##### 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 December 31, 2005
 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
 38-1054690
 2400
East Ganson Street, Jackson, Michigan 49202
 (517) 787-8600
 þ o
  Large accelerated filer o
    
    Accelerated filer o
    
    Non-accelerated filer þ
 o þ
  Class of Common Stock
    
    Shares Outstanding at
January 31, 2006$1.25 Par Value
    
    9,380,846




---



##### 



TABLE OF CONTENTS
 Part I. Financial InformationItem 1. Financial StatementsCondensed Consolidated Balance Sheets
At December 31, 2005 and June 30, 2005
    
    
    3Condensed Consolidated Statements of Operations
Three Months and Six Months ended December 31, 2005 and 2004
    
    
    4Condensed Consolidated Statements of Cash Flows
Six Months ended December 31, 2005 and 2004
    
    
    5Condensed Consolidated Statements of Shareowners Equity
Six Months ended December 31, 2005 and 2004
    
    
    6Notes to Condensed Consolidated Financial Statements
    
    
    7Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    13Item 3. Quantitative and Qualitative Disclosures About Market Risk
    
    
    19Item 4. Controls and Procedures
    
    
    20Part II. Other InformationItem 1. Legal Proceedings
    
    
    20Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    21Item 4. Submission of Matters to a Vote of Security Holders
    
    
    22Item 6. Exhibits
    
    
    22Signatures
    
    
    22EX-31.1 Certification 302 - CEOEX-31.2 Certification 302 - CFOEX-32.1 Certifications 906 - CEO and CFO
  2




---



##### Table of Contents



PART I
 
 Item 1. Financial Statements
 SPARTON CORPORATION AND SUBSIDIARIES
 
  At December 31, 2005
    
    At June 30, 2005AssetsCurrent assets:Cash and cash equivalents
    
    $
    8,671,518
    
    
    $
    9,368,120Investment securities
    
    
    23,386,500
    
    
    
    20,659,621Accounts receivable
    
    
    19,648,665
    
    
    
    26,004,945Environmental settlement receivable
    
    
    
    
    
    
    5,455,000Income taxes recoverable
    
    
    1,269,228
    
    
    
    Inventories and costs on contracts in progress
    
    
    36,998,183
    
    
    
    36,847,385Deferred taxes
    
    
    2,083,003
    
    
    
    2,640,561Prepaid expenses and other current assets
    
    
    972,991
    
    
    
    631,132Total current assets
    
    
    93,030,088
    
    
    
    101,606,764Pension asset
    
    
    4,694,719
    
    
    
    4,968,507Other assets
    
    
    6,891,715
    
    
    
    6,454,526Property, plant and equipment, net
    
    
    15,637,200
    
    
    
    16,430,989Total assets
    
    $
    120,253,722
    
    
    $
    129,460,786Liabilities and Shareowners EquityCurrent liabilities:Accounts payable
    
    $
    9,530,263
    
    
    $
    12,694,057Salaries and wages
    
    
    3,569,993
    
    
    
    4,435,089Accrued health benefits
    
    
    1,148,417
    
    
    
    1,041,850Other accrued liabilities
    
    
    4,392,045
    
    
    
    5,518,920Income taxes payable
    
    
    
    
    
    
    2,414,294Total current liabilities
    
    
    18,640,718
    
    
    
    26,104,210Environmental remediation  noncurrent portion
    
    
    6,046,257
    
    
    
    6,184,590Shareowners equity:Preferred stock, no par value; 200,000 shares authorized, none outstanding
    
    
    
    
    
    
    Common stock, $1.25 par value; 15,000,000 shares authorized, 9,381,199 shares
outstanding at December 31, 2005 (after deducting 20,237 shares in treasury)
and 8,830,428 shares outstanding at June 30, 2005
    
    
    11,726,499
    
    
    
    11,038,035Capital in excess of par value
    
    
    14,896,956
    
    
    
