
    
    
    03/01/2007
    
    
    
    433
    
    
    
    42.78
    
    
    
    2,62409/01/2007
    
    
    
    185
    
    
    
    44.93
    
    
    
    1,090David E. Schreiman
    
    
    03/01/2007
    
    
    
    2,292
    
    
    
    42.78
    
    
    
    13,890Troy A. Crites
    
    
    03/01/2007
    
    
    
    1,710
    
    
    
    42.78
    
    
    
    10,36309/01/2007
    
    
    
    1,167
    
    
    
    44.93
    
    
    
    6,874Randy N. Morgan
    
    
    03/01/2007
    
    
    
    4,806
    
    
    
    42.78
    
    
    
    29,12409/01/2007
    
    
    
    4,955
    
    
    
    44.93
    
    
    
    29,185Maureen A. Baginski
    
    
    09/01/2007
    
    
    
    43
    
    
    
    44.93
    
    
    
    25310/17/2007
    
    
    
    7,000
    
    
    
    44.93
    
    
    
    40,040
 48




---



##### Table of Contents



Outstanding Equity Awards at Fiscal Year End
  Option Awards
    
    Stock AwardsEquityIncentive Plan
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Equity
    
    EquityAwards:
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Incentive Plan
    
    Incentive PlanNumber of
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Awards:
    
    Awards:Securities
    
    Securities
    
    Securities
    
    
    
    
    
    
    
    
    
    Number of
    
    
    
    
    
    Number of
    
    Payout ValueUnderlying
    
    Underlying
    
    Underlying
    
    
    
    
    
    
    
    
    
    Shares of
    
    Market Value
    
    Unearned
    
    of UnearnedUnexercised
    
    Unexercised
    
    Unexercised
    
    Option
    
    
    
    
    
    Stock That
    
    of Shares of
    
    Shares That
    
    Shares ThatOptions
    
    Options
    
    Unearned
    
    Exercise
    
    Option
    
    Have Not
    
    Stock That
    
    Have Not
    
    Have NotExercisable
    
    Unexercisable(1)
    
    Options
    
    Price
    
    Expiration
    
    Vested (2)
    
    Have Not
    
    Vested
    
    VestedName
    
    ( # )
    
    ( # )
    
    ( # )
    
    ( $ )
    
    Date (1)
    
    ( # )
    
    Vested (3)
    
    ( # )
    
    ( $ )Robert C.
    
    
    283
    
    
    
    
    
    
    
    
    
    
    $
    30.32
    
    
    
    06/25/2008
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Sepucha
    
    
    10,872
    
    
    
    
    
    
    
    
    
    
    
    34.58
    
    
    
    12/21/2008
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    82
    
    
    
    82
    
    
    
    
    
    
    
    40.87
    
    
    
    06/21/2009
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,078
    
    
    
    2,078
    
    
    
    
    
    
    
    42.12
    
    
    
    12/21/2009
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    22
    
    
    
    88
    
    
    
    
    
    
    
    42.49
    
    
    
    09/01/2010
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    433
    
    
    
    
    
    
    
    42.78
    
    
    
    03/01/2011
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    185
    
    
    
    
    
    
    
    44.93
    
    
    
    09/01/2011
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    David E.
    
    
    3,851
    
    
    
    
    
    
    
    
    
    
    $
    34.58
    
    
    
    12/21/2008
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Schreiman
    
    
    3,750
    
    
    
    3,750
    
    
    
    
    
    
    
    36.90
    
    
    
    02/03/2009
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,896
    
    
    
    1,896
    
    
    
    
    
    
    
    42.12
    
    
    
    12/21/2009
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,292
    
    
    
    
    
    
    
    42.78
    
    
    
    03/01/2011
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Troy A. Crites
    
    
    2,233
    
    
    
    
    
    
    
    
    
    
    $
    30.32
    
    
    
    06/25/2008
    
    
    
    1,074
    
    
    $
    52,379
    
    
    
    
    
    
    
    2,940
    
    
    
    
    
    
    
    
    
    
    
    34.58
    
    
    
    12/21/2008
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    934
    
    
    
    934
    
    
    
    
    
    
    
    40.87
    
    
    
    06/21/2009
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    600
    
    
    
    600
    
    
    
    
    
    
    
    42.12
    
    
    
    12/21/2009
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    172
    
    
    
    691
    
    
    
    
    
    
    
    42.49
    
    
    
    09/01/2010
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,710
    
    
    
    
    
    
    
    42.78
    
    
    
    03/01/2011
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,167
    
    
    
    
    
    
    
    44.93
    
    
    
    09/01/2011
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Randy N.
    
    
    9,950
    
    
    
    
    
    
    
    
    
    
    $
    34.58
    
    
    
    12/21/2008
    
    
    
    2,032
    
    
    $
    99,101
    
    
    
    
    
    
    
    Morgan
    
    
    960
    
    
    
    1,708
    
    
    
    
    
    
    
    40.87
    
    
    
    06/21/2009
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    748
    
    
    
    1,247
    
    
    
    
    
    
    
    42.12
    
    
    
    12/21/2009
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,656
    
    
    
    
    
    
    
    42.49
    
    
    
    09/01/2010
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    4,806
    
    
    
    
    
    
    
    42.78
    
    
    
    03/01/2011
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    4,955
    
    
    
    
    
    
    
    44.93
    
    
    
    09/01/2011
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Maureen A.
    
    
    200
    
    
    
    800
    
    
    
    
    
    
    $
    41.39
    
    
    
    10/23/2010
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Baginski
    
    
    
    
    
    
    43
    
    
    
    
    
    
    
    44.93
    
    
    
    09/01/2011
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    7,000
    
    
    
    
    
    
    
    44.93
    
    
    
    10/18/2011
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
 
 (1)
    
    Stock options vest over three years, with 20% vesting on the first anniversary of the grant
date, 30% vesting on the second anniversary, and the remaining 50% vesting on the third
anniversary. Options expire on the fourth anniversary of the grant date.(2)
    
    Stock awards under the Companys Stock Compensation Plan vest over a five-year schedule with
1/3 vesting in years three, four, and five. Stock awards under this plan vest on February 1st
of each year.(3)
    
    The market value of the awards is $48.77 per share, based on the formula stock price at
December 31, 2007. 49




---



##### Table of Contents



Option Exercises and Stock Vested During Fiscal Year
  Option Awards
    
    Stock AwardsNumber of Shares
    
    
    
    
    
    Number of SharesAcquired on
    
    Value Realized on
    
    Acquired on
    
    Value Realized onExercise
    
    Exercise
    
    Vesting (1)
    
    VestingName
    
    ( # )
    
    ( $ )
    
    ( # )
    
    ( $ )Robert C. Sepucha (2)
    
    
    12,209
    
    
    
    275,902
    
    
    
    
    
    
    David E. Schreiman (3)
    
    
    6,805
    
    
    
    153,997
    
    
    
    
    
    
    Troy A. Crites (4)
    
    
    5,165
    
    
    
    109,600
    
    
    
    1,075
    
    
    
    45,989Randy N. Morgan (5)
    
    
    21,927
    
    
    
    369,901
    
    
    
    
    
    
    Maureen A. Baginski (6)
    
    
    1,000
    
    
    
    
    
    
    
    
    
    
    
 
 (1)
    
    Vested on February 1, 2007, at $42.78 per share(2)
    
    Exercised options to purchase 147 shares on June 20, 2007, at $23.87Exercised options to purchase 12,062 shares on December 21, 2007, at $26.14(3)
    
    Exercised options to purchase 6,805 shares on November 29, 2007, at
$26.14(4)
    
    Exercised options to purchase 2,759 shares on May 16, 2007, at $23.87Exercised options to purchase 2,406 shares on November 27, 2007, at $26.14(5)
    
