##### Table of Contents



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
 WASHINGTON, D.C. 20549
 FORM 10-Q
 þ
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the quarterly period ended March 31, 2010
 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 1-1000
 
 Sparton Corporation
  Ohio
(State or other jurisdiction of incorporation or 
organization)
    
    38-1054690
(I.R.S. Employer Identification No.)425 N. Martingale Road, Suite 2050, Schaumburg, Illinois
(Address of principal executive offices)
    
    60173-2213
(Zip code)
 (847) 762-5800
 
 þ o
 o o
  Large accelerated filer o
    
    Accelerated filer o
    
    Non-accelerated filer o
    
    Smaller reporting company þ(Do not check if a smaller reporting company)
 o þ




---



##### 



TABLE OF CONTENTS
 PART I
    
    FINANCIAL INFORMATION
    
    
    3ITEM 1.
    
    FINANCIAL STATEMENTS
    
    
    3CONDENSED CONSOLIDATED BALANCE SHEETS AS OF MARCH 31, 2010
AND JUNE 30, 2009 (UNAUDITED)
    
    
    3CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE THREE
AND NINE MONTHS ENDED MARCH 31, 2010 AND 2009 (UNAUDITED)
    
    
    4CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE NINE
MONTHS ENDED MARCH 31, 2010 AND 2009 (UNAUDITED)
    
    
    5CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS EQUITY FOR
THE NINE MONTHS ENDED MARCH 31, 2010 AND 2009 (UNAUDITED)
    
    
    6NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
    
    
    7ITEM 2.
    
    MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
    
    
    25ITEM 3.
    
    QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
    
    
    38ITEM 4T.
    
    CONTROLS AND PROCEDURES
    
    
    38PART II
    
    OTHER INFORMATION
    
    
    39ITEM 1.
    
    LEGAL PROCEEDINGS
    
    
    39ITEM 1A.
    
    RISK FACTORS
    
    
    39ITEM 2.
    
    UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
    
    
    39ITEM 3.
    
    DEFAULTS UPON SENIOR SECURITIES
    
    
    39ITEM 5.
    
    OTHER INFORMATION
    
    
    39ITEM 6.
    
    EXHIBITS
    
    
    40SIGNATURES
    
    
    41CERTIFICATIONSEX-31.1EX-31.2EX-32.1
  2




---



##### Table of Contents



PART I. FINANCIAL INFORMATION
 
 Item 1. Financial Statements.
 SPARTON CORPORATION AND SUBSIDIARIES
 
 CONDENSED CONSOLIDATED BALANCE SHEETS
 (UNAUDITED)
  March 31,
    
    
    June 30,2010
    
    
    2009 (a)AssetsCurrent Assets:Cash and cash equivalents
    
    $
    16,144
    
    
    $
    36,261Accounts receivable, net of allowance for doubtful accounts of $531 and
$534, respectively
    
    
    18,210
    
    
    
    38,163Inventories and costs of contracts in progress, net
    
    
    28,808
    
    
    
    38,435Income taxes receivable
    
    
    826
    
    
    
    Deferred income taxes
    
    
    35
    
    
    
    35Property held for sale
    
    
    5,983
    
    
    
    5,129Prepaid expense and other current assets
    
    
    1,414
    
    
    
    1,992Total current assets
    
    
    71,420
    
    
    
    120,015Property, plant and equipment, net
    
    
    8,690
    
    
    
    9,833Goodwill
    
    
    19,141
    
    
    
    17,693Other intangible assets, net
    
    
    4,918
    
    
    
    5,270Restricted cash
    
    
    3,151
    
    
    
    Other non-current assets
    
    
    2,681
    
    
    
    2,191Total assets
    
    $
    110,001
    
    
    $
    155,002Liabilities and Shareholders EquityCurrent Liabilities:Short-term bank borrowings
    
    $
    
    
    
    $
    15,500Current portion of long-term debt
    
    
    1,148
    
    
    
    4,142Accounts payable
    
    
    12,348
    
    
    
    26,418Accrued salaries and wages
    
    
    4,445
    
    
    
    5,023Accrued health benefits
    
    
    1,097
    
    
    
    1,578Current portion of pension liability
    
    
    145
    
    
    
    1,097Restructuring accrual
    
    
    786
    
    
    
    2,365Advance billings on customer contracts
    
    
    12,190
    
    
    
    25,103Other accrued liabilities
    
    
    5,432
    
    
    
    5,891Total current liabilities
    
    
    37,591
    
    
    
    87,117Deferred income taxes  non-current
    
    
    1,442
    
    
    
    1,135Pension liability  non-current portion
    
    
    3,239
    
    
    
    4,061Long-term debt  non-current portion
    
    
    1,826
    
    
    
    3,317Environmental remediation  non-current portion
    
    
    4,265
    
    
    
    4,477Total liabilities
    
    
    48,363
    
    
    
    100,107Commitments and contingenciesShareholders Equity:Preferred stock, no par value; 200,000 shares authorized, none outstanding
    
    
    
    
    
    
    Common stock, $1.25 par value; 15,000,000 shares authorized, 9,978,507
and 9,951,507 shares outstanding, respectively
    
    
    12,473
    
    
    
    12,439Capital in excess of par value
    
    
    20,082
    
    
    
    19,671Retained earnings
    
    
    32,928
    
    
    
    27,586Accumulated other comprehensive loss
    
    
    (3,845
    )
    