    10,558,757Accumulated other comprehensive loss
    
    
    (147,756
    )
    
    
    (44,198
    )Retained earnings
    
    
    69,091,048
    
    
    
    75,619,392Total shareowners equity
    
    
    95,566,747
    
    
    
    97,171,986Total liabilities and shareowners equity
    
    $
    120,253,722
    
    
    $
    129,460,786
 See accompanying notes.
 3




---



##### Table of Contents



SPARTON CORPORATION AND SUBSIDIARIES
 
   Three Months Ended
    
    Six Months Ended2005
    
    2004
    
    2005
    
    2004Net sales
    
    $
    37,693,154
    
    
    $
    34,526,907
    
    
    $
    74,999,272
    
    
    $
    79,715,222Costs of goods sold
    
    
    33,910,086
    
    
    
    31,050,534
    
    
    
    69,521,644
    
    
    
    69,772,133Gross profit
    
    
    3,783,068
    
    
    
    3,476,373
    
    
    
    5,477,628
    
    
    
    9,943,089Selling and administrative expenses
    
    
    3,749,626
    
    
    
    3,276,095
    
    
    
    7,763,897
    
    
    
    6,663,148EPA related  net environmental remediation
    
    
    
    
    
    
    75,033
    
    
    
    (29,198
    )
    
    
    159,033Loss (gain) on sale of property, plant and equipment
    
    
    93,435
    
    
    
    (19,275
    )
    
    
    104,591
    
    
    
    (19,275
    )Operating income (loss)
    
    
    (59,993
    )
    
    
    144,520
    
    
    
    (2,361,662
    )
    
    
    3,140,183Other income (expense):Interest and investment income
    
    
    263,379
    
    
    
    206,768
    
    
    
    527,827
    
    
    
    422,241Equity income (loss) in investment
    
    
    (18,000
    )
    
    
    15,000
    
    
    
    (1,000
    )
    
    
    (5,000
    )Other  net
    
    
    111,419
    
    
    
    299,353
    
    
    
    220,694
    
    
    
    657,815356,798
    
    
    
    521,121
    
    
    
    747,521
    
    
    
    1,075,056Income (loss) before income taxes
    
    
    296,805
    
    
    
    665,641
    
    
    
    (1,614,141
    )
    
    
    4,215,239Provision (credit) for income taxes
    
    
    95,000
    
    
    
    213,000
    
    
    
    (517,000
    )
    
    
    1,349,000Net income (loss)
    
    $
    201,805
    
    
    $
    452,641
    
    
    $
    (1,097,141
    )
    
    $
    2,866,239Basic and diluted earnings (loss) per share (1)
    
    $
    0.02
    
    
    $
    0.05
    
    
    $
    (0.12
    )
    
    $
    0.31
 
 (1)
    
    All share and per share information have been adjusted to
reflect the impact of the 5% stock dividend declared in October 2005. See accompanying notes.
 4




---



##### Table of Contents



SPARTON CORPORATION AND SUBSIDIARIES
 
  Six Months Ended December 31,2005
    
    2004Cash flows provided by Operating Activities:Net income (loss)
    
    $
    (1,097,141
    )
    
    $
    2,866,239Add (deduct) noncash items affecting operations:Depreciation, amortization and accretion
    
    
    979,431
    
    
    
    789,056Deferred income taxes
    
    
    647,000
    
    
    
    25,988Change in pension asset
    
    
    273,788
    
    
    
    264,034Stock-based compensation expense
    
    
    175,440
    
    
    
    Loss (gain) loss on sale of property, plant & equipment
    
    
    104,591
    
    
    
    (19,275
    )Loss (gain) on sale of investment securities
    
    
    19,381
    
    
    
    14,510Equity loss in investment
    
    
    1,000
    
    
    
    5,000Other, primarily changes in customer and vendor claims
    
    
    (391,238
    )
    