    Exercised options to purchase 1,252 shares on April 26, 2007, at $23.87Exercised options to purchase 413 shares on November 23, 2007, at $42.49Exercised options to purchase 747 shares on November 23, 2007, at $40.87Exercised options to purchase 498 shares on November 23, 2007, at $42.12Exercised options to purchase 9,950 shares on December 11, 2007, at $34.58Exercised options to purchase 3,184 shares on December 11, 2007 at $30.32Exercised options to purchase 5,883 shares on December 11, 2007 at $26.14(6)
    
    Exercised options to purchase 1,000 shares on January 2, 2007, at $41.39 50




---



##### Table of Contents



Nonqualified Deferred Compensation
  Executive
    
    Registrant
    
    Aggregate
    
    
    
    
    
    AggregateContributions in
    
    Contributions in
    
    Earnings in Last
    
    Aggregate
    
    Balance at FiscalLast Fiscal Year
    
    Last Fiscal Year(1)
    
    Fiscal Year (2)
    
    Distributions (3)
    
    Year-end (4)Name
    
    ( $ )
    
    ( $ )
    
    ( $ )
    
    ( $ )
    
    ( $ )Robert C. Sepucha
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    David E. Schreiman
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Troy A. Crites
    
    
    
    
    
    
    
    
    
    
    7,926
    
    
    
    45,989
    
    
    
    52,379Randy N. Morgan
    
    
    
    
    
    
    
    
    
    
    14,996
    
    
    
    
    
    
    
    99,101Maureen A. Baginski
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
 
 (1)
    
    There were no contributions in 2007 made by the Company for the executives listed.(2)
    
    Aggregate earnings in the last fiscal year for 2007 represent the change in market
value (based on the formula price) for shares held in trust. The formula price at January
1, 2007, was $41.39. The formula price at December 31, 2007, was $48.77.(3)
    
    Troy Crites took distribution of 1,075 shares at a formula price of $42.78 per share(4)
    
    The aggregate balance at last fiscal year-end equals the number of shares held in the
Stock Compensation Plan trust at December 31, 2007, multiplied by the formula stock price
of $48.77 as of that date.  51




---



##### Table of Contents



Potential Payments Upon Termination or Change-in-Control
  Equity Bonus
 Retention Plan
 Compensation of Directors
  Fees Earned or
    
    Option
    
    All OtherPaid in Cash
    
    Awards (1)(3)
    
    Compensation (2)
    
    Grant TotalName
    
    ($)
    
    ($)
    
    ($)
    
    ($)Wayne R. Winton
    
    
    136,750
    
    
    
    2,199
    
    
    
    12,234
    
    
    
    151,183Rockell N. Hankin
    
    
    36,400
    
    
    
    2,199
    
    
    
    24,468
    
    
    
    63,067Gerald A. Zionic
    
    
    28,800
    
    
    
    1,467
    
    
    
    
    
    
    
    30,267John L Piotrowski
    
    
    29,864
    
    
    
    2,199
    
    
    
    24,468
    
    
    
    56,531William E. Cook
    
    
    26,400
    
    
    
    1,467
    
    
    
    
    
    
    
    27,867
 
 (1)
    
    The value of stock awards and option awards was determined as required by
Financial Accounting Standards Board Statement of Financial Accounting Standards No.
123 (revised 2004), Share Based Payment [SFAS No. 123(R)]. See Note 10 to the
Consolidated Financial Statements for details on assumptions used in the valuation.(2)
    
    Includes gain on the exercise of stock options, computed as the difference
between the formula stock price in effect on the date of stock option exercise, less
the exercise price of the option, multiplied by the number of shares purchased upon
exercise.(3)
    
    Option awards: 52




---



##### Table of Contents



Aggregate Number of OptionGrant Date Fair Value of Option
    
    Awards Outstanding at FiscalName
    
    Awards During 2007
    
    Year endWayne R. Winton
    
    
    4,070
    
    
    
    3,977Rockell N. Hankin
    
    
    4,070
    
    
    
    3,977Gerald A. Zionic
    
    
    2,709
    
    
    
    2,488John L Piotrowski
    
    
    4,070
    
    
    
    3,977William E. Cook
    
    
    2,709
    
    
    
    1,322
   Compensation Committee Interlocks and Inside Participation
   Compensation Committee Report
 REPORT OF THE COMPENSATION COMMITTEE
   
    
    Reviewed the Chief Executive Officers recommendations for 2007
executive officer salaries and set the salaries as they deemed
appropriate.
    
    Set the Chief Executive Officers salary for 2007.
 53




---



##### Table of Contents




    
    Reviewed and approved the Chief Executive Officers 2007 year-end
bonus plan that was prepared by the Chairman of the Board.
 
    
    In early 2008, determined the amount of the Chief Executive
Officers 2007 year-end bonus in accordance with the performance
criteria set forth in his bonus plan for that year.
 
    
    Reviewed the Compensation Discussion and Analysis appearing in
this annual report on Form 10-K with the Companys senior
management.
 
    
    Based on the review referred to above, recommended to the full
Board of Directors that the Compensation Discussion and Analysis
be included in this Report on Form 10-K.
  John L. Piotrowski (Chairman)
    
    Dated: March 4, 2008Rockell N. HankinWilliam E. CookGerald A. ZionicWayne R. Winton
 
 ITEM 12.
    
    SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS
 Security of Ownership of Certain Beneficial Owners and Management
  
    
    all persons known to the Company to be beneficial owners of more than 5% of the Companys outstanding common stock,
 
    
    each director of the Company,
 
    
    each of the executive officers named in the Summary Compensation Table set forth in Item 11 above
 
    
    all directors and executive officers as a group (fourteen persons).
 Name
    
    Number of Shares(1)
    
    Percentage of ClassWayne R. Winton
    
    
    194,905
    
    
    
    4.01
    %Robert C. Sepucha, Ph.D.
    
    
    114,915
    
    
    
    2.36
    %Rockell N. Hankin
    
    
    11,731
    
    
    
    0.24
    %Gerald A. Zionic
    
    
    5,087
    
    
    
    0.10
    %General John L Piotrowski (USAF Retired)
    
    
    13,882
    
    
    
    0.29
    %William E. Cook
    
    
    5,495
    
    
    
    0.11
    %David E. Schreiman
    
    
    31,071
    
    
    
    0.64
    %Troy A. Crites
    
    
    47,200
    
    
    
    0.97
    %Maureen A. Baginski
    
    
    1,200
    
    
    
    0.02
    %Randy N. Morgan
    
    
    42,025
    
    
    
    0.86
    %All executive officers and directors as a group
(14 persons)
    
    
    535,459
    
    
    
    11.02
    %
 
 (1)
    
    Except as set forth below, each of the persons included in this table has sole voting and
investment power over the shares respectively owned, except shares issuable upon exercise of stock
options, and except as to rights of the persons spouse under applicable community property laws.
The following table shows the number of 54




---



##### Table of Contents



Shares Subject toOption That May beShares Held in the
    
    Exercised Within 60Name
    
    Profit Sharing Plan
    
    DaysWayne R. Winton
    
    
    
    
    
    
    1,993Robert C. Sepucha, Ph.D.
    