    
    (4,801
    )Total shareholders equity
    
    
    61,638
    
    
    
    54,895Total liabilities and shareholders equity
    
    $
    110,001
    
    
    $
    155,002
 
 (a)
    
    Derived from the Companys audited financial statements as of June 30, 2009.  3




---



##### Table of Contents



SPARTON CORPORATION AND SUBSIDIARIES
 
 CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
 (UNAUDITED)
  For the Three Months Ended
    
    
    For the Nine Months EndedMarch 31, 2010
    
    
    March 31, 2009
    
    
    March 31, 2010
    
    
    March 31, 2009Net sales
    
    $
    38,637
    
    
    $
    54,592
    
    
    $
    133,964
    
    
    $
    163,104Cost of goods sold
    
    
    33,122
    
    
    
    49,893
    
    
    
    112,888
    
    
    
    151,847Gross profit
    
    
    5,515
    
    
    
    4,699
    
    
    
    21,076
    
    
    
    11,257Operating Expense:Selling and administrative
expenses
    
    
    4,286
    
    
    
    4,152
    
    
    
    14,017
    
    
    
    14,223Amortization of intangibles
    
    
    118
    
    
    
    120
    
    
    
    352
    
    
    
    361Restructuring/impairment charges
    
    
    238
    
    
    
    350
    
    
    
    2,121
    
    
    
    660Other, net
    
    
    549
    
    
    
    3
    
    
    
    1,120
    
    
    
    20Total operating expense
    
    
    5,191
    
    
    
    4,625
    
    
    
    17,610
    
    
    
    15,264Operating income (loss)
    
    
    324
    
    
    
    74
    
    
    
    3,466
    
    
    
    (4,007
    )Other income (expense)Interest expense
    
    
    (193
    )
    
    
    (398
    )
    
    
    (655
    )
    
    
    (1,256
    )Interest income
    
    
    32
    
    
    
    (1
    )
    
    
    48
    
    
    
    29Equity income (loss) in investment
    
    
    6
    
    
    
    (36
    )
    
    
    30
    
    
    
    (56
    )Gain on sale of investment
    
    
    201
    
    
    
    
    
    
    
    201
    
    
    
    Canadian translation adjustment
    
    
    (2
    )
    
    
    (223
    )
    
    
    (24
    )
    
    
    (1,254
    )Other, net
    
    
    189
    
    
    
    4
    
    
    
    249
    
    
    
    9Other income (expense)
    
    
    233
    
    
    
    (654
    )
    
    
    (151
    )
    
    
    (2,528
    )Income (loss) before provision for
income taxes
    
    
    557
    
    
    
    (580
    )
    
    
    3,315
    
    
    
    (6,535
    )Provision for (benefit from) income
taxes
    
    
    (132
    )
    
    
    183
    
    
    
    (2,027
    )
    
    
    381Net income (loss)
    
    $
    689
    
    
    $
    (763
    )
    
    $
    5,342
    
    
    $
    (6,916
    )Income (loss) per share of common
stock:Basic
    
    $
    0.07
    
    
    $
    (0.08
    )
    
    $
    0.54
    
    
    $
    (0.70
    )Diluted
    
    $
    0.07
    
    
    $
    (0.08
    )
    
    $
    0.54
    
    
    $
    (0.70
    )Weighted average shares of common
stock outstanding  basic 
and
dilutedBasic
    
    
    9,978,507
    
    
    
    9,811,507
    
    
    
    9,964,711
    
    
    
    9,811,507Diluted
    
    
    9,998,419
    
    
    
    9,811,507
    
    
    
    9,964,711
    
    
    
    9,811,507
  4




---



##### Table of Contents



SPARTON CORPORATION AND SUBSIDIARIES
 
 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
 (UNAUDITED)
  For the Nine Months EndedMarch 31,
    
    
    March 31,2010
    
    
    2009Cash Flows from Operating Activities:Net income (loss)
    
    $
    5,342
    
    
    $
    (6,916
    )Adjustments to reconcile net income (loss) to net cash
provided by operating activities:Depreciation and amortization
    
    
    1,067
    
    
    
    1,442Amortization of deferred financing costs
    
    
    211
    
    
    
    Deferred income tax expense
    
    
    307
    
    
    
    239Equity loss (income) in investment
    
    
    (30
    )
    
    
    56Pension expense
    
    
    1,085
    
    
    
    1,686Stock-based compensation expense
    
    
    445
    
    
    
    132Non-cash restructuring/impairment charges
    
    
    252
    
    
    
    Net gain on sale of property, plant and equipment
    
    
    
    
    
    
    10Gain on sale of investment
    
    
    (201
    )
    
    
    Other, deferred assets
    
    
    
    
    
    
    600Changes in operating assets and liabilities:Accounts receivable
    
    
    19,953
    
    
    
    (3,387
    )Income taxes receivable
    
    
    (826
    )
    
    
    Inventories, prepaid expenses and other current assets
    
    
    10,097
    
    
    
    12,427Advance billings on customer contracts
    
    
    (12,913
    )
    
    
    Accounts payable and accrued liabilities
    
    
    (19,841
    )
    
    
    245Net cash provided by operating activities
    
    
    4,948
    
    
    
    6,534Cash Flows from Investing Activities:Additional goodwill from SMS acquisition
    
    
    (977
    )
    
    
    (1,057
    )Change in restricted cash
    
    
    (3,151
    )
    