    
    Add (deduct) changes in operating assets and liabilities:Accounts receivable
    
    
    6,356,280
    
    
    
    4,214,610Environmental settlement receivable
    
    
    5,455,000
    
    
    
    Income taxes recoverable
    
    
    (1,269,228
    )
    
    
    559,706Inventories and prepaid expenses
    
    
    (492,657
    )
    
    
    1,374,430Accounts payable, salaries and wages, accrued liabilities and income taxes
    
    
    (7,601,824
    )
    
    
    (2,981,660
    )Net cash provided by operating activities
    
    
    3,159,823
    
    
    
    7,112,638Cash flows used by Investing Activities:Purchases of investment securities
    
    
    (5,866,275
    )
    
    
    (7,340,937
    )Proceeds from sale of investment securities
    
    
    1,059,414
    
    
    
    4,626,145Proceeds from maturity of investment securities
    
    
    1,833,602
    
    
    
    400,000Purchases of property, plant and equipment, net
    
    
    (287,235
    )
    
    
    (3,485,373
    )Other, principally noncurrent other assets
    
    
    (15,951
    )
    
    
    (179,241
    )Net cash used by investing activities
    
    
    (3,276,445
    )
    
    
    (5,979,406
    )Cash flows provided (used) by Financing Activities:Proceeds from exercise of stock options
    
    
    456,423
    
    
    
    92,655Tax effect from stock transactions
    
    
    56,522
    
    
    
    Stock dividends  cash in lieu of fractional shares
    
    
    (3,662
    )
    
    
    (2,938
    )Purchase of common stock for treasury
    
    
    (199,854
    )
    
    
    Cash dividends
    
    
    (889,409
    )
    
    
    Net cash provided (used) by financing activities
    
    
    (579,980
    )
    
    
    89,717Increase (decrease) in cash and cash equivalents
    
    
    (696,602
    )
    
    
    1,222,949Cash and cash equivalents at beginning of period
    
    
    9,368,120
    
    
    
    10,820,461Cash and cash equivalents at end of period
    
    $
    8,671,518
    
    
    $
    12,043,410Supplemental disclosures of cash paid during the period:Income taxes  net
    
    $
    2,513,000
    
    
    $
    95,000
 See accompanying notes.
 5




---



##### Table of Contents



SPARTON CORPORATION AND SUBSIDIARIES
 
  Six Months Ended December 31, 2005Accumulated otherCapital
    
    comprehensiveCommon Stock
    
    in excess
    
    income (loss)
    
    RetainedShares
    
    Amount
    
    of par value
    
    net of tax
    
    earnings
    
    TotalBalance at June 30, 2005
    
    
    8,830,428
    
    
    $
    11,038,035
    
    
    $
    10,558,757
    
    
    $
    (44,198
    )
    
    $
    75,619,392
    
    
    $
    97,171,986Purchase of common stock for treasury
    
    
    (20,237
    )
    
    
    (25,296
    )
    
    
    (24,420
    )
    
    
    
    
    
    
    (150,138
    )
    
    
    (199,854
    )Cash dividend ($0.10 per share)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (889,409
    )
    
    
    (889,409
    )Stock options exercised, net of common
stock surrendered to facilitate exercise
    
    
    123,710
    
    
    
    154,637
    
    
    
    301,786
    
    
    
    
    
    
    
    
    
    
    
    456,423Stock-based compensation expense
    
    
    
    
    
    
    
    
    
    
    175,440
    
    
    
    
    
    
    
    
    
    
    
    175,440Tax effect from stock transactions
    
    
    
    
    
    
    
    
    
    
    56,522
    
    
    
    
    
    
    
    
    
    
    
    56,522Stock dividend (5% declared October 25, 2005)
    
    
    447,298
    
    
    
    559,123
    
    
    
    3,828,871
    
    
    
    
    
    
    
    (4,391,656
    )
    