    
    40,791
    
    
    
    13,423Rockell N. Hankin
    
    
    
    
    
    
    1,993Gerald A. Zionic
    
    
    
    
    
    
    1,116General John L Piotrowski (USAF Retired)
    
    
    
    
    
    
    1,993William E. Cook
    
    
    
    
    
    
    David E. Schreiman
    
    
    5,075
    
    
    
    13,705Troy A. Crites
    
    
    5,945
    
    
    
    7,221Maureen A. Baginski
    
    
    
    
    
    
    200Randy N. Morgan
    
    
    3,416
    
    
    
    12,619All executive officers and directors as a group
(14 persons)
    
    
    76,871
    
    
    
    69,068
 Equity Compensation Plan Information
 December 31, 2007Number of securities remainingNumber of securities to
    
    
    Weighted-average
    
    
    available for future issuancebe issued upon exercise
    
    
    exercise price of
    
    
    under equity compensation plansof outstanding options,
    
    
    outstanding options,
    
    
    (excluding securities reflected inPlan category
    
    warrants and rights
    
    
    warrants and rights
    
    
    column (a))(a)
    
    (b)
    
    (c)Equity compensation
plans approved by
security holders
    
    
    1,797,085
    
    
    $
    40.05
    
    
    
    9,978,864Equity compensation
plans not approved
security holders(1)
    
    
    
    
    
    
    
    
    
    
    346,553Total
    
    
    1,797,085
    
    
    $
    40.05
    
    
    
    10,325,417
 
 (1)
    
    The Company has a Stock Compensation Plan, designed to provide long-term incentives
to key employees, under which it may issue up to 500,000 shares of common stock. Shares awarded
under the plan are held in a trust (commonly referred to as a rabbi trust) until distributed to
the participant. Shares awarded under the plan vest over a period of five years; unvested shares
are forfeited if the participant terminates employment with the Company prior to vesting. As of
December 31, 2007, the Company had issued an aggregate of 153,447 shares under the plan, of which
16,988 shares were unvested. 55




---



##### Table of Contents



ITEM 13.
    
    CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
 Certain Relationships and Transactions with Related Persons
  Ethical Business
Conduct, Conflict of Interest and Outside Activity
 Director Independence
 .
 
 PRINCIPAL ACCOUNTING FEES AND SERVICES
 Audit and Non-Audit Fees
  2007
    
    
    2006Audit Fees (a)
    
    $
    474,000
    
    
    $
    471,000Audit-Related Fees (b)
    
    
    41,000
    
    
    
    Tax Fees (c)
    
    
    560,000
    
    
    
    110,000All Other Fees (d)
    
    
    7,000
    
    
    
    5,000Total Fees
    
    $
    1,082,000
    
    
    $
    586,000
 
 (a)
    
    Audit fees include the annual audit of the Companys consolidated financial statements,
quarterly reviews and consents to SEC filings and out of pocket expense.(b)
    
    Audit-related fees in fiscal 2007 relate to Sarbanes-Oxley consultations.(c)
    
    Tax fees in fiscal 2007 and 2006 relate to assistance with the Companys research and
development tax credit study for 2002 to 2006.(d)
    
    All other fees in fiscal 2007 relate to various consultations regarding government
contracting issues. All other fees in fiscal 2006 relate to assistance with the Companys
Cost Accounting Disclosure Statement. 56




---



##### Table of Contents



Audit Committee Pre-Approval Policies
  57




---



##### Table of Contents



PART IV
 
 ITEM 15.
    
    EXHIBITS, FINANCIAL STATEMENT SCHEDULES.
 (a)
    
    The following documents are filed as part of this Report on Form 10-K:
 1.
    
    FINANCIAL STATEMENTS
 PageReport of Independent Registered Public Accounting Firm
    
    
    59Consolidated Balance Sheet at December 31, 2007 and 2006
    
    
    60Consolidated Statement of Income for the three years in the period ended
December 31, 2007
    
    
    61Consolidated Statement of Stockholders Equity for the three
years in the period ended December 31, 2007
    
    
    62Consolidated Statement of Cash Flows for the three years in the period ended
December 31, 2007
    
    
    63Notes to Consolidated Financial Statements
    
    
    64
 2.
    
    FINANCIAL STATEMENT SCHEDULESAll financial statement schedules are omitted because they are not applicable or the
required information is shown in the Companys consolidated financial statements or
the notes thereto.
 (b)
    
    The exhibits listed in the accompanying Index to Exhibits at pages 81-82 are filed as
part of this Report on Form 10-K.
 58




---



##### Table of Contents



Report of Independent Registered Public Accounting Firm
     ,
 
  
 59




---



##### Table of Contents



CONSOLIDATED BALANCE SHEET  at December 31
 2007
    
    
    2006ASSETSCurrent AssetsCash and cash equivalents
    
    $
    37,163,000
    
    
    $
    23,379,000Short-term investments
    
    
    15,447,000
    
    
    
    14,861,000Receivables, net
    
    
    66,650,000
    
    
    
    63,193,000Income taxes receivable
    
    
    1,238,000
    
    
    
    Prepaid expenses
    
    
    688,000
    
    
    
    1,312,000Prepaid income taxes
    
    
    
    
    
    
    240,000Total current assets
    
    
    121,401,000
    
    
    
    102,985,000Equipment and improvements, net
    
    
    12,292,000
    
    
    
    12,096,000Intangible assets, net
    
    
    
    
    
    
    172,000Deferred income taxes
    
    
    826,000
    
    
    
    Other assets
    
    
    3,147,000
    
    
    
    3,102,000TOTAL ASSETS
    
    $
    137,451,000
    
    
    $
    118,355,000LIABILITIES AND STOCKHOLDERS EQUITYCurrent LiabilitiesAccrued compensation
    
    $
    20,352,000
    
    
    $
    19,783,000Accounts payable and other accrued expenses
    
    
    14,355,000
    
    
    
    16,593,000Billings in excess of costs plus earnings
    
    
    5,101,000
    
    
    
    6,702,000Current portion of notes payable
    
    
    3,110,000
    
    
    
    4,417,000Income taxes payable
    
    
    
    
    
    
    Deferred income taxes
    
    
    1,128,000
    
    
    
    1,365,000Total current liabilities
    
    
    44,046,000
    
    
    
    48,860,000Notes payable
    
    
    8,234,000
    
    
    
    8,069,000Deferred income taxes
    
    
    
    
    
    
    14,000Commitments and contingencies (Note 8)Stockholders equityCommon stock, $.01 par value; 25,000,000 shares
authorized; 10,017,632 and 9,184,368 shares issued;
4,987,518 and 4,858,189 shares outstanding
    
    
    100,000
    
    
    
    92,000Additional paid-in capital
    
    
    163,657,000
    
    
    
    130,940,000Retained earnings
    
    
    90,892,000
    
    
    
    69,025,000Treasury stock, at cost
    
    
    (169,478,000
    )
    
    
    (138,645,000
    )TOTAL STOCKHOLDERS EQUITY
    
    
    85,171,000
    
    
    
    61,412,000TOTAL LIABILITIES AND STOCKHOLDERS
EQUITY
    
    $
    137,451,000
    
    
    $
    118,355,000
 
 60




---



##### Table of Contents



CONSOLIDATED STATEMENT OF INCOME  for the three years in the period ended December 31
 2007
    
    
    2006
    
    
    2005Sales
    
    $
    297,485,000
    
    
    $
    297,334,000
    
    
    $
    266,573,000Costs and Expenses:Labor costs and related benefits
    
    
    146,842,000
    
    
    
    145,904,000
    
    
    
    137,712,000Subcontractor costs
    
    
    92,483,000
    
    
    
    94,278,000
    
    
    
    73,132,000Facility costs
    
    
    16,895,000
    
    
    
    17,071,000
    
    
    
    16,222,000Travel and general and administrative costs
    
    
    12,336,000
    
    
    
    11,488,000
    
    
    
    11,148,000Total costs and expenses
    
    
    268,556,000
    
    
    
    268,741,000
    
    
    
    238,214,000Operating income
    
    
    28,929,000
    
    
    
    28,593,000
    
    
    
    28,359,000Interest income
    
    
    (2,086,000
    )
    
    
    (1,694,000
    )
    
    
    (945,000
    )Interest expense
    
    
    636,000
    
    
    
    544,000
    
    
    