    
    Purchases of property, plant and equipment
    
    
    (1,041
    )
    
    
    (1,065
    )Proceeds from sale of property, plant and equipment
    
    
    450
    
    
    
    11Proceeds from sale of investment
    
    
    525
    
    
    
    Net cash used in investing activities
    
    
    (4,194
    )
    
    
    (2,111
    )Cash Flows from Financing Activities:Net short-term bank borrowings (repayments)
    
    
    (15,500
    )
    
    
    2,000Repayment of long-term debt
    
    
    (4,485
    )
    
    
    (3,127
    )Payment of debt financing costs
    
    
    (886
    )
    
    
    Net cash used in financing activities
    
    
    (20,871
    )
    
    
    (1,127
    )Net increase (decrease) in cash and cash equivalents
    
    
    (20,117
    )
    
    
    3,296Cash and cash equivalents at beginning of period
    
    
    36,261
    
    
    
    2,928Cash and cash equivalents at end of period
    
    $
    16,144
    
    
    $
    6,224Supplemental disclosure of cash flow information:Cash paid for interest
    
    $
    422
    
    
    $
    1,124Cash paid for income taxes
    
    $
    5
    
    
    $
    243
  5




---



##### Table of Contents



SPARTON CORPORATION AND SUBSIDIARIES
 
 CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS EQUITY
 (UNAUDITED)
  Nine Months Ended March 31, 2010AccumulatedCapital
    
    
    
    
    
    
    OtherCommon Stock
    
    
    In Excess
    
    
    Retained
    
    
    ComprehensiveShares
    
    
    Amount
    
    
    of Par Value
    
    
    Earnings
    
    
    Income (loss)
    
    
    TotalBalance at June 30, 2009
    
    
    9,951,507
    
    
    $
    12,439
    
    
    $
    19,671
    
    
    $
    27,586
    
    
    $
    (4,801
    )
    
    $
    54,895Stock grants issued
    
    
    27,000
    
    
    
    34
    
    
    
    (34
    )
    
    
    
    
    
    
    
    
    
    
    Stock-based compensation
    
    
    
    
    
    
    
    
    
    
    445
    
    
    
    
    
    
    
    
    
    
    
    445Comprehensive income (loss),
net of tax:Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    5,342
    
    
    
    
    
    
    
    5,342Change in unrecognized
pension costs
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    956
    
    
    
    956Comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    6,298Balance at March 31, 2010
    
    
    9,978,507
    
    
    $
    12,473
    
    
    $
    20,082
    
    
    $
    32,928
    
    
    $
    (3,845
    )
    
    $
    61,638
 Nine Months Ended March 31, 2009AccumulatedCapital
    
    
    
    
    
    
    OtherCommon Stock
    
    
    In Excess
    
    
    Retained
    
    
    ComprehensiveShares
    
    
    Amount
    
    
    of Par Value
    
    
    Earnings
    
    
    Income (loss)
    
    
    TotalBalance at June 30, 2008
    
    
    9,811,507
    
    
    $
    12,264
    
    
    $
    19,651
    
    
    $
    43,592
    
    
    $
    (4,647
    )
    
    $
    70,860Restricted stock grants
issued
    
    
    120,000
    
    
    
    150
    
    
    
    (150
    )
    
    
    
    
    
    
    
    
    
    
    Stock-based compensation
    
    
    
    
    
    
    
    
    
    
    132
    
    
    
    
    
    
    
    
    
    
    
    132Comprehensive income (loss),
net of tax:Net loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (6,916
    )
    
    
    
    
    
    
    (6,916
    )Change in unrecognized
pension costs
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,781
    )
    
    
    (1,781
    )Comprehensive loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (8,697
    )Balance at March 31, 2009
    
    
    9,931,507
    
    
    $
    12,414
    
    
    $
    19,633
    
    
    $
    36,676
    
    
    $
    (6,428
    )
    
    $
    62,295
  6




---



##### Table of Contents



SPARTON CORPORATION AND SUBSIDIARIES
 
 NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 (1) Business and Basis of Presentation
   (2) Summary of Significant Accounting Policies
 Use of estimates 
 Revenue recognition 
 7




---



##### Table of Contents



Accounts receivable, credit practices, and allowance for probable losses 
  Fair value measurements 
    Other investment 
 8




---



##### Table of Contents



Market risk exposure 
  Long-lived assets 
 Other assets 
   Income taxes 
 9




---



##### Table of Contents



New accounting standards
 ,
 ,
  ,
 10




---



##### Table of Contents



,
 (3) Inventories and Cost of Contracts in Progress
  March 31, 2010
    
    
    June 30, 2009Raw materials
    
    $
    22,567
    
    
    $
    29,593Work in process
    
    
    3,915
    
    
    
    5,260Finished goods
    
    
    2,326
    
    
    
    3,582Total inventory and cost of contracts in progress, net
    
    $
    28,808
    
    
    $
    38,435
  11




---



##### Table of Contents



(4) Defined Benefit Pension Plan
   For the Three Months Ended
    
    
    For the Nine Months EndedMarch 31, 2010
    
    
    March 31, 2009
    
    
    March 31, 2010
    
    
    March 31, 2009Service cost
    
    $
    
    
    
    $
    (1
    )
    
    $
    
    
    
    $
    262Interest cost
    
    
    143
    
    
    
    161
    
    
    
    431
    
    
    