    
    (3,662
    )Comprehensive income (loss), net of tax:Net loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,097,141
    )
    
    
    (1,097,141
    )Net unrealized loss on investment
securities owned
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (172,349
    )
    
    
    
    
    
    
    (172,349
    )Reclassification adjustment for net loss
realized and reported in net loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    12,791
    
    
    
    
    
    
    
    12,791Net unrealized gain on equity investment
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    56,000
    
    
    
    
    
    
    
    56,000Total comprehensive loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,200,699
    )Balance at December 31, 2005
    
    
    9,381,199
    
    
    $
    11,726,499
    
    
    $
    14,896,956
    
    
    $
    (147,756
    )
    
    $
    69,091,048
    
    
    $
    95,566,747
 Six Months Ended December 31, 2004Accumulated otherCapital
    
    comprehensiveCommon Stock
    
    in excess
    
    income (loss)
    
    RetainedShares
    
    Amount
    
    of par value
    
    net of tax
    
    earnings
    
    TotalBalance at June 30, 2004
    
    
    8,351,538
    
    
    $
    10,439,423
    
    
    $
    7,134,149
    
    
    $
    62,368
    
    
    $
    71,230,159
    
    
    $
    88,866,099Stock options exercised
    
    
    19,280
    
    
    
    24,099
    
    
    
    68,556
    
    
    
    
    
    
    
    
    
    
    
    92,655Stock dividend (5% declared November 9, 2004)
    
    
    417,506
    
    
    
    521,883
    
    
    
    3,198,104
    
    
    
    
    
    
    
    (3,722,925
    )
    
    
    (2,938
    )Comprehensive income (loss), net of tax:Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,866,239
    
    
    
    2,866,239Net unrealized loss on investment
securities owned
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (43,549
    )
    
    
    
    
    
    
    (43,549
    )Reclassification adjustment for net loss
realized and reported in net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    9,577
    
    
    
    
    
    
    
    9,577Net unrealized gain on equity investment
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    103,000
    
    
    
    
    
    
    
    103,000Total comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,935,267Balance at December 31, 2004
    
    
    8,788,324
    
    
    $
    10,985,405
    
    
    $
    10,400,809
    
    
    $
    131,396
    
    
    $
    70,373,473
    
    
    $
    91,891,083
 See accompanying notes.
 6




---



##### Table of Contents



SPARTON CORPORATION & SUBSIDIARIES
 
  1. SUMMARY
OF SIGNIFICANT ACCOUNTING POLICIES
 Basis of presentation 
  Operations 
 Use of estimates 
 Revenue recognition 
 Investment securities 
 Market risk exposure
 7




---



##### Table of Contents



New accounting standards
  Periodic benefit cost
 Three Months
    
    Six Months2005
    
    2004
    
    2005
    
    2004Service cost
    
    $
    144,000
    
    
    $
    151,000
    
    
    $
    257,000
    
    
    $
    302,000Interest cost
    
    
    183,000
    
    
    
    182,000
    
    
    
    325,000
    
    
    
    364,000Expected return on plan assets
    
    
    (255,000
    )
    
    
    (269,000
    )
    
    
    (453,000
    )
    
    
    (538,000
    )Amortization of prior service cost
    
    
    27,000
    
    
    
    27,000
    
    
    
    48,000
    
    
    
    54,000Amortization of net loss
    
    
    55,000
    
    
    
    41,000
    
    
    
    97,000
    
    
    
    82,000Net periodic benefit cost
    
    $
    154,000
    
    
    $
    132,000
    
    
    $
    274,000
    
    
    $
    264,000
 Treasury stock
 Stock options
  8




---



##### Table of Contents



Three Months
    
    Six MonthsNet income, as reported
    
    $
    453,000
    
    
    $
    2,866,000Deduct:Total stock-based compensation expense determined
under the fair value method for all awards, net of tax effects
    
    
    (62,000
    )
    
    
    (122,000
    )Pro forma net income
    
    $
    391,000
    
    
    $
    2,744,000Pro forma basic earnings per share-after stock dividends
    
    $
    0.04
    
    
    $
    0.30Pro forma diluted earnings per share-after stock dividends
    
    $
    0.04
    
    
    $
    0.29
   Options Outstanding
    
    
    Options ExercisableRange of
    
    
    
    
    
    Wtd Avg. Remaining
    
    
    Wtd. Avg.
    