    418,000Income from continuing operations before
provision for income taxes
    
    
    30,379,000
    
    
    
    29,743,000
    
    
    
    28,886,000Provision for taxes on income
    
    
    8,512,000
    
    
    
    12,697,000
    
    
    
    11,798,000Income from continuing operations
    
    
    21,867,000
    
    
    
    17,046,000
    
    
    
    17,088,000Discontinued operations (Note 11)Income from discontinued operations of Spiral
Technology, Inc. before income taxes
    
    
    
    
    
    
    112,000
    
    
    
    39,000Provision for taxes on income
    
    
    
    
    
    
    45,000
    
    
    
    24,000Gain on spin-off of discontinued operations, net of tax
    
    
    
    
    
    
    99,000
    
    
    
    Total income from discontinued operations
    
    
    
    
    
    
    166,000
    
    
    
    15,000Net income
    
    $
    21,867,000
    
    
    $
    17,212,000
    
    
    $
    17,103,000Earnings per share:Basic:Income from continuing operations
    
    $
    4.53
    
    
    $
    3.31
    
    
    $
    3.26Income from discontinued operations
    
    
    
    
    
    
    0.03
    
    
    
    $
    4.53
    
    
    $
    3.34
    
    
    $
    3.26Diluted:Income from continuing operations
    
    $
    4.34
    
    
    $
    3.12
    
    
    $
    2.98Income from discontinued operations
    
    
    
    
    
    
    0.03
    
    
    
    $
    4.34
    
    
    $
    3.15
    
    
    $
    2.98Weighted average common equivalent shares:Basic
    
    
    4,829,772
    
    
    
    5,156,151
    
    
    
    5,242,151Diluted
    
    
    5,033,420
    
    
    
    5,471,343
    
    
    
    5,742,568
 
 61




---



##### Table of Contents



CONSOLIDATED STATEMENT OF STOCKHOLDERS EQUITY  for the three years in the period ended December 31
 Common Stock
    
    
    AdditionalShares
    
    
    
    
    
    
    Paid-in
    
    
    Retained
    
    
    TreasuryIssued
    
    
    Amount
    
    
    Capital
    
    
    Earnings
    
    
    Stock
    
    
    TotalBalance at December 31, 2004
    
    
    7,465,241
    
    
    $
    75,000
    
    
    $
    73,609,000
    
    
    $
    34,710,000
    
    
    
    ($57,667,000
    )
    
    $
    50,727,000Issuance of common stock
    
    
    931,521
    
    
    
    9,000
    
    
    
    23,039,000
    
    
    
    
    
    
    
    
    
    
    
    23,048,000Acquisition of treasury stock
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (28,873,000
    )
    
    
    (28,873,000
    )Tax benefit relating to stock plan
    
    
    
    
    
    
    
    
    
    
    6,037,000
    
    
    
    
    
    
    
    
    
    
    
    6,037,000Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    17,103,000
    
    
    
    
    
    
    
    17,103,000Balance at December 31, 2005
    
    
    8,396,762
    
    
    
    84,000
    
    
    
    102,685,000
    
    
    
    51,813,000
    
    
    
    (86,540,000
    )
    
    
    68,042,000Issuance of common stock
    
    
    787,610
    
    
    
    8,000
    
    
    
    23,560,000
    
    
    
    
    
    
    
    
    
    
    
    23,568,000Acquisition of treasury stock
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (52,105,000
    )
    
    
    (52,105,000
    )Tax benefit relating to stock plan
    
    
    
    
    
    
    
    
    
    
    4,695,000
    
    
    
    
    
    
    
    
    
    
    
    4,695,000Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    17,212,000
    
    
    
    
    
    
    
    17,212,000Balance at December 31, 2006
    
    
    9,184,372
    
    
    
    92,000
    
    
    
    130,940,000
    
    
    
    69,025,000
    
    
    
    (138,645,000
    )
    
    
    61,412,000Issuance of common stock
    
    
    833,260
    
    
    
    8,000
    
    
    
    28,124,000
    
    
    
    
    
    
    
    
    
    
    
    28,132,000Acquisition of treasury stock
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (30,833,000
    )
    
    
    (30,833,000
    )Tax benefit relating to stock plan
    
    
    
    
    
    
    
    
    
    
    4,593,000
    
    
    
    
    
    
    
    
    
    
    
    4,593,000Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    21,867,000
    
    
    
    
    
    
    
    21,867,000Balance at December 31, 2007
    
    
    10,017,632
    
    
    $
    100,000
    
    
    $
    163,657,000
    
    
    $
    90,892,000
    
    
    
    ($169,478,000
    )
    
    $
    85,171,000
 
 62




---



##### Table of Contents



CONSOLIDATED STATEMENT OF CASH FLOWS  for the three years in the period ended December 31
 2007
    
    
    2006
    
    
    2005Cash flows from operating activities:Net income
    
    $
    21,867,000
    
    
    $
    17,212,000
    
    
    $
    17,103,000Adjustments to reconcile net income to net
cash provided by operating activities:Depreciation and amortization
    
    
    3,411,000
    
    
    
    3,696,000
    
    
    
    3,588,000Loss on disposal of equipment
    
    
    129,000
    
    
    
    65,000
    
    
    
    405,000Stock-based compensation
    
    
    9,753,000
    
    
    
    9,693,000
    
    
    
    8,727,000Excess tax benefit from stock-based compensation
    
    
    
    
    
    
    
    
    
    
    6,037,000Deferred income taxes
    
    
    (1,077,000
    )
    
    
    (1,901,000
    )
    
    
    328,000Changes in assets and liabilities:Receivables, net
    
    
    (3,457,000
    )
    
    
    1,698,000
    
    
    
    (12,987,000
    )Income taxes receivable
    
    
    (1,238,000
    )
    
    
    
    
    
    
    Prepaid expenses
    
    
    624,000
    
    
    
    36,000
    
    
    
    (422,000
    )Prepaid income taxes
    
    
    240,000
    
    
    
    1,872,000
    
    
    
    (1,169,000
    )Other assets
    
    
    (45,000
    )
    
    
    256,000
    
    
    
    (1,061,000
    )Accrued compensation
    
    
    569,000
    
    
    
    (877,000
    )
    
    
    3,315,000Accounts payable and other accrued expenses
    
    
    (2,238,000
    )
    
    
    7,074,000
    
    
    
    (1,330,000
    )Billings in excess of costs plus earnings
    
    
    (1,601,000
    )
    
    
    4,082,000
    
    
    
    (1,111,000
    )Net cash provided by operating activities
    
    
    26,937,000
    
    
    
    42,906,000
    
    
    
    21,423,000Cash flows from investing activities:Purchases of equipment and improvements
    
    
    (3,564,000
    )
    
    
    (4,445,000
    )
    
    
    (3,590,000
    )Asset acquisition
    
    
    
    
    
    
    
    
    
    
    (1,500,000
    )Purchase of short-term investments
    
    
    (586,000
    )
    
    
    (14,861,000
    )
    
    
    Net cash used for investing activities
    
    
    (4,150,000
    )
    
    
    (19,306,000
    )
    
    
    (5,090,000
    )Cash flows from financing activities:Proceeds from issuance of common stock
    
    
    18,379,000
    
    
    
    13,874,000
    
    
    
    14,321,000Excess tax benefit from stock-based compensation
    
    
    4,593,000
    
    
    
    4,695,000
    
    
    
    Purchases of treasury stock
    
    
    (26,401,000
    )
    
    
    (44,403,000
    )
    
    
    (27,744,000
    )Principal payments on subordinated notes payable
    
    
    (5,574,000
    )
    
    
    (3,641,000
    )
    
    
    (3,111,000
    )Net cash used for financing activities
    
    
    (9,003,000
    )
    