    488Expected return on plan assets
    
    
    (100
    )
    
    
    (68
    )
    
    
    (302
    )
    
    
    (356
    )Amortization of prior service cost
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    52Amortization of unrecognized net
actuarial loss
    
    
    94
    
    
    
    132
    
    
    
    281
    
    
    
    292Net periodic benefit cost
    
    
    137
    
    
    
    224
    
    
    
    410
    
    
    
    738Curtailment charge
    
    
    
    
    
    
    333
    
    
    
    
    
    
    
    333Pro rata recognition of lump-sum
settlements
    
    
    225
    
    
    
    615
    
    
    
    675
    
    
    
    615Total periodic pension expense
    
    $
    362
    
    
    $
    1,172
    
    
    $
    1,085
    
    
    $
    1,686
  (5) Goodwill and Other Intangible Assets
  12




---



##### Table of Contents



March 31, 2010Weighted Average
    
    
    Gross
    
    
    
    
    
    
    NetAmortization
    
    
    Carrying
    
    
    Accumulated
    
    
    CarryingPeriod
    
    
    Amount
    
    
    Amortization
    
    
    ValueAmortized intangible assets:Non-compete agreements
    
    48 months
    
    $
    165
    
    
    $
    (160
    )
    
    $
    5Customer relationships
    
    180 months
    
    
    6,600
    
    
    
    (1,687
    )
    
    
    4,913$
    6,765
    
    
    $
    (1,847
    )
    
    $
    4,918
 June 30, 2009Weighted Average
    
    
    Gross
    
    
    
    
    
    
    NetAmortization
    
    
    Carrying
    
    
    Accumulated
    
    
    CarryingPeriod
    
    
    Amount
    
    
    Amortization
    
    
    ValueAmortized intangible assets:Non-compete agreements
    
    48 months
    
    $
    165
    
    
    $
    (138
    )
    
    $
    27Customer relationships
    
    180 months
    
    
    6,600
    
    
    
    (1,357
    )
    
    
    5,243$
    6,765
    
    
    $
    (1,495
    )
    
    $
    5,270
  Fiscal Year Ended June 30,2010
    
    $
    4672011
    
    
    4402012
    
    
    4402013
    
    
    4402014
    
    
    440Thereafter
    
    
    3,043Total
    
    $
    5,270
 13




---



##### Table of Contents



(6) Borrowings
 Short-term debt maturities and line of credit 
  Long-term debt 
 March 31,
    
    
    June 30,2010
    
    
    2009Industrial revenue bonds, face value
    
    $
    2,060
    
    
    $
    2,150Less unamortized purchase discount
    
    
    (115
    )
    
    
    (122
    )Industrial revenue bonds, carrying value
    
    
    1,945
    
    
    
    2,028Notes payable  former owners
    
    
    1,029
    
    
    
    2,031Bank term loan
    
    
    
    
    
    
    3,400Total long-term debt
    
    
    2,974
    
    
    
    7,459Less: current portion
    
    
    (1,148
    )
    
    
    (4,142
    )Long-term debt, net of current portion
    
    $
    1,826
    
    
    $
    3,317
 Industrial Revenue Bonds
   14




---



##### Table of Contents



Notes Payable  Former Owners
  Bank Term Loan
  (7) Commitments and Contingencies
 Environmental Remediation 
   15




---



##### Table of Contents



Customer Relationships 
 Product Issues 
  Litigation
 Other 
 16




---



##### Table of Contents



(8) Stock-Based Compensation
  2001 Plan. 1 2
 2010 Plan.
  Weighted AverageRisk free interest rate
    
    
    1.25
    %Volatility
    
    
    78.10
    %Dividend yield
    
    
    0.00
    %Expected life in years
    
    
    3.00Fair value price
    
    $
    2.25
   For the Three Months Ended
    
    
    For the Nine Months EndedMarch 31, 2010
    
    
    March 31, 2009
    
    
    March 31, 2010
    
    
    March 31, 2009Fair value expense of stock
option awards
    
    $
    7
    
    
    $
    (50
    )
    
    $
    270
    
    
    $
    43Restricted stock
    
    
    54
    
    
    
    67
    
    
    
    175
    
    
    
    89Total stock-based compensation
    
    $
    61
    
    
    $
    17
    
    
    $
    445
    
    
    $
    132
 17




---



##### Table of Contents



Total Remaining
    
    
    Weighted AverageUnrecognized
    
    
    Remaining RequiredCompensation Cost
    
    
    Service Period(in thousands)
    
    
    (in years)Fair value expense of stock option awards
    
    $
    6
    
    
    
    0.25Restricted stock
    
    
    87
    
    
    
    0.78$
    93
    
    
    
    0.74
  WeightedAverageWeighted Average
    
    
    Remaining
    
    
    AggregateNumber of Shares
    
    
    Exercise Price
    
    
    Contractual Life
    
    
    Intrinsic Value(in years)
    
    
    (in thousands)Outstanding at June 30, 2009
    
    
    184,127
    
    
    $
    8.23Granted
    
    
    111,250
    
    
    
    5.00Exercised
    
    
    
    
    
    
    Forfeited
    
    
    (25,581
    )
    
    
    8.34Expired
    
    
    
    
    
    
    Outstanding at March 31, 2010
    
    
    269,796
    
    
    $
    6.89
    
    
    
    4.00
    
    
    $
    100Exercisable at March 31, 2010
    
    
    264,544
    
    
    $
    6.85
    
    
    
