##### 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 September 30, 2009
 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
  425 N. Martingale, Suite 2050, Schaumburg, Illinois 60173-2213
  (847) 762-5800
 þ o
 o o
  Large accelerated filer o
    
    Accelerated filer o
    
    Non-accelerated filer   o(Do not check if a smaller reporting company)
    
    Smaller reporting company þ
 o þ
  Shares outstanding atClass of Common Stock
    
    October 31, 2009$1.25 Par Value
    
    9,951,507




---



##### 



TABLE OF CONTENTS
 Part I. Financial InformationItem 1. Financial Statements (Interim, Unaudited)Condensed Consolidated Balance Sheets
at September 30, 2009 and June 30, 2009
    
    
    3Condensed Consolidated Statements of Operations
for the three months ended September 30, 2009 and 2008
    
    
    4Condensed Consolidated Statements of Cash Flows
for the three months ended September 30, 2009 and 2008
    
    
    5Condensed Consolidated Statements of Shareowners Equity
for the three months ended September 30, 2009 and 2008
    
    
    6Notes to Condensed Consolidated Financial Statements
    
    
    7Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    21Item 3. Quantitative and Qualitative Disclosures About Market Risk
    
    
    30Item 4T. Controls and Procedures
    
    
    31Part II. Other InformationItem 1. Legal Proceedings
    
    
    31Item 1(A). Risk Factors
    
    
    33Item 4. Submission of Matters to a Vote of Security Holders
    
    
    33Item 5. Other Information
    
    
    33Item 6. Exhibits
    
    
    34Signatures
    
    
    34EX-31.1EX-31.2EX-32.1
  2




---



##### Table of Contents



Part I. Financial Information
 
 Item 1. Financial Statements (Interim, Unaudited)
 
 September 30, 2009
    
    
    June 30, 2009ASSETSCurrent assets:Cash and cash equivalents
    
    $
    20,717,939
    
    
    $
    36,261,084Accounts receivable
    
    
    24,659,819
    
    
    
    38,162,485Inventories
and costs of contracts in progress  net
    
    
    35,454,311
    
    
    
    38,435,094Deferred income taxes
    
    
    35,440
    
    
    
    35,440Prepaid expense and other current assets
    
    
    1,845,904
    
    
    
    1,991,667Assets held for sale
    
    
    5,128,511
    
    
    
    5,128,511Total current assets
    
    
    87,841,924
    
    
    
    120,014,281Property, plant and equipment  net
    
    
    9,478,309
    
    
    
    9,833,318Goodwill
    
    
    17,693,424
    
    
    
    17,693,424Other intangibles  net
    
    
    5,152,834
    
    
    
    5,270,147Other non current assets
    
    
    2,986,178
    
    
    
    2,190,348Total assets
    
    $
    123,152,669
    
    
    $
    155,001,518LIABILITIES AND SHAREOWNERS EQUITYCurrent liabilities:Short-term bank borrowings
    
    $
    
    
    
    $
    15,500,000Current portion of long-term debt
    
    
    2,144,494
    
    
    
    4,141,994Accounts payable
    
    
    17,716,764
    
    
    
    26,418,025Accrued salaries and wages
    
    
    3,788,742
    
    
    
    5,022,731Accrued health benefits
    
    
    1,413,394
    
    
    
    1,578,263Current portion of pension liability
    
    
    213,600
    
    
    
    1,097,252Restructuring accrual
    
    
    2,304,975
    
    
    
    2,365,379Advance billings on customer contracts
    
    
    22,995,609
    
    
    
    25,102,363Other accrued liabilities
    
    
    5,168,105
    
    
    
    5,890,856Total current liabilities
    
    
    55,745,683
    
    
    
    87,116,863Deferred income taxes  non current
    
    
    1,169,002
    
    
    
    1,135,002Pension liability  non current portion
    
    
    3,644,699
    
    
    
    4,060,503Long-term debt  non current portion
    
    
    1,886,350
    
    
    