    
    (29,475,000
    )
    
    
    (16,534,000
    )Net (decrease) increase in cash and cash equivalents
    
    
    13,784,000
    
    
    
    (5,875,000
    )
    
    
    (201,000
    )Cash and cash equivalents at beginning of period
    
    
    23,379,000
    
    
    
    29,254,000
    
    
    
    29,455,000Cash and cash equivalents at end of period
    
    $
    37,163,000
    
    
    $
    23,379,000
    
    
    $
    29,254,000Supplemental disclosures of cash flow information:Cash paid during the period for:Interest
    
    $
    636,000
    
    
    $
    544,000
    
    
    $
    407,000Income taxes
    
    $
    7,009,000
    
    
    $
    8,079,000
    
    
    $
    6,727,000Non-cash investing and financing activities:Issuance of subordinated notes payable in connection
with purchases of treasury stock
    
    $
    4,432,000
    
    
    $
    7,702,000
    
    
    $
    1,129,000Receipt of notes receivable in exchange for exercise of
stock options
    
    $
    1,259,000
    
    
    $
    577,000
    
    
    $
    1,204,000
 
 63




---



##### Table of Contents



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 Note 1  Description of Business and Summary of Significant Accounting Policies:
 a)
    
    Description of business SPARTA, Inc. (the Company) is essentially employee-owned and
primarily engaged in the design and analysis of systems for national defense programs and
commercial applications of defense technology. The Company operates as a single reportable
segment.b)
    
    Principles of consolidation The consolidated financial statements include the accounts of
SPARTA, Inc. and its wholly-owned subsidiary through December 31, 2006. The Company
eliminates all significant intercompany transactions and balances in the consolidated
financial statements. As discussed in Note 11, the Company completed the divestiture of its
wholly-owned subsidiary in December 2006. The financial statements for all prior periods have
been restated to reflect the results of operations of the wholly-owned subsidiary in
discontinued operations.c)
    
    Use of estimates in preparation of financial statements The preparation of financial
statements in conformity with U.S. generally accepted accounting principles requires
management to make estimates and judgments that affect the reported amounts of assets,
liabilities, revenues and expenses, and related disclosure of contingent assets and
liabilities. On an on-going basis, the Company evaluates its estimates, including those
related to revenue recognition, the estimated fair value of the Companys common stock, and
the valuation of long-lived assets. The Company bases its estimates on experience and on
various other assumptions that are believed to be reasonable under the circumstances, the
results of which form the basis for making judgments about the carrying values of assets and
liabilities that are not readily apparent from other sources. Actual results may differ from
these estimates.Revenue recognition The Company derives substantially all of its revenues from contracts with
U.S. Government agencies or from companies who perform work for U.S. Government agencies. Such
contracts are accounted for in accordance with the American Institute of Certified Public
Accountants Statement of Position No. 81-1, Accounting for Performance of Construction-Type and
Production-Type Contracts. Contract costs include direct labor, materials, subcontractors and
other direct costs, plus estimated indirect costs such as overhead, research and development,
and general and administrative expenses.Revenue on cost-type contracts is recognized to the extent of reimbursable costs incurred, plus
a proportionate amount of the estimated fee earned. Estimates of fees earned are based on
negotiated fee amounts or managements assessment of the fee amounts that are likely to be
earned. Revenue on time and material and fixed price (level of effort) contracts is recognized
to the extent of direct labor hours incurred at fixed hourly billing rates, plus the cost of
materials or other specified costs. Each of these methods approximate percentage of completion
revenue recognition based on contract costs incurred to date compared with total estimated costs
at completion. Revenue on firm fixed price contracts is recognized using the percentage of
completion method, whereby a portion of the contract revenue, based on contract costs incurred
to date compared with total estimated costs at completion (based upon engineering estimates), is
recognized as revenue each period.Certain contracts include provisions for award or other incentive fees. Such award and
incentive fees are recognized when management determines that it is probable that the award or
incentive fee, or portion thereof, has been earned. Managements assessments, which are
performed on a contract-by-contract basis, are based on such factors as contract terms, nature
of the work to be performed, prior relationship and history with the customer, experience with
similar types of projects, and current and anticipated performance on the specific contract.On occasion, the Company or its customers may seek to modify a contract to accommodate a change
in the scope of the work, such as changes in specifications, method or manner of performance,
equipment, materials, or period of performance, or to account for customer-caused delays, errors
in specifications or design, contract terminations, or other causes of unanticipated additional
costs. Such change orders or claims are evaluated according to their characteristics and the
circumstances under which they occur, taking into consideration such factors as the probability
of recovery, the Companys experience in negotiating change orders and claims, and the adequacy
of documentation substantiating the costs of such change order or claim. Costs attributable to
unpriced change orders and claims are accounted for as costs of contract performance in the
period in which the costs are incurred, and revenue is recognized to the extent of costs
incurred. Revenue in excess of costs attributable to unpriced change orders is recorded when
realization is assured beyond a reasonable doubt, based on the Companys experience with
 64




---



##### Table of Contents



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 the customer or when a bona fide pricing offer has been provided by the customer. Receivables
related to unpriced change orders and claims are not material.
   Valuation of long-lived assets 
 d)
    
    Fiscal year The Companys fiscal year is the 52 or 53 week period ending on the Sunday
closest to December 31. The Companys last three fiscal years ended on December 30, 2007,
December 31, 2006 and January 1, 2006, however, for ease of presentation of the financial
statements, the year ends have been presented as December 31, 2007, 2006 and 2005. All fiscal
years presented comprise a 52-week period.e)
    
    Equipment and improvements Equipment and improvements are recorded at cost. Major renewals
and betterments are capitalized; maintenance, repairs and minor renewals and betterments are
charged to expense. Equipment is depreciated using the straight-line method over the estimated
useful lives, which range from 5 to 10 years. Leasehold improvements are amortized using the
straight-line method over the shorter of the estimated useful lives or remaining lease terms,
which range from 1 to 5 years.f)
    
    Income taxes The Company recognizes deferred tax liabilities and assets for expected future
tax consequences of temporary differences between the financial statement and tax bases of
assets and liabilities at the applicable enacted tax rates. Valuation allowances are
established, when necessary, to reduce deferred tax assets to the amount expected to be
realized. The income tax provision represents the taxes payable for the period and the change
during the period in deferred tax assets and liabilities.g)
    
    Cash and cash equivalents For the purpose of the statement of cash flows, the Company
considers all highly liquid investments purchased with an original maturity of three months or
less to be cash equivalents. Included in cash and cash equivalents is $5,083,000 and
$4,649,000 of commercial paper as of December 31, 2007 and 2006, respectively.h)
    
    Short-term investments The Company accounts for its short-term investments under the
provisions of Statement of Financial accounting Standards No. 115 (SFAS 115), Accounting for
Certain Investments in Debt and Equity Securities. Short-term investments includes highly
liquid debt instruments purchased with an original maturity of more than three months and less
than one year. It is the Companys intention to hold such investments until maturity; as
such, they are accounted for at amortized cost, which approximates fair value, in the
consolidated balance sheet.
 65




---



##### Table of Contents



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 
 i)
    
    Treasury stock Treasury stock is recorded at cost. The Company has the right, but not the
obligation, to repurchase the stockholdings of all individuals who terminate their association
with the Company (as defined). Repurchases of outstanding common stock in exercise of this
right and at quarterly repurchase periods are made at estimated fair value.j)
    
    Earnings per share (EPS) Basic earnings per share are computed based on the
weighted-average number of common shares outstanding during the respective years. Diluted
earnings per share include the dilutive effects of stock options and shares granted under the
Companys restricted stock compensation plan. A reconciliation of the numerators and
denominators for the basic and diluted earnings per share computations are as follows:
 2007
    