    3.94
    
    
    $
    100
  Weighted AverageGrant DateShares
    
    
    Fair ValueRestricted shares at June 30, 2009
    
    
    93,334
    
    
    $
    2.10Granted
    
    
    27,000
    
    
    
    4.60Vested
    
    
    (30,400
    )
    
    
    4.26Forfeited
    
    
    
    
    
    
    Restricted shares at March 31, 2010
    
    
    89,934
    
    
    $
    2.13
 18




---



##### Table of Contents



(9) Earnings Per Share Data
   For the Three Months Ended
    
    
    For the Nine Months EndedMarch 31, 2010
    
    
    March 31, 2009
    
    
    March 31, 2010
    
    
    March 31, 2009Net income (loss) (in thousands)
    
    $
    689
    
    
    $
    (763
    )
    
    $
    5,342
    
    
    $
    (6,916
    )Weighted average shares outstanding  Basic
    
    
    9,978,507
    
    
    
    9,811,507
    
    
    
    9,964,711
    
    
    
    9,811,507Net effect of dilutive stock options
    
    
    19,912
    
    
    
    
    
    
    
    
    
    
    
    Weighted average shares outstanding 
Diluted
    
    
    9,998,419
    
    
    
    9,811,507
    
    
    
    9,964,711
    
    
    
    9,811,507Net income (loss) per share:Basic
    
    $
    0.07
    
    
    $
    (0.08
    )
    
    $
    0.54
    
    
    $
    (0.70
    )Diluted
    
    $
    0.07
    
    
    $
    (0.08
    )
    
    $
    0.54
    
    
    $
    (0.70
    )
  (10) Comprehensive Income (Loss)
  For the Three Months Ended
    
    
    For the Nine Months EndedMarch 31, 2010
    
    
    March 31, 2009
    
    
    March 31, 2010
    
    
    March 31, 2009Net income (loss)
    
    $
    689
    
    
    $
    (763
    )
    
    $
    5,342
    
    
    $
    (6,916
    )Other comprehensive income
(loss)  Change in
unrecognized pension costs, net
of tax
    
    
    319
    
    
    
    (1,876
    )
    
    
    956
    
    
    
    (1,781
    )Comprehensive income (loss)
    
    $
    1,008
    
    
    $
    (2,639
    )
    
    $
    6,298
    
    
    $
    (8,697
    )
 19




---



##### Table of Contents



(11) Restructuring Activities
  Plant Closures
 London, Ontario, Canada
  Jackson, Michigan
  20




---



##### Table of Contents



Albuquerque, New Mexico
   March 31,
    
    
    June 30,2010
    
    
    2009Current assets
    
    $
    5,137
    
    
    $
    5,155Current liabilities
    
    $
    796
    
    
    $
    1,201Long-term liabilities (EPA, see Note 7)
    
    
    4,265
    
    
    
    4,477Total liabilities
    
    $
    5,061
    
    
    $
    5,678
 Reductions in Force
   Relocation of Corporate Headquarters
  21




---



##### Table of Contents



Summary of Restructuring Charges
  WorkforceReduction(principallyseverance andretention bonuses)
    
    
    Facility Closing
    
    
    Lease Terminations
    
    
    Production Transfer
    
    
    TotalAccrual balance at
June 30, 2009
    
    $
    375
    
    
    $
    
    
    
    $
    1,990
    
    
    $
    
    
    
    $
    2,365Restructuring charges
    
    
    343
    
    
    
    1,167
    
    
    
    359
    
    
    
    
    
    
    
    1,869Less: cash payments
    
    
    (658
    )
    
    
    (683
    )
    
    
    (2,107
    )
    
    
    
    
    
    
    (3,448
    )Restructuring reversals
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Accrual balance at
March 31, 2010
    
    $
    60
    
    
    $
    484
    
    
    $
    242
    
    
    $
    
    
    
    $
    786
   (12) Business Segments
    22




---



##### Table of Contents



Medical Device (Medical) operations
 Electronic Manufacturing Services (EMS) operations
 Defense & Security Systems (DSS) operations
  For the Three Months Ended March 31, 2010OtherMedical
    
    EMS
    
    DSS
    
    Unallocated
    
    Eliminations
    
    TotalSales
    
    $
    14,228
    
    
    $
    13,076
    
    
    $
    14,293
    
    
    $
    
    
    
    $
    (2,960
    )
    
    $
    38,637Gross profit
    
    $
    1,420
    
    
    $
    620
    
    
    $
    3,475
    
    
    $
    
    
    
    $
    
    
    
    $
    5,515Operating income (loss)
    
    $
    273
    
    
    $
    (426
    )
    
    $
    2,784
    
    
    $
    (2,307
    )
    
    $
    
    
    
    $
    324Restructuring/impairment
charges
    
    $
    
    
    
    $
    184
    
    
    $
    
    
    
    $
    54
    
    
    $
    
    
    
    $
    238Depreciation/amortization
    
    $
    159
    
    
    $
    129
    
    
    $
    35
    
    
    $
    5
    
    
    $
    
    
    
    $
    328
 For the Three Months Ended March 31, 2009OtherMedical
    
    EMS
    
    DSS
    
    Unallocated
    
    Eliminations
    
    TotalSales
    
    $
    17,619
    
    
    $
    34,076
    
    
    $
    7,657
    
    
    $
    
    
    
    $
    (4,760
    )
    