    
    
    
    
    
    Wtd. Avg.Exercise Prices
    
    Number Outstanding
    
    
    Contractual Life (years)
    
    
    Exercise Price
    
    
    Number Exercisable
    
    
    Exercisable Price$5.77 to $6.99
    
    
    395,156
    
    
    
    1.79
    
    
    
    $6.16
    
    
    
    352,261
    
    
    
    $6.07$8.08 to $9.00
    
    
    163,207
    
    
    
    9.31
    
    
    
    $8.97
    
    
    
    1,295
    
    
    
    $8.31
  Weighted AverageShares
    
    
    Weighted Average
    
    
    Remaining
    
    AggregateUnder Option
    
    
    Exercise Price
    
    
    Contractual Term
    
    Intrinsic ValueOutstanding at June 30, 2005 (1)
    
    
    709,004
    
    
    
    $6.38
    
    
    
    3.75Granted
    
    
    
    
    
    
    Exercised
    
    
    (137,037
    )
    
    
    $4.20
    
    
    
    
    
    
    $
    731,000Forfeited or expired
    
    
    (13,604
    )
    
    
    $5.71Outstanding at December 31, 2005
    
    
    558,363
    
    
    
    $6.99
    
    
    
    3.99
    
    
    $
    1,102,000Exercisable at December 31, 2005
    
    
    353,556
    
    
    
    $6.07
    
    
    
    
    
    
    $
    1,018,000
 
 (1)
    
    Options at June 30, 2005, have been adjusted to reflect the impact of the 5%
stock dividend declared in October 2005.  9




---



##### Table of Contents



2. INVENTORIES
 December 31, 2005
    
    June 30, 2005Raw materials
    
    $
    23,101,000
    
    
    $
    23,463,000Work in process and finished goods
    
    
    13,897,000
    
    
    
    13,384,000$
    36,998,000
    
    
    $
    36,847,000
  3. EARNINGS
(LOSS) PER SHARE
  Three Months
    
    Six Months2005
    
    2004
    
    2005
    
    2004Weighted average basic shares outstanding
    
    
    9,348,443
    
    
    
    9,212,953
    
    
    
    9,319,263
    
    
    
    9,210,511Effect of dilutive stock options
    
    
    59,995
    
    
    
    140,198
    
    
    
    
    
    
    
    135,009Weighted average diluted shares outstanding
    
    
    9,408,438
    
    
    
    9,353,151
    
    
    
    9,319,263
    
    
    
    9,345,520Basic and diluted earnings (loss) per share  after stock dividends
    
    $
    0.02
    
    
    $
    0.05
    
    
    $
    (0.12
    )
    
    $
    0.31
 4. COMPREHENSIVE
INCOME (LOSS)
 Three Months
    
    Six Months2005
    
    2004
    
    2005
    
    2004Net income (loss)
    
    $
    202,000
    
    
    $
    453,000
    
    
    $
    (1,097,000
    )
    
    $
    2,866,000Other comprehensive income (loss), net of taxInvestment securities owned
    
    
    (45,000
    )
    
    
    (81,000
    )
    
    
    (160,000
    )
    
    
    (34,000
    )Investment securities held by investee accounted for by the equity method
    
    
    42,000
    
    
    
    83,000
    
    
    
    56,000
    
    
    
    103,000Total other comprehensive income (loss)
    
    $
    199,000
    
    
    $
    455,000
    
    
    $
    (1,201,000
    )
    