    
    2006
    
    
    2005Basic EPSNet income
    
    $
    21,867,000
    
    
    $
    17,212,000
    
    
    $
    17,103,000Weighted average shares outstanding
    
    
    4,829,772
    
    
    
    5,156,151
    
    
    
    5,242,151Per share amounts
    
    $
    4.53
    
    
    $
    3.34
    
    
    $
    3.26Diluted EPSNet income
    
    $
    21,867,000
    
    
    $
    17,212,000
    
    
    $
    17,103,000Weighted average shares outstanding
    
    
    4,829,772
    
    
    
    5,156,151
    
    
    
    5,242,151Stock options
    
    
    192,596
    
    
    
    296,584
    
    
    
    472,869Restricted stock
    
    
    11,052
    
    
    
    18,608
    
    
    
    27,5485,033,420
    
    
    
    5,471,343
    
    
    
    5,742,568Per share amounts
    
    $
    4.34
    
    
    $
    3.15
    
    
    $
    2.98
 k)
    
    Disclosures about fair value of financial instruments The carrying amounts of cash and cash
equivalents, accounts receivable, accounts payable, and accrued liabilities approximate fair
value because of the short maturity of those instruments. The carrying value of the Companys
notes payable approximates fair value based upon current rates offered to the Company for
obligations with similar remaining maturities.l)
    
    New accounting standards In December 2007, the Financial Accounting Standards Board (the
FASB) issued Statement of Financial Accounting Standards No. 141 (revised 2007), Business
Combinations[SFAS 141(R)]. SFAS 141(R) establishes principles and requirements for how an
acquirer recognizes and measures in its financial statements the identifiable assets acquired,
the liabilities assumed, any noncontrolling interest in the acquiree and the goodwill
acquired. SFAS 141(R) also establishes disclosure requirements to enable the evaluation of
the nature and financial effects of the business combination. SFAS 141(R) is effective for
fiscal years beginning after December 15, 2008. The Company is evaluating SFAS 141(R) and has
not yet determined the impact the adoption will have on the consolidated financial statements.In December 2007, the FASB issued Statement of Financial Accounting Standard No. 160,
Noncontrolling Interests in Consolidated Financial Statements  an amendment of Accounting
Research Bulleting No. 51(SFAS 160). SFAS 160 changes the accounting and reporting for
minority interests, which will be recharacterized as non-controlling interests and classified as
a component of equity. SFAS 160 is effective on a prospective basis for business combinations
that occur in fiscal years beginning after December 15, 2008. The Company is evaluating SFAS
160 and has not yet determined the impact the adoption will have on the consolidated financial
statements.In February 2007, the FASB issued Statement of Financial Accounting Standard No. 159, The Fair
Value Option for Financial Assets and Financial Liabilities  Including an amendment of FASB
Statement No. 115(SFAS 159). SFAS 159 permits entities to choose to measure many financial
instruments and certain other items at fair value. The objective is to improve financial
reporting by providing entities with the opportunity to mitigate volatility in reported earnings
caused by measuring related assets and liabilities differently without having to apply complex
hedge accounting provisions. SFAS 159 is effective for fiscal years beginning after November
15, 2007.
 66




---



##### Table of Contents



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 The Company is evaluating SFAS 159 and has not yet determined the impact the adoption
will have on the consolidated financial statements.
 Fair
Value Measurements
 Note 2  Accounts Receivable
  2007
    
    
    2006Billed
    
    $
    33,779,000
    
    
    $
    32,486,000Unbilled
    
    
    33,227,000
    
    
    
    31,262,00067,006,000
    
    
    
    63,748,000Less allowances for unallowable contract costs
    
    
    (356,000
    )
    
    
    (555,000
    )$
    66,650,000
    
    
    $
    63,193,000
     67




---



##### Table of Contents



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 Note 3  Equipment and Improvements
  2007
    
    
    2006Computer equipment including purchased software
    
    $
    12,744,000
    
    
    $
    13,469,000Office furniture and equipment
    
    
    8,719,000
    
    
    
    7,188,000Leasehold improvements
    
    
    7,854,000
    
    
    
    6,781,00029,317,000
    
    
    
    27,438,000Less accumulated depreciation and amortization
    
    
    (17,025,000
    )
    
    
    (15,342,000
    )$
    12,292,000
    
    
    $
    12,096,000
 Note 4  Asset Purchase
  Note 5  Accrued Compensation
  2007
    
    
    2006Accrued absence
    
    $
    3,634,000
    
    
    $
    3,286,000Accrued payroll
    
    
    4,653,000
    
    
    
    4,520,000Accrued bonus payable
    
    
    4,136,000
    
    
    
    3,989,000Accrued profit sharing
    
    
    7,929,000
    
    
    
    7,988,000$
    20,352,000
    
    
    $
    19,783,000
 Note 6  Notes Payable
  .
 68




---



##### Table of Contents



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 2007
    
    
    2006Notes payable
    
    $
    11,344,000
    
    
    $
    12,486,000Less: current portion
    
    
    (3,110,000
    )
    
    
    (4,417,000
    )$
    8,234,000
    
    
    $
    8,069,000
  Note 7  Income Taxes
  2007
    
    
    2006
    
    
    2005Current:Federal
    
    $
    3,632,000
    
    
    $
    8,739,000
    
    
    $
    4,338,000State
    
    
    1,407,000
    
    
    
    1,527,000
    
    
    
    1,243,0005,039,000
    
    
    
    10,266,000
    
    
    
    5,581,000Deferred:Federal
    
    
    904,000
    
    
    
    (1,729,000
    )
    
    
    289,000State
    
    
    (175,000
    )
    
    
    (301,000
    )
    
    
    77,0001,079,000
    
    
    
    (2,030,000
    )
    
    
    366,000Exercise of stock options not treated as
a reduction of income tax expense
    
    
    4,552,000
    
    
    
    4,461,000
    
    
    
    5,851,000$
    8,512,000
    
    
    $
    12,697,000
    
    
    $
    11,798,000
  2007
    
    
    2006Accelerated depreciation
    
    $
    (289,000
    )
    
    $
    (524,000
    )Unbilled accounts receivable
    
    
    (2,303,000
    )
    
    
    (2,633,000
    )Accrued expenses and reserves
    
    
    237,000
    
    
    
    316,000Accrued compensation and benefits
    
    
    1,692,000
    
    
    
    923,000Other
    
    
    362,000
    
    
    
    539,000$
    (301,000
    )
    
    $
    (1,379,000
    )
  2007
    
    
    2006
    
    
    2005Provision for income taxes at statutory rate
    
    $
    10,632,000
    
    
    $
    10,410,000
    
    
    $
    10,110,000State income taxes, net of federal benefit
    
    
    1,421,000
    
    
    
    1,315,000
    
    
    
    1,224,000Research and experimentation tax credit
    
    
    (4,022,000
    )
    
    
    
    
    
    
    Nondeductible stock compensation expense
    
    
    371,000
    
    
    
    656,000
    
    
    
    441,000Other
    
    
    110,000
    
    
    
    316,000
    
    
    
    23,000$
    8,512,000
    
    
    $
    12,697,000
    
    
    $
    11,798,000
  69




---



##### Table of Contents



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 Accounting for
Uncertainty in Income Taxes  an interpretation of FASB Statement No. 109
  Balance at January 1, 2007
    
    $
    800,000Additions based on tax positions related to the current year
    
    
    Additions for tax positions of prior years
    
    $
    3,696,000Reductions for tax positions of prior years
    
    
    Settlements and lapse of statute limitations
    
    
    (4,102,000
    )Balance at December 31, 2007
    
    $
    394,000
    
 Note 8  Commitments and Contingencies
   70




---



##### Table of Contents



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
    Fiscal Year Ending
    
    Lease Commitment2008
    
    $
    9,681,0002009
    
    
    8,866,0002010
    
    
    5,891,0002011
    
    
    3,364,0002012
    
    
    3,192,000Thereafter
    
    
    11,698,000$
    42,692,000
  Guarantors Accounting and Disclosure
Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others
   71