    $
    54,592Gross profit
    
    $
    2,430
    
    
    $
    1,321
    
    
    $
    948
    
    
    $
    
    
    
    $
    
    
    
    $
    4,699Operating income (loss)
    
    $
    1,321
    
    
    $
    87
    
    
    $
    (30
    )
    
    $
    (1,304
    )
    
    $
    
    
    
    $
    74Restructuring/impairment charges
    
    $
    
    
    
    $
    258
    
    
    $
    71
    
    
    $
    21
    
    
    $
    
    
    
    $
    350Depreciation/amortization
    
    $
    164
    
    
    $
    273
    
    
    $
    33
    
    
    $
    4
    
    
    $
    
    
    
    $
    474
 23




---



##### Table of Contents



For the Nine Months Ended March 31, 2010OtherMedical
    
    EMS
    
    DSS
    
    Unallocated
    
    Eliminations
    
    TotalSales (a)
    
    $
    51,142
    
    
    $
    45,003
    
    
    $
    46,660
    
    
    $
    
    
    
    $
    (8,841
    )
    
    $
    133,964Gross profit
    
    $
    6,871
    
    
    $
    2,349
    
    
    $
    11,856
    
    
    $
    
    
    
    $
    
    
    
    $
    21,076Operating income (loss)
    
    $
    3,733
    
    
    $
    (1,189
    )
    
    $
    9,861
    
    
    $
    (8,939
    )
    
    $
    
    
    
    $
    3,466Restructuring/impairment charges
    
    $
    
    
    
    $
    993
    
    
    $
    
    
    
    $
    1,128
    
    
    $
    
    
    
    $
    2,121Depreciation/amortization
    
    $
    465
    
    
    $
    473
    
    
    $
    117
    
    
    $
    12
    
    
    $
    
    
    
    $
    1,067
 For the Nine Months Ended March 31, 2009OtherMedical
    
    
    EMS
    
    
    DSS
    
    
    Unallocated
    
    
    Eliminations
    
    
    TotalSales (a)
    
    $
    46,980
    
    
    $
    101,829
    
    
    $
    23,617
    
    
    $
    
    
    
    $
    (9,322
    )
    
    $
    163,104Gross profit
    
    $
    5,353
    
    
    $
    3,360
    
    
    $
    2,544
    
    
    $
    
    
    
    $
    
    
    
    $
    11,257Operating income (loss)
    
    $
    2,142
    
    
    $
    (526
    )
    
    $
    (100
    )
    
    $
    (5,523
    )
    
    $
    
    
    
    $
    (4,007
    )Restructuring/impairment charges
    
    $
    
    
    
    $
    568
    
    
    $
    71
    
    
    $
    21
    
    
    $
    
    
    
    $
    660Depreciation/amortization
    
    $
    500
    
    
    $
    800
    
    
    $
    134
    
    
    $
    8
    
    
    $
    
    
    
    $
    1,442
 As of March 31, 2010OtherMedical
    
    EMS
    
    DSS
    
    Unallocated
    
    Eliminations
    
    TotalTotal assets
    
    $
    53,392
    
    
    $
    28,307
    
    
    $
    7,009
    
    
    $
    21,293
    
    
    $
    
    
    
    $
    110,001
 As of June 30, 2009OtherMedical
    
    EMS
    
    DSS
    
    Unallocated
    
    Eliminations
    
    TotalTotal assets
    
    $
    53,424
    
    
    $
    41,364
    
    
    $
    19,444
    
    
    $
    40,770
    
    
    $
    
    
    
    $
    155,002
 
 (a)
    
    Prior quarterly EMS sales and intercompany eliminations have
been adjusted to properly
eliminate intra-segment sales within the EMS segment. EMS sales for the three months ended
September 30, 2009 and December 31, 2009 were $17,603 and $14,324, respectively. EMS sales
for the three months ended September 30, 2008 and
December 31, 2008 were $34,010 and
$33,743, respectively. (13) Subsequent Events
  24




---



##### Table of Contents



Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations.
   Business Overview
    25




---



##### Table of Contents



Medical Device (Medical) operations
 Electronic Manufacturing Services (EMS) operations
 Defense & Security Systems (DSS) operations
 Risks and Uncertainties
   26




---



##### Table of Contents



Consolidated Results of Operations
  Summary
  Net loss year-to-date fiscal 2009
    
    
    
    
    
    $
    (6.9
    )Improved gross profit on DSS programs
    
    $
    9.3Improved gross profit on Medical programs
    
    
    1.5Decreased gross profit on EMS programs
    
    
    (1.0
    )Decreased selling and administrative expenses
    
    
    0.2Increased restructuring/impairment charges
    
    
    (1.4
    )Decreased Canadian translation adjustment
    
    
    1.2Increased tax benefit
    
    
    2.4Net change
    
    
    
    
    
    
    12.2Net income year-to-date fiscal 2010
    
    
    
    
    
    $
    5.3
  
    
    Increased gross profit on DSS programs due to a greater mix of products sold to foreign
governments, successful lot acceptance resulting in minimal rework costs, manufacturing
cost structure improvements and an overall increase in sales volume.
    
    Increased gross profit on Medical programs due to favorable material costs, improved
pricing, increased sales volume and facility consolidation.
    
    Decreased gross profit on EMS programs due mainly to a significant decrease in sales
volume, partially offset by cost savings related to plant closures and consolidations.
    