    3,316,503Environmental remediation  non current portion
    
    
    4,406,253
    
    
    
    4,477,246Total liabilities
    
    
    66,851,987
    
    
    
    100,106,117Shareowners equity:Preferred stock, no par value; 200,000 shares authorized, none outstanding
    
    
    
    
    
    
    Common stock, $1.25 par value; 15,000,000 shares authorized, 9,951,507
shares outstanding at September 30 and June 30, 2009
    
    
    12,439,384
    
    
    
    12,439,384Capital in excess of par value
    
    
    19,670,474
    
    
    
    19,670,296Retained earnings
    
    
    28,991,495
    
    
    
    27,586,392Accumulated other comprehensive loss
    
    
    (4,800,671
    )
    
    
    (4,800,671
    )Total shareowners equity
    
    
    56,300,682
    
    
    
    54,895,401Total liabilities and shareowners equity
    
    $
    123,152,669
    
    
    $
    155,001,518
  3




---



##### Table of Contents



Three months ended2009
    
    
    2008Net sales
    
    $
    48,103,596
    
    
    $
    53,995,534Costs of goods sold
    
    
    40,683,121
    
    
    
    51,334,642Gross profit
    
    
    7,420,475
    
    
    
    2,660,892Selling and administrative expenses
    
    
    4,580,087
    
    
    
    5,116,575Amortization of intangibles
    
    
    117,313
    
    
    
    120,313Restructuring/impairment charges
    
    
    876,105
    
    
    
    278,730Other  net
    
    
    14,500
    
    
    
    (1,608
    )5,588,005
    
    
    
    5,514,010Operating income (loss)
    
    
    1,832,470
    
    
    
    (2,853,118
    )Other income (expense):Interest expense
    
    
    (259,497
    )
    
    
    (368,738
    )Interest and investment income
    
    
    8,061
    
    
    
    13,417Equity (loss) income in investment
    
    
    (12,000
    )
    
    
    3,000Canadian translation gain
    
    
    6,039
    
    
    
    59,302Other  net
    
    
    (135,970
    )
    
    
    5,244(393,367
    )
    
    
    (287,775
    )Income (loss) before income taxes
    
    
    1,439,103
    
    
    
    (3,140,893
    )Provision for income taxes
    
    
    34,000
    
    
    
    221,000Net income (loss)
    
    $
    1,405,103
    
    
    $
    (3,361,893
    )Income (loss) per share  basic and diluted
    
    $
    0.14
    
    
    $
    (0.34
    )
  4




---



##### Table of Contents



Three months ended2009
    
    
    2008Cash Flows From Operating Activities:Net income (loss)
    
    $
    1,405,103
    
    
    $
    (3,361,893
    )Adjustments to reconcile net income (loss) to net cash provided by (used in)
operating activities:Depreciation and amortization
    
    
    427,587
    
    
    
    498,673Amortization of deferred financing costs
    
    
    47,548
    
    
    
    Deferred income tax expense
    
    
    34,000
    
    
    
    Equity loss (income) in investment
    
    
    12,000
    
    
    
    (3,000
    )Pension expense
    
    
    496,750
    
    
    
    159,690Share-based compensation expense
    
    
    178
    
    
    
    50,760Non cash restructuring/impairment charges
    
    
    150,684
    
    
    
    Net gain on sale of property, plant and equipment
    
    
    
    
    
    
    (2,108
    )Changes in operating assets and liabilities:Accounts receivable
    
    
    13,502,666
    
    
    
    1,995,764Inventories, prepaid expenses and other current assets
    
    
    3,126,546
    
    
    
    2,239,427Advance billings on customer contracts
    
    
    (2,106,754
    )
    
    
    Accounts payable and accrued liabilities
    
    
    (11,959,007
    )
    
    
    (2,383,480
    )Net cash provided by (used in) operating activities
    
    
    5,137,301
    
    
    
    (806,167
    )Cash Flows From Investing Activities:Additional goodwill from SMS acquisition
    