---



##### Table of Contents



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 
 Note 9  Stockholders Equity
 .
  Number of Shares
    
    
    AmountJanuary 1, 2005
    
    
    (2,344,405
    )
    
    $
    (57,667,000
    )Acquisition of treasury stock
    
    
    (735,864
    )
    
    
    (28,873,000
    )December 31, 2005
    
    
    (3,080,269
    )
    
    
    (86,540,000
    )Acquisition of treasury stock
    
    
    (1,245,910
    )
    
    
    (52,105,000
    )December 31, 2006
    
    
    (4,326,179
    )
    
    
    (138,645,000
    )Acquisition of treasury stock
    
    
    (703,935
    )
    
    
    (30,833,000
    )December 31, 2007
    
    
    (5,030,114
    )
    
    $
    (169,478,000
    )
  Stock Price per Share of Common Stock2007
    
    2006
    
    2005January 21
    
    $
    42.78
    
    
    January 23
    
    $
    42.53
    
    
    January 21
    
    $
    36.90April 22
    
    
    43.86
    
    
    April 21
    
    
    41.25
    
    
    April 21
    
    
    40.87July 22
    
    
    44.93
    
    
    July 21
    
    
    42.49
    
    
    July 21
    
    
    40.96October 21
    
    
    48.77
    
    
    October 21
    
    
    41.39
    
    
    October 21
    
    
    42.12
  Note 10  Share-Based Compensation
  72




---



##### Table of Contents



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
  Share-Based Payment Accounting for Stock Issued to Employees Accounting for Stock-Based
Compensation
   Twelve Months Ended
    
    Twelve Months EndedDecrease Due To Adopting SFAS 123(R)
    
    December 31, 2007
    
    December 31, 2006Income before income taxes
    
    $
    1,110,000
    
    
    $
    183,000Net income
    
    $
    666,000
    
    
    $
    111,000Basic EPS
    
    $
    0.14
    
    
    $
    0.02Diluted EPS
    
    $
    0.13
    
    
    $
    0.02
  2007 Stock Plan
   73




---



##### Table of Contents



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
  Year Ended
    
    Year EndedKey Assumptions
    
    December 31, 2007
    
    December 31, 2006Expected volatility factor
    
    
    1.0%  8.9
    %
    
    
    5.4%  9.2
    %Expected option term (in years)Short-term options
    
    
    0.125
    
    
    
    0.125All other options
    
    
    3.0
    
    
    
    3.0Risk-free interest rate
    
    
    2.7%  5.2
    %
    
    
    4.2%  5.2
    %Expected annual dividend yield
    
    
    
    
    
    
    
  Weighted AverageStock options subject to SFAS123(R)
    
    Number of Shares
    
    
    Exercise PriceOutstanding at January 1, 2006
    
    
    
    
    
    $
    Granted
    
    
    291,464
    
    
    
    42.38Forfeited or Expired
    
    
    (22,545
    )
    
    
    42.17Exercised
    
    
    (8,799
    )
    
    
    41.97Outstanding at December 31, 2006
    
    
    260,120
    
    
    $
    42.42Exercisable at December 31, 2006
    
    
    6,002
    
    
    $
    41.63Outstanding at January 1, 2007
    
    
    260,120
    
    
    $
    42.42Granted
    
    
    642,696
    
    
    
    43.80Forfeited or Expired
    
    
    (62,753
    )
    
    
    42.89Exercised
    
    
    (23,127
    )
    
    
    43.21Outstanding at December 31, 2007
    
    
    816,936
    
    
    $
    43.45Exercisable at December 31, 2007
    
    
    41,730
    
    
    $
    43.11
   74




---



##### Table of Contents



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 Year Ended December 31, 2007Number of
    
    
    Weighted AverageNonvested stock options subject to SFAS 123(R)
    
    Shares
    
    
    Grant-Date Fair ValueNonvested at January 1, 2007
    
    
    254,118
    
    
    $
    6.03Granted
    
    
    642,696
    
    
    
    5.82Vested
    
    
    (65,553
    )
    
    
    4.38Forfeited
    
    
    (56,055
    )
    
    
    6.00Nonvested at December 31, 2007
    
    
    775,206
    
    
    $
    5.99
   Weighted AverageStock options subject to APB 25
    
    Number of Shares
    
    
    Exercise PriceOutstanding at January 1, 2005
    
    
    2,655,731
    
    
    $
    24.69Granted
    
    
    718,682
    
    
    
    41.06Forfeited or Expired
    
    
    (150,101
    )
    
    
    27.60Exercised
    
    
    (733,443
    )
    
    
    19.39Outstanding at December 31, 2005
    
    
    2,490,869
    
    
    $
    30.80Exercisable at December 31, 2005
    
    
    896,522
    
    
    $
    23.84Outstanding at January 1, 2006
    
    
    2,490,869
    
    
    $
    30.80Forfeited or Expired
    
    
    (183,842
    )
    
    
    32.14Exercised
    
    
    (591,154
    )
    
    
    22.26Outstanding at December 31, 2006
    
    
    1,715,873
    
    
    $
    33.60Exercisable at December 31, 2006
    
    
    901,416
    
    
    $
    29.89Outstanding at January 1, 2007
    
    
    1,715,873
    
    
    $
    33.60Forfeited or Expired
    
    
    (88,237
    )
    
    
    34.30Exercised
    
    
    (647,487
    )
    
    
    28.02Outstanding at December 31, 2007
    
    
    980,149
    
    
    $
    37.22Exercisable at December 31, 2007
    
    
    712,965
    
    
    $
    35.68
   75




---



##### Table of Contents



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 Year Ended December 31, 2007Number of
    
    
    Weighted AverageNonvested stock options subject to APB 25
    
    Shares
    
    
    Exercise PriceNonvested at January 1, 2007
    
    
    814,457
    
    
    $
    37.70Vested
    
    
    (485,599
    )
    
    
    35.65Forfeited
    
    
    (61,674
    )
    
    
    38.26Nonvested at December 31, 2007
    
    
    267,184
    
    
    $
    41.31
   Stock Compensation Plan
   Weighted AverageShares of Restricted Stock
    
    Number of Shares
    
    
    Grant-Date Fair ValueOutstanding at January 1, 2005
    
    
    67,322
    
    
    $
    13.24Granted
    
    
    4,064
    
    
    
    36.90Distributed
    
    
    (10,449
    )
    
    
    14.51Forfeited
    
    
    
    
    
    
    Outstanding at December 31, 2005
    
    
    60,937
    
    
    $
    14.60Vested, undistributed at December 31, 2005
    
    
    32,496
    
    
    $
    6.26Outstanding at January 1, 2006
    
    
    60,937
    
    
    $
    14.60Granted
    
    
    1,880
    
    
    
    42.53Distributed
    
    
    (7,489
    )
    
    
    19.80Forfeited
    
    
    (3,248
    )
    
    
    30.27Outstanding at December 31, 2006
    
    
    52,080
    
    
    $
    13.89Vested, undistributed at December 31, 2006
    
    
    33,875
    
    
    $
    6.64Outstanding at January 1, 2007
    
    
    52,080
    
    
    $
    13.89Granted
    
    
    7,012
    
    
    
    42.78Distributed
    
    
    (6,801
    )
    
    
    23.03Forfeited
    
    
    (1,428
    )
    
    
    28.02Outstanding at December 31, 2007
    
    
    50,863
    
    
    $
    16.25Vested, undistributed at December 31, 2007
    
    
    33,875
    
    
    $
    6.64
 76




---



##### Table of Contents



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
   Year Ended December 31, 2007Weighted AverageNonvested Shares of Restricted Stock
    