    $
    2,935,000
  December 31, 2005
    
    June 30, 2005Accumulated other comprehensive income (loss), net of tax:Investment securities owned
    
    $
    (251,000
    )
    
    $
    (91,000
    )Investment securities held by investee accounted for by the equity method
    
    
    103,000
    
    
    
    47,000Accumulated other comprehensive loss
    
    $
    (148,000
    )
    
    $
    (44,000
    )
 5. INVESTMENT
SECURITIES
 10




---



##### Table of Contents



YearsWithin 1
    
    1 to 5
    
    5 to 10
    
    Over 10
    
    TotalDebt securities:Corporate  primarily U.S.
    
    $
    1,158,000
    
    
    $
    3,660,000
    
    
    $
    
    
    
    $
    203,000
    
    
    $
    5,021,000U.S. government and federal agency
    
    
    713,000
    
    
    
    3,681,000
    
    
    
    1,913,000
    
    
    
    2,168,000
    
    
    
    8,475,000State and municipal
    
    
    854,000
    
    
    
    2,811,000
    
    
    
    706,000
    
    
    
    500,000
    
    
    
    4,871,000Bond fund
    
    
    5,020,000
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    5,020,000Total debt securities
    
    $
    7,745,000
    
    
    $
    10,152,000
    
    
    $
    2,619,000
    
    
    $
    2,871,000
    
    
    $
    23,387,000
 6. COMMITMENTS
AND CONTINGENCIES
   11




---



##### Table of Contents



12




---



##### Table of Contents



Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
      13




---



##### Table of Contents



RESULTS OF OPERATIONS
 Three Months Ended December 312005
    
    
    2004%
    
    
    
    
    
    
    %
    
    
    %Net sales
    
    
    of Total
    
    
    Net sales
    
    
    of Total
    
    
    ChangeGovernment
    
    $
    7,738,000
    
    
    
    20.5
    %
    
    $
    3,445,000
    
    
    
    10.0
    %
    
    
    124.6
    %Industrial/Other
    
    
    14,832,000
    
    
    
    39.3
    
    
    
    11,518,000
    
    
    
    33.4
    
    
    
    28.8Aerospace
    
    
    11,434,000
    
    
    
    30.3
    
    
    
    16,311,000
    
    
    
    47.2
    
    
    
    (29.9
    )Medical/Scientific Instrumentation
    
    
    3,689,000
    
    
    
    9.9
    
    
    
    3,253,000
    
    
    
    9.4
    
    
    
    13.4Totals
    
    $
    37,693,000
    
    
    
    100.0
    %
    
    $
    34,527,000
    
    
    
    100.0
    %
    
    
    9.2
    %
   2005
    
    2004Net sales
    
    
    100.0
    %
    
    
    100.0
    %Costs of goods sold
    
    
    90.0
    
    
    
    90.0Gross profit
    
    
    10.0
    
    
    
    10.0Selling and administrative expenses
    
    
    9.9
    
    
    
    9.5Other operating expenses
    
    
    0.2
    
    
    
    0.1Operating income (loss)
    
    
    (0.1
    )
    
    
    0.4Other income  net
    
    
    0.9
    
    
    
    1.5Income before income taxes
    
    
    0.8
    
    
    
    1.9Provision for income taxes
    
    
    0.3
    
    
    
    0.6Net income
    
    
    0.5
    %
    
    
    1.3
    %
    14




---



##### Table of Contents



Six Months Ended December 312005
    
    
    2004%
    
    
    
    
    
    
    %
    
    
    %Net sales
    
    
    of Total
    
    
    Net sales
    
    
    of Total
    
    
    ChangeGovernment
    
    $
    17,104,000
    
    
    
    22.8
    %
    
    $
    14,367,000
    
    
    
    18.0
    %
    
    
    19.1
    %Industrial/Other
    
    
    27,366,000
    
    
    
    36.4
    
    
    