    
    (976,680
    )
    
    
    (1,056,920
    )Purchases of property, plant and equipment
    
    
    (32,405
    )
    
    
    (697,004
    )Proceeds from sale of property, plant and equipment
    
    
    
    
    
    
    5,505Other, principally change in non current other assets
    
    
    
    
    
    
    10,071Net cash used in investing activities
    
    
    (1,009,085
    )
    
    
    (1,738,348
    )Cash Flows From Financing Activities:Net short-term bank borrowings (repayments)
    
    
    (15,500,000
    )
    
    
    2,000,000Repayment of long-term debt
    
    
    (3,427,653
    )
    
    
    (525,153
    )Payment of debt financing costs
    
    
    (743,708
    )
    
    
    Net cash (used in) provided by financing activities
    
    
    (19,671,361
    )
    
    
    1,474,847Decrease in cash and cash equivalents
    
    
    (15,543,145
    )
    
    
    (1,069,668
    )Cash and cash equivalents at beginning of period
    
    
    36,261,084
    
    
    
    2,928,433Cash and cash equivalents at end of period
    
    $
    20,717,939
    
    
    $
    1,858,765
  5




---



##### Table of Contents



Three months ended September 30, 2009Capital
    
    
    
    
    
    
    Accumulated otherCommon Stock
    
    
    in excess
    
    
    Retained
    
    
    comprehensiveShares
    
    
    Amount
    
    
    of par value
    
    
    earnings
    
    
    income (loss)
    
    
    TotalBalance at July 1, 2009
    
    
    9,951,507
    
    
    $
    12,439,384
    
    
    $
    19,670,296
    
    
    $
    27,586,392
    
    
    $
    (4,800,671
    )
    
    $
    54,895,401Share-based compensation
    
    
    
    
    
    
    
    
    
    
    178
    
    
    
    
    
    
    
    
    
    
    
    178Net and comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,405,103
    
    
    
    
    
    
    
    1,405,103Balance at September 30, 2009
    
    
    9,951,507
    
    
    $
    12,439,384
    
    
    $
    19,670,474
    
    
    $
    28,991,495
    
    
    $
    (4,800,671
    )
    
    $
    56,300,682
 Three months ended September 30, 2008Capital
    
    
    
    
    
    
    Accumulated otherCommon Stock
    
    
    in excess
    
    
    Retained
    
    
    comprehensiveShares
    
    
    Amount
    
    
    of par value
    
    
    earnings
    
    
    income (loss)
    
    
    TotalBalance at July 1, 2008
    
    
    9,811,507
    
    
    $
    12,264,384
    
    
    $
    19,650,481
    
    
    $
    43,592,351
    
    
    $
    (4,647,462
    )
    
    $
    70,859,754Share-based compensation
    
    
    
    
    
    
    
    
    
    
    50,760
    
    
    
    
    
    
    
    
    
    
    
    50,760Comprehensive income (loss), net of tax:Net loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (3,361,893
    )
    
    
    
    
    
    
    (3,361,893
    )Change in unrecognized pension costs
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    39,702
    
    
    
    39,702Comprehensive loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (3,322,191
    )Balance at September 30, 2008
    
    
    9,811,507
    
    
    $
    12,264,384
    
    
    $
    19,701,241
    
    
    $
    40,230,458
    
    
    $
    (4,607,760
    )
    
    $
    67,588,323
  6




---



##### Table of Contents



NOTE 1. BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
 Basis of presentation 
  Operations 
 Use of estimates 
 Revenue recognition 
 7




---



##### Table of Contents



Accounts receivable, credit practices, and allowance for probable losses 
  Fair value of financial instruments 
 Other investment 
 Market risk exposure 
  Long-lived assets 
 Other assets 
 8




---



##### Table of Contents



Deferred income taxes 
 Supplemental cash flows information 
 2009
    
    
    2008Net cash paid during the period for:Income taxes (1)
    
    $
    
    
    
    $
    289,000Interest (2)
    
    $
    946,000
    
    
    $
    310,000
 
 Notes to supplemental cash flows information:1)
    
    Income taxes in fiscal 2009 consist primarily of the U.S. dollar equivalent of taxes paid to
the Canadian government related to our Canadian operations.2)
    
    Interest includes $744,000 of deferred financing costs in fiscal 2010. New accounting standards The FASB Codification The FASB Accounting Standards Codification TM and the Hierarchy of General
Accepted Accounting Principles
 Subsequent Events, Subsequent Events Accounting for Uncertainty in Income Taxes Earnings per Share Accounting for Contingencies
 9




---



##### Table of Contents



Employers Disclosures about
Pensions and Other Post-retirement Benefits , Employers Disclosure about Pensions and Other Postretirement Benefits
 Equity Method Investment Accounting
Considerations, Equity Method Investment
Accounting Considerations
 Determining Whether Instruments Granted
in Share-Based Payment Transactions Are Participating Securities Determining Whether Instruments Granted in Share-Based Payment Transactions
Are Participating Securities
 Determination of the Useful Life of Intangible
Assets, Determination of the Useful Life
of Intangible Assets
 Business Combinations, Business Combinations
 Noncontrolling Interests in
Consolidated Financial Statements, Noncontrolling Interest in Consolidated Financial Statements
 Fair Value Option for Financial Assets
and Financial Liabilities, Fair Value
for Financial Assets and Financial Liabilities Fair Value Measurements
 10




---



##### Table of Contents



Fair Value Measurements and Disclosures,
 NOTE 2. INVENTORIES AND COSTS OF CONTRACTS IN PROGRESS
   September 30, 2009
    
    
    June 30, 2009Raw materials
    
    $
    24,920,000
    
    
    $
    29,593,000Work in process
    
    
    5,448,000
    
    
    
    5,260,000Finished goods
    
    
    5,086,000
    
    
    
    3,582,000$
    35,454,000
    
    
    $
    38,435,000
  NOTE 3. DEFINED BENEFIT PENSION PLAN
 Periodic benefit cost 
  2009
    
    
    2008Service cost
    
    $
    
    
    
    $
    135,000Interest cost
    
    
    150,000
    
    
    
    152,000Expected return on plan assets
    
    
    (71,000
    )
    
    
    (187,000
    )Amortization of prior service cost
    
    
    
    
    
    
    25,000Amortization of unrecognized net actuarial loss
    
    
    105,000
    
    
    
    35,000Net periodic benefit cost
    
    
    184,000
    
    
    
    160,000Pro rata recognition of lump-sum settlements
    
    
    313,000
    
    
    
    Total periodic pension expense
    
    $
    497,000
    
    
    $
    160,000
 
 11




---



##### Table of Contents



NOTE 4. GOODWILL AND OTHER INTANGIBLES
   Amortizable
    
    
    TotalGoodwill
    
    
    Intangibles
    
    
    IntangiblesBalance at July 1, 2008
    
    $
    16,665,000
    
    
    $
    5,762,000
    
    
    $
    22,427,000Goodwill addition
    
    
    1,029,000
    
    
    
    
    
    
    
    1,029,000Amortization
    
    
    
    
    
    
    (492,000
    )
    
    
    (492,000
    )Balance at June 30, 2009
    
    
    17,694,000
    
    
    
    5,270,000
    
    
    
    22,964,000Amortization
    
    
    
    
    
    
    (118,000
    )
    
    
    (118,000
    )Balance at September 30, 2009
    
    $
    17,694,000
    
    
    $
    5,152,000
    
    
    $
    22,846,000
 Goodwill 
 Other intangibles 
 TotalNon-compete
    
    
    Customer
    
    
    AmortizableAgreements
    
    
    Relationships
    
    
    IntangiblesBalance at July 1, 2008, net
    
    $
    79,000
    
    
    $
    5,683,000
    
    
    $
    5,762,000Amortization
    
    
    (52,000
    )
    
    
    (440,000
    )
    
    
    (492,000
    )Balance at June 30, 2009, net
    
    
    27,000
    
    
    
    5,243,000
    
    
    
    5,270,000Amortization
    
    
    (8,000
    )
    
    
    (110,000
    )
    
    
    (118,000
    )Balance at September 30, 2009, net
    
    $
    19,000
    
    
    $
    5,133,000
    
    
    $
    5,152,000Accumulated amortization as of September 30, 2009
    
    $
    145,000
    
    
    $
    1,467,000
    
    
    $
    1,612,000
  NOTE 5. BORROWINGS
 Short-term debt maturities and line of credit 
 12




---



##### Table of Contents



Long-term debt 
 September 30, 2009
    
    
    June 30, 2009Industrial Revenue bonds, face value
    
    $
    2,120,000
    
    
    $
    2,150,000Less unamortized purchase discount
    
    
    (120,000
    )
    
    
    (122,000
    )Industrial Revenue bonds, carrying value
    
    
    2,000,000
    
    
    
    2,028,000Bank term loan
    
    
    
    
    
    
    3,400,000Notes payable  former owners
    
    
    2,031,000
    
    
    
    2,031,000Total long-term debt
    
    
    4,031,000
    
    
    
    7,459,000Less current portion
    
    
    (2,144,000
    )
    
    
    (4,142,000
    )Long-term debt, net of current portion
    
    $
    1,887,000
    
    
    $
    3,317,000
     NOTE 6. COMMITMENTS AND CONTINGENCIES
 Environmental Remediation
  
 13




---



##### Table of Contents



Customer Relationships
  Product Issues
   
 14




---



##### Table of Contents



NOTE 7. SHARE-BASED AWARDS
    2009
    
    
    2008Share-based compensation expense:Stock options
    
    $
    (29,000
    )
    
    $
    51,000Restricted stock
    
    
    29,000
    
    
    
    $
    
    
    
    $
    51,000
  Unrecognized
    
    
    Remaining weighted-averagecompensation costs
    
    
    number of years to expenseNonvested stock options
    
    $
    19,000
    
    
    
    0.75Nonvested restricted stock
    
    
    110,000
    
    
    
    1.03Total nonvested awards
    
    $
    129,000
    
    
    
    1.00
 Common Stock Options:
    15




---



##### Table of Contents



Wtd. Avg. RemainingTotal Shares
    
    Wtd. Avg.
    
    Contractual
    
    AggregateUnder Option
    
    Exercise Price
    
    Term (years)
    
    Intrinsic ValueOutstanding at July 1, 2009
    
    
    184,127
    
    
    $
    8.23
    
    
    
    5.67
    
    
    
    Granted
    
    
    Exercised
    
    
    Forfeited or expired
    
    
    (7,718
    )
    
    
    
    
    
    
    
    
    
    
    Outstanding at September 30, 2009
    
    
    176,409
    
    
    $
    8.22
    
    
    
    5.40
    
    
    
    Exercisable at September 30, 2009
    
    
    171,157
    
    
    $
    8.20
    
    
    
    5.36
    
    
    
    
  Restricted Stock Awards:
     Number
    
    Wtd. Avg.of Shares
    
    Fair ValueNonvested at July 1, 2009
    
    
    93,334
    
    
    $
    2.10Granted and issued
    
    
    
    
    
    
    Vested
    
    
    
    
    
    
    Forfeited
    
    
    
    
    
    
    Nonvested at September 30, 2009
    
    
    93,334
    
    
    $
    2.10
  2010 Long-Term Incentive Plan:
  NOTE 8. EARNINGS (LOSS) PER SHARE
 Earnings Per Share
  16




---



##### Table of Contents



2009
    
    
    2008Basic and diluted weighted average common shares outstanding
    
    
    9,951,507
    
    
    
    9,811,507Basic and diluted earnings (loss) per share
    
    $
    0.14
    
    
    $
    (0.34
    )
 NOTE 9. COMPREHENSIVE INCOME (LOSS)
  2009
    
    
    2008Net income (loss)
    
    $
    1,405,000
    
    
    $
    (3,362,000
    )Change in unrecognized pension costs
    
    
    
    
    
    
    40,000Comprehensive income (loss)
    
    $
    1,405,000
    
    
    $
    (3,322,000
    )
   NOTE 10. RESTRUCTURING ACTIVITIES
  Recent Plant Closures
 London, Ontario, Canada 
 17




---



##### Table of Contents



Jackson, Michigan 
  Reductions in Force
   Relocation of Corporate Headquarters
  Summary of Restructuring Charges
  Workforce Reduction(principally severance
    
    
    Facility
    
    
    Lease
    
    
    Productionand retention bonuses)
    
    
    Closure
    
    
    Terminations
    
    
    Transfer
    
    
    TotalAccrual balance at July 1, 2009
    
    $
    375,000
    
    
    $
    
    
    
    $
    1,990,000
    
    
    $
    
    
    
    $
    2,365,000Restructuring charges
    
    
    233,000
    
    
    
    493,000
    
    
    
    
    
    
    
    
    
    
    
    726,000Less cash payments
    
    
    (280,000
    )
    
    
    (203,000
    )
    
    
    (303,000
    )
    
    
    
    
    
    
    (786,000
    )Restructuring reversals
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Accrual balance at September 30, 2009
    
    $
    328,000
    
    
    $
    290.000
    
    
    $
    1,687,000
    
    
    $
    
    
    
    $
    2,305,000
  18




---



##### Table of Contents



Inventory Write-downs
  Other Plant Closure
 Albuquerque, New Mexico 
   September 30, 2009
    
    
    June 30, 2009Current assets
    
    $
    5,031,000
    
    
    $
    5,048,000Current liabilities
    
    $
    1,206,000
    
    
    $
    1,201,000Long term liabilities (EPA, see Note 6)
    
    
    4,406,000
    
    
    
    4,477,000Total liabilities
    
    $
    5,612,000
    
    
    $
    5,678,000
 NOTE 11. BUSINESS SEGMENTS
    19




---



##### Table of Contents



Medical
Devices (Medical) operations
 Electronic Manufacturing Services (EMS) operations
 Defense & Security Systems (DSS) operations
  September 30, 2009OtherMedical
    
    EMS
    
    DSS
    
    Unallocated
    
    Eliminations
    
    TotalSALES
    
    $
    19,556,000
    
    
    $
    19,223,000
    
    
    $
    13,345,000
    
    
    $
    
    
    
    $
    (4,020,000
    )
    
    $
    48,104,000GROSS PROFIT
    
    $
    2,982,000
    
    
    $
    1,018,000
    
    
    $
    3,420,000
    
    
    $
    
    
    
    $
    
    
    
    $
    7,420,000OPERATING INCOME (LOSS)
    
    $
    1,912,000
    
    
    $
    (293,000
    )
    
    $
    2,927,000
    
    
    $
    (2,714,000
    )
    
    $
    
    
    
    $
    1,832,000RESTRUCTURING
    
    $
    
    
    
    $
    455,000
    
    
    $
    
    
    
    $
    421,000
    
    
    $
    
    
    
    $
    876,000DEPRECIATION/AMORTIZATION
    
    $
    153,000
    
    
    $
    230,000
    
    
    $
    40,000
    
    
    $
    4,000
    
    
    $
    
    
    
    $
    427,000TOTAL ASSETS
    
    $
    51,836,000
    
    
    $
    35,080,000
    
    
    $
    8,683,000
    
    
    $
    27,554,000
    
    
    $
    
    
    
    $
    123,153,000
 September 30, 2008OtherMedical
    
    EMS
    
    DSS
    
    Unallocated
    
    Eliminations
    
    TotalSALES
    
    $
    14,102,000
    
    
    $
    34,541,000
    
    
    $
    8,176,000
    
    
    $
    
    
    
    $
    (2,823,000
    )
    
    $
    53,996,000GROSS PROFIT
    
    $
    1,272,000
    
    
    $
    619,000
    
    
    $
    770,000
    
    
    $
    
    
    
    $
    
    
    
    $
    2,661,000OPERATING INCOME (LOSS)
    
    $
    321,000
    
    
    $
    (1,092,000
    )
    
    $
    49,000
    
    
    $
    (2,131,000
    )
    
    $
    
    
    
    $
    (2,853,000
    )RESTRUCTURING
    
    $
    
    
    
    $
    279,000
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    279,000DEPRECIATION/AMORTIZATION
    
    $
    168,000
    
    
    $
    281,000
    
    
    $
    49,000
    
    
    $
    1,000
    
    
    $
    
    
    
    $
    499,000June 30, 2009OtherMedical
    
    EMS
    
    DSS
    
    Unallocated
    
    Eliminations
    
    TotalTOTAL ASSETS
    
    $
    53,424,000
    
    
    $
    41,364,000
    
    
    $
    19,444,000
    
    
    $
    40,770,000
    
    
    $
    
    
    
    $
    155,002,000
 20




---



##### Table of Contents



Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
     21




---



##### Table of Contents



EXECUTIVE SUMMARY
  Net loss first quarter fiscal 2009
    
    
    
    
    
    $
    (3.4
    )Increase restructuring/impairment charges
    
    $
     (0.6
    )Decreased tax expense
  
    
     0.2Improved gross margin on EMS programs
  
    
     0.4Improved gross margin on DSS programs
  
    
      2.7Improved gross margin on Medical programs
  
    
      1.7Decreased selling and administrative expenses
  
    
      0.5Other
  
    
      (0.1
    )Net change
  
    
    
    

    
    
    4.8Net profit first quarter fiscal 2010
  
    
    
    

    
    $
    1.4
  -
    
    Increased margin on DSS programs due to successful lot acceptance resulting in minimal rework
costs, improved pricing and a greater mix of products sold to foreign governments.-
    
    Increased margin on Medical programs due to  favorable
material costs, improved pricing, and facility consolidation.-
    
    Increased margin on EMS programs due to cost reductions
associated with the plant consolidations and disengagement with
unprofitable customers.-
    
    Decreased translation/transactions exchange gains from prior period related to the
closure of the Canadian facility.-
    
    Restructuring/impairment charges of approximately $0.9 million in fiscal 2010,
$0.6 million above prior period.-
    
    Increased pension expense of $0.3 million above the same period last year.-
    
    Increased margin of $0.3 million resulting from disengagement agreement with one
EMS aerospace customer.-
    
    Decreased selling and administrative expenses due to closure of several production
facilities and other cost reduction actions implemented in fiscal 2009.
  22




---



##### Table of Contents



RESULTS OF OPERATIONS
  2009
    
    2008Net sales
    
    
    100.0
    %
    
    
    100.0
    %Costs of goods sold
    
    
    84.6
    
    
    
    95.1Gross profit
    
    
    15.4
    
    
    
    4.9Selling and administrative expenses
    
    
    9.5
    
    
    
    9.5Restructuring/impairment charges
    
    
    1.8
    
    
    
    0.5Other operating expense  net
    
    
    0.3
    
    
    
    0.2Operating income (loss)
    
    
    3.8
    
    
    
    (5.3
    )Other expense  net
    
    
    (0.8
    )
    
    
    (0.5
    )Income (loss) before income taxes
    
    
    3.0
    
    
    
    (5.8
    )Provision for income taxes
    
    
    0.1
    
    
    
    0.4Net income (loss)
    
    
    2.9
    %
    
    
    (6.2
    )%
 Sales for the three months ended September 30:
 2009
    
    
    2008SEGMENT
    
    Total
    
    
    % of total
    
    
    Total
    
    
    % of total
    
    
    % ChangeMedical
    
    $
    19,556,000
    
    
    
    41
    %
    
    $
    14,102,000
    
    
    
    26
    %
    
    
    39
    %EMS
    
    
    19,223,000
    
    
    
    40
    
    
    
    34,541,000
    
    
    
    64
    
    
    
    (44
    )DSS
    
    
    13,345,000
    
    
    
    28
    
    
    
    8,176,000
    
    
    
    15
    
    
    
    63Eliminations
    
    
    (4,020,000
    )
    
    
    (9
    )
    
    
    (2,823,000
    )
    
    
    (5
    )
    
    
    142Totals
    
    $
    48,104,000
    
    
    
    100
    %
    
    $
    53,996,000
    
    
    
    100
    %
    
    
    (11
    )%
   Gross profit for the three months ended September 30:
 2009
    
    
    2008SEGMENT
    
    Total
    
    
    GP%
    
    
    Total
    
    
    GP%Medical
    
    $
    2,982,000
    
    
    
    15
    %
    
    $
    1,272,000
    
    
    
    9
    %EMS
    
    
    1,018,000
    
    
    
    5
    
    
    
    619,000
    
    
    
    2DSS
    
    
    3,420,000
    
    
    
    26
    
    
    
    770,000
    
    
    
    9Totals
    
    $
    7,420,000
    
    
    
    15
    %
    
    $
    2,661,000
    
    
    
    5
    %
 23




---



##### Table of Contents



Operating income (loss) for the three months ended September 30:
 2009
    
    
    2008SEGMENT
    
    Total
    
    
    % of sales
    
    
    Total
    
    
    % of salesMedical
    
    $
    1,912,000
    
    
    
    10
    %
    
    $
    321,000
    
    
    
    2
    %EMS
    
    
    (293,000
    )
    
    
    (2
    )
    
    
    (1,092,000
    )
    
    
    (3
    )DSS
    
    
    2,927,000
    
    
    
    22
    
    
    
    49,000
    
    
    
    1Other unallocated
    
    
    (2,714,000
    )
    
    
    
    
    
    
    (2,131,000
    )
    
    
    Totals
    
    $
    1,832,000
    
    
    
    4
    %
    
    $
    (2,853,000
    )
    
    
    (5
    )%
       24




---



##### Table of Contents



LIQUIDITY AND CAPITAL RESOURCES
        25




---



##### Table of Contents



CONTRACTUAL OBLIGATIONS AND COMMITMENTS
  26




---



##### Table of Contents



CRITICAL ACCOUNTING POLICIES AND ESTIMATES
  Environmental Contingencies
  Government Contract Cost Estimates
  Inventory Valuation Allowances
   27




---



##### Table of Contents



Allowance for Probable Losses on Receivables
  Pension Obligations
    28




---



##### Table of Contents



Business Combinations
   Valuation of Property, Plant and Equipment
   Goodwill and Customer Relationships
   Deferred Costs and Claims for Reimbursement
  29




---



##### Table of Contents



Income Taxes
  Restructuring Accrual
  OTHER
 Litigation
    
 Item 3. Quantitative and Qualitative Disclosures About Market Risk
 MARKET RISK EXPOSURE
  30




---



##### Table of Contents



Item 4T. Controls and Procedures
     
 Part II. Other Information
 
 Item 1. Legal Proceedings
  Environmental Remediation
  31




---



##### Table of Contents



Customer Relationships
  32




---



##### Table of Contents



Product Issues
   
 Item 1(A). Risk Factors
  
 Item 4. Submission of Matters to a Vote of Security Holders
  Proposal 1: Election of Directors
  Votes FOR
    
    Votes ABSTAINEDJames D. Fast
    
    
    7,839,421
    
    
    
    1,187,868James R. Swartwout
    
    
    8,927,817
    
    
    
    99,472Cary B. Wood
    
    
    8,928,524
    
    
    
    98,765
  Proposal 2: Ratification of the appointment of the independent auditor for the Company
  Proposal 3: Proposal