    Number of Shares
    
    
    Grant-Date Fair ValueNonvested at January 1, 2007
    
    
    18,205
    
    
    $
    27.37Granted
    
    
    7,012
    
    
    
    42.78Vested
    
    
    (6,801
    )
    
    
    23.03Forfeited
    
    
    (1,428
    )
    
    
    28.02Nonvested at December 31, 2007
    
    
    16,988
    
    
    $
    35.41
  Note 11  Discontinued Operations
  Accounting for
the Impairment or Disposal of Long-Lived Assets
 Year ended December 31,2006
    
    
    2005Sales
    
    $
    10,410,000
    
    
    $
    10,529,000Costs and expenses
    
    
    (10,298,000
    )
    
    
    (10,490,000
    )Income before income taxes
    
    
    112,000
    
    
    
    39,000Income tax expense
    
    
    (45,000
    )
    
    
    (24,000
    )Gain on spin-off of discontinued operations, net of tax
    
    
    99,000
    
    
    
    Income from discontinued operations
    
    $
    166,000
    
    
    $
    15,000
 77




---



##### Table of Contents



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 Note 12  Quarterly Financial Data (unaudited)
 2007
    
    First Quarter
    
    
    Second Quarter
    
    
    Third Quarter
    
    
    Fourth QuarterSales
    
    $
    66,965
    
    
    $
    73,015
    
    
    $
    73,209
    
    
    $
    84,296Costs and expenses
    
    
    59,617
    
    
    
    65,604
    
    
    
    66,403
    
    
    $
    75,482Income tax
    
    
    3,009
    
    
    
    3,109
    
    
    
    344
    
    
    $
    2,050Net income
    
    $
    4,339
    
    
    $
    4,302
    
    
    $
    6,462
    
    
    $
    6,764Earnings per shareBasic
    
    $
    0.89
    
    
    $
    0.90
    
    
    $
    1.35
    
    
    $
    1.39Diluted
    
    $
    0.86
    
    
    $
    0.86
    
    
    $
    1.30
    
    
    $
    1.32
  2006
    
    First Quarter
    
    
    Second Quarter
    
    
    Third Quarter
    
    
    Fourth QuarterSales
    
    $
    68,354
    
    
    $
    72,115
    
    
    $
    77,270
    
    
    $
    79,595Costs and expenses
    
    
    61,228
    
    
    
    64,800
    
    
    
    69,228
    
    
    
    72,335Income tax
    
    
    2,933
    
    
    
    3,105
    
    
    
    3,319
    
    
    
    3,340Income from continuing operations
    
    $
    4,193
    
    
    $
    4,210
    
    
    $
    4,723
    
    
    $
    3,920Income (loss) from discontinued operations
    
    
    7
    
    
    
    16
    
    
    
    (22
    )
    
    
    165Net income
    
    $
    4,200
    
    
    $
    4,226
    
    
    $
    4,701
    
    
    $
    4,085Earnings per shareBasic:Income from continuing operations
    
    $
    0.79
    
    
    $
    0.81
    
    
    $
    0.92
    
    
    $
    0.79Income from discontinued operations
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    0.03$
    0.79
    
    
    $
    0.81
    
    
    $
    0.92
    
    
    $
    0.82Diluted earnings per shareIncome from continuing operations
    
    $
    0.73
    
    
    $
    0.76
    
    
    $
    0.87
    
    
    $
    0.76Income from discontinued operations
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    0.03$
    0.73
    
    
    $
    0.76
    
    
    $
    0.87
    
    
    $
    0.79
 
 (1)
    
    Earnings per common share calculations for each of the quarters were based upon the weighted
average number of shares outstanding for each period, and the sum of the quarters may not
necessarily be equal to the full year earnings per common share amount. Note 13  Subsequent Event
   78




---



##### Table of Contents



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
  79




---



##### Table of Contents



Signature
    
    Title
    
    Date/s/ Wayne R. Winton
    
    Chairman of the Board and Director
    
    March 18, 2008Wayne R. Winton/s/ Robert C. Sepucha
    
    Director, Chief Executive Officer
    
    March 18, 2008Robert C. Sepucha
    
    (Principal Executive Officer)/s/ William E. Cook
    
    Director
    
    March 18, 2008William E. Cook/s/ Rockell N. Hankin
    
    Director
    
    March 18, 2008Rockell N. Hankin/s/ John L. Piotrowski
    
    Director
    
    March 18, 2008John L. Piotrowski/s/ Gerald A. Zionic
    
    Director
    
    March 18, 2008Gerald A. Zionic/s/ David E. Schreiman
    
    Chief Financial Officer
    
    March 18, 2008David E. Schreiman
    
    (Principal Accounting Officer)
 80




---



##### Table of Contents



Number
    
    Description2.1(8)
    
    Agreement and Plan of Merger, dated as of January 15, 2008, among SPARTA, Inc.,
Cobham Holdings Inc. and Rocob Acquisition Inc.3.1(4)
    
    Amended and Restated Certificate of Incorporation of the Company3.2(1)
    
    Bylaws of the Company, as currently in effect3.3(1)
    
    Form of Certificate for Common Stock4.1(3)
    
    2007 Stock Plan10.2(2)
    
    SPARTA, Inc. Profit Sharing Plan  1994 Restatement10.3(1)
    
    Trust Agreement for the SPARTA, Inc. Profit Sharing Plan10.4(1)
    
    Special Trust Agreement for SPARTA, Inc. Profit Sharing Plan10.25(5)
    
    SPARTA, Inc. Stock Compensation Plan10.26(5)
    
    SPARTA, Inc. Stock Compensation Plan Trust10.29(6)
    
    Third Amended and Restated Loan Agreement dated June 21, 2007 between the
Company and Union Bank of California, N.A.10.30(6)
    
    Commercial Promissory Note dated June 21, 2007 between the Company and Union
Bank of California, N.A.14(7)
    
    Standards of Business Conduct23.1
    
    Consent of Independent Registered Public Accounting Firm, Ernst & Young LLP31.1
    
    Certification of Chief Executive Officer Adopted Pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002.31.2
    
    Certification of Chief Financial Officer Adopted Pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002.32.1
    
    Certification of Chief Executive Officer Pursuant to 18 U.S.C. Section 1350, As Adopted
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.32.2
    
    Certification of Chief Financial Officer Pursuant to 18 U.S.C. Section 1350, As Adopted
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
 
 (1)
    
    Incorporated herein by reference to the exhibit of the same number contained in the Companys
Registration Statement on Form S-18 (Commission File No. 33-440998-LA).(2)
    
    Incorporated herein by reference to the exhibit of the same number contained in the Companys
Annual Report on Form 10-K for the year ended December 31, 1993.(3)
    
    Incorporated herein by reference to the exhibit of the same number contained in the Companys
Registration Statement on Form S-8 (Commission File No. 333-143568).(4)
    
    Incorporated herein by reference to the exhibit of the same number contained in the Companys
Annual Report on Form 10-K for the year ended December 31, 2000.(5)
    
    Incorporated herein by reference to the exhibit of the same number contained in the Companys
Annual Report on Form 10-K for the year ended December 30, 2001.(6)
    
    Incorporated herein by reference to exhibits 10.1 and 10.2, respectively, contained in the
Companys Current Report on Form 8-K dated August 1, 2007. 81




---



##### Table of Contents



(7)
    
    Incorporated herein by reference to the exhibit of the same number contained in the Companys
Annual Report on Form 10-K for the year ended December 28, 2003.(8)
    
    Incorporated herein by reference to the exhibit of the same number contained in the Companys
current Report on Form 8-K dated January 16, 2008. 82