    Decreased selling and administrative expenses due to closure of several production
facilities and other cost reduction actions implemented in fiscal 2009.
    
    Restructuring/impairment charges of approximately $2.1 million in fiscal 2010 compared
to $0.7 million in the prior period.
    
    Increased tax benefit related to a change in tax carryback regulations.
  27




---



##### Table of Contents



For the Three Months Ended March 31, 2010 compared to the Three Months Ended March 31, 2009
  2010
    
    2009Net sales
    
    
    100.0
    %
    
    
    100.0
    %Cost of goods sold
    
    
    85.7
    
    
    
    91.4Gross profit
    
    
    14.3
    
    
    
    8.6Selling and administrative expenses
    
    
    11.1
    
    
    
    7.6Restructuring/impairment charges
    
    
    0.6
    
    
    
    0.7Other operating expense  net
    
    
    1.8
    
    
    
    0.2Operating income
    
    
    0.8
    
    
    
    0.1Other income (expense)  net
    
    
    0.6
    
    
    
    (1.2
    )Income (loss) before income taxes
    
    
    1.4
    
    
    
    (1.1
    )Provision for (benefit from) income taxes
    
    
    (0.4
    )
    
    
    0.3Net income (loss)
    
    
    1.8
    %
    
    
    (1.4
    )%
  2010
    
    
    2009SEGMENT
    
    Total
    
    
    % of Total
    
    
    Total
    
    
    % of Total
    
    
    % ChangeMedical
    
    $
    14,228
    
    
    
    37
    %
    
    $
    17,619
    
    
    
    32
    %
    
    
    (19
    )%EMS
    
    
    13,076
    
    
    
    34
    
    
    
    34,076
    
    
    
    63
    
    
    
    (62
    )DSS
    
    
    14,293
    
    
    
    37
    
    
    
    7,657
    
    
    
    14
    
    
    
    87Eliminations
    
    
    (2,960
    )
    
    
    (8
    )
    
    
    (4,760
    )
    
    
    (9
    )
    
    
    (38
    )Totals
    
    $
    38,637
    
    
    
    100
    %
    
    $
    54,592
    
    
    
    100
    %
    
    
    (29
    )
  2010
    
    
    2009SEGMENT
    
    Total
    
    
    GP%
    
    
    Total
    
    
    GP%Medical
    
    $
    1,420
    
    
    
    10
    %
    
    $
    2,430
    
    
    
    14
    %EMS
    
    
    620
    
    
    
    5
    
    
    
    1,321
    
    
    
    4DSS
    
    
    3,475
    
    
    
    24
    
    
    
    948
    
    
    
    12Totals
    
    $
    5,515
    
    
    
    14
    
    
    $
    4,699
    
    
    
    9
 Medical
  28




---



##### Table of Contents



EMS
   DSS
   29




---



##### Table of Contents



2010
    
    
    2009SEGMENT
    
    Total
    
    
    % of Sales
    
    
    Total
    
    
    % of SalesMedical
    
    $
    273
    
    
    
    2
    %
    
    $
    1,321
    
    
    
    7
    %EMS
    
    
    (426
    )
    
    
    (3
    )
    
    
    87
    
    
    
    0DSS
    
    
    2,784
    
    
    
    19
    
    
    
    (30
    )
    
    
    (0
    )Other unallocated
    
    
    (2,307
    )
    
    
    
    
    
    
    (1,304
    )
    
    
    Totals
    
    $
    324
    
    
    
    1
    
    
    $
    74
    
    
    
    0
        30




---



##### Table of Contents



For the Nine months ended March 31, 2010 compared to the Nine months ended March 31, 2009
  2010
    
    2009Net sales
    
    
    100.0
    %
    
    
    100.0
    %Cost of goods sold
    
    
    84.3
    
    
    
    93.1Gross profit
    
    
    15.7
    
    
    
    6.9Selling and administrative expenses
    
    
    10.4
    
    
    
    8.7Restructuring/impairment charges
    
    
    1.6
    
    
    
    0.4Other operating expense  net
    
    
    1.1
    
    
    
    0.3Operating income (loss)
    
    
    2.6
    
    
    
    (2.5
    )Other expense net
    
    
    (0.1
    )
    
    
    (1.5
    )Income (loss) before income taxes
    
    
    2.5
    
    
    
    (4.0
    )Provision for (benefit from) income taxes
    
    
    (1.5
    )
    
    
    0.2Net income (loss)
    
    
    4.0
    %
    
    
    (4.2
    )%
  2010
    
    
    2009SEGMENT
    
    Total
    
    
    % of Total
    
    
    Total
    
    
    % of Total
    
    
    % ChangeMedical
    
    $
    51,142
    
    
    
    38
    %
    
    $
    46,980
    
    
    
    29
    %
    
    
    9
    %EMS
    
    
    45,003
    
    
    
    34
    
    
    
    101,829
    
    
    
    62
    
    
    
    (56
    )DSS
    
    
    46,660
    
    
    
    35
    
    
    
    23,617
    
    
    
    15
    
    
    
    98Eliminations
    
    
    (8,841
    )
    
    
    (7
    )
    
    
    (9,322
    )
    
    
    (6
    )
    
    
    (5
    )Totals
    
    $
    133,964
    
    
    
    100
    %
    
    $
    163,104
    
    
    