    23,401,000
    
    
    
    29.4
    
    
    
    16.9Aerospace
    
    
    23,832,000
    
    
    
    31.8
    
    
    
    34,988,000
    
    
    
    43.9
    
    
    
    (31.9
    )Medical/Scientific Instrumentation
    
    
    6,697,000
    
    
    
    9.0
    
    
    
    6,959,000
    
    
    
    8.7
    
    
    
    (3.8
    )Totals
    
    $
    74,999,000
    
    
    
    100.0
    %
    
    $
    79,715,000
    
    
    
    100.0
    %
    
    
    (5.9
    )%
    2005
    
    2004Net sales
    
    
    100.0
    %
    
    
    100.0
    %Costs of goods sold
    
    
    92.7
    
    
    
    87.5Gross profit
    
    
    7.3
    
    
    
    12.5Selling and administrative expenses
    
    
    10.4
    
    
    
    8.4Other operating expenses
    
    
    
    
    
    
    0.2Operating income (loss)
    
    
    (3.1
    )
    
    
    3.9Other income  net
    
    
    0.9
    
    
    
    1.4Income (loss) before income taxes
    
    
    (2.2
    )
    
    
    5.3Provision (credit) for income taxes
    
    
    (0.7
    )
    
    
    1.7Net income (loss)
    
    
    (1.5
    )%
    
    
    3.6
    %
  15




---



##### Table of Contents



LIQUIDITY AND CAPITAL RESOURCES
      16




---



##### Table of Contents



CONTRACTUAL OBLIGATIONS AND COMMITMENTS
  CRITICAL ACCOUNTING POLICIES AND ESTIMATES
 Form 10-K
 Environmental Contingencies
  Government Contract Cost Estimates
  17




---



##### Table of Contents



Commercial Inventory Valuation Allowances
   Allowance for Possible Losses on Receivables
  Pension Obligations
  18




---



##### Table of Contents



OTHER
 LITIGATION
      
 Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
  19




---



##### Table of Contents



Item 4. CONTROLS AND PROCEDURES
   
 PART II
 OTHER INFORMATION
 
 Item 1. Legal Proceedings
      20




---



##### Table of Contents



Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
    Maximum numberTotal number
    
    of shares (orof shares
    
    approximate dollarTotal number
    
    Average
    
    purchased as
    
    value) that mayof shares
    
    price paid
    
    part of publicly
    
    yet be purchasedPeriod
    
    purchased
    
    per share
    
    announced programs
    
    under the programOctober 1-31
    
    
    11,137
    
    
    $
    10.18
    
    
    
    11,137
    
    
    $
    3,887,000November 1-30
    
    
    3,400
    
    
    
    9.55
    
    
    
    3,400
    
    
    
    3,854,000December 1-31
    
    
    5,700
    
    
    
    9.47
    
    
    
    5,700
    
    
    
    3,800,000Total
    
    
    20,237
    
    
    $
    9.88
    
    
    
    20,237
    
    
    $
    3,800,000
 21




---



##### Table of Contents



Item 4. Submission of Matters to a Vote of Security Holders
  
 Item 6. Exhibits
 3.1
    
    Amended Articles of Incorporation of the Registrant were filed on Form 10-Q for the
three-month period ended
December 31, 2004, and are incorporated herein by reference.3.2
    
    Amended Code of Regulation of the Registrant were filed on Form 10-Q for the three-month
period ended December 31, 2004, and are incorporated herein by reference.3.3
    
    The amended By-Laws of the Registrant were filed on Form 10-Q for the nine-month period
ended March 31, 2004,
and are incorporated herein by reference.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.
 
 SIGNATURES
  Date: February 10, 2006
    /s/ DAVID W. HOCKENBROCHTDavid W. Hockenbrocht, Chief Executive OfficerDate: February 10, 2006
    /s/ RICHARD L. LANGLEYRichard L. Langley, Chief Financial Officer 22