    100
    %
    
    
    (18
    )
  2010
    
    
    2009SEGMENT
    
    Total
    
    
    GP%
    
    
    Total
    
    
    GP%Medical
    
    $
    6,871
    
    
    
    13
    %
    
    $
    5,353
    
    
    
    11
    %EMS
    
    
    2,349
    
    
    
    5
    
    
    
    3,360
    
    
    
    3DSS
    
    
    11,856
    
    
    
    25
    
    
    
    2,544
    
    
    
    11Totals
    
    $
    21,076
    
    
    
    16
    
    
    $
    11,257
    
    
    
    7
 Medical
   31




---



##### Table of Contents



EMS
   DSS
   32




---



##### Table of Contents



2010
    
    
    2009SEGMENT
    
    Total
    
    
    % of Sales
    
    
    Total
    
    
    % of SalesMedical
    
    $
    3,733
    
    
    
    7
    %
    
    $
    2,142
    
    
    
    5
    %EMS
    
    
    (1,189
    )
    
    
    (3
    )
    
    
    (526
    )
    
    
    (1
    )DSS
    
    
    9,861
    
    
    
    21
    
    
    
    (100
    )
    
    
    (0
    )Other unallocated
    
    
    (8,939
    )
    
    
    
    
    
    
    (5,523
    )
    
    
    Totals
    
    $
    3,466
    
    
    
    3
    
    
    $
    (4,007
    )
    
    
    (2
    )
        33




---



##### Table of Contents



Liquidity and Capital Resources
      34




---



##### Table of Contents



Commitments and Contingencies
 Environmental Remediation
    35




---



##### Table of Contents



Customer Relationships
  Product Issues
   Litigation
  Other
  36




---



##### Table of Contents



Contractual Obligations and Off-Balance Sheet Arrangements
  Critical Accounting Policies
   
    
    Environmental contingencies
    
    Government contract cost estimates
    
    Inventory valuation allowances
    
    Allowances for probable losses on receivables
    
    Pension obligations
    
    Business combinations
    
    Valuation of property, plant and equipment
    
    Goodwill and customer relations
    
    Deferred costs and claims for reimbursement
    
    Income taxes
    
    Restructuring accrual
  New Accounting Pronouncements
  37




---



##### Table of Contents



Item 3. Quantitative and Qualitative Disclosures About Market Risk.
   
 Item 4T. Controls and Procedures.
   38




---



##### Table of Contents



PART II. OTHER INFORMATION
 
 Item 1. Legal Proceedings.
   
 Item 1A. Risk Factors.
  
 Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
  
 Item 3. Defaults Upon Senior Securities.
  
 Item 5. Other Information.
  39




---



##### Table of Contents



Item 6. Exhibits.
 ExhibitNumber
    
    Description3.1
    
    By-Laws of the Registrant as amended, incorporated herein by reference from Exhibit 3.1
to the Registrants Current Report on Form 8-K, filed with the SEC on November 3, 2008.3.2
    
    Amended Articles of Incorporation of the Registrant, incorporated herein by reference
from the Registrants Quarterly Report on Form 10-Q for the three-month period ended
September 30, 2004.3.3
    
    Amended Code of Regulations of the Registrant, incorporated herein by reference from the
Registrants Quarterly Report on Form 10-Q for the three-month period ended September 30,
2004.10.1
    
    Amended and Restated Revolving Credit and Security Agreement dated August 14, 2009 among
the Company, its subsidiaries and National City Business Credit, Inc., incorporated by
reference from Exhibit 10.1 to the Registrants Current Report on Form 8-K filed with the
SEC on August 18, 2009.10.2
    
    Post-closing Agreement dated August 14, 2009 among the Company, its subsidiaries and
National City Business Credit, Inc., incorporated by reference from Exhibit 10.2 to the
Registrants Current Report on Form 8-K filed with the SEC on August 18, 2009.10.3
    
    Long-Term Stock Option Incentive Plan, incorporated by reference from Exhibit 10.1 to the
Registrants Current Report on Form 8-K filed with the SEC on September 11, 2009.10.4
    
    Lease Extension and Amendment Agreement dated May 1, 2010
between Sparton Technology, Inc. and 9621 Coors, L.L.C., guaranteed
by Albuquerque Motor Company, Inc., incorporated by reference from
Exhibit 10.1 to the Registrants Current Report on Form 8-K
filed with the SEC on May 6, 2010.10.5
    
    Option Agreement dated May 1, 2010 by and between Sparton Technology, Inc. and 9621 Coors,
L.L.C., guaranteed by Albuquerque Motor Company, Inc., incorporated
by reference from Exhibit 10.2 to the Registrants Current
Report on Form 8-K filed with the SEC on May 6, 2010.31.1*
    
    Chief Executive Officer certification under Section 302 of the Sarbanes-Oxley Act of 2002.31.2*
    
    Chief Financial Officer certification under Section 302 of the Sarbanes-Oxley Act of 2002.32.1*
    
    Chief Executive Officer and Chief Financial Officer certification pursuant to 18 U.S.C.
Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
 
 *
    
    Filed herewith. 40




---



##### Table of Contents



SIGNATURES
  Sparton CorporationDate: May 14, 2010
    By:
    /s/ CARY B. WOODCary B. WoodPresident and Chief Executive Officer
(Principal Executive Officer)Date: May 14, 2010
    By:
    /s/ GREGORY A. SLOMEGregory A. SlomeSenior Vice President and Chief Financial Officer
(Principal Financial Officer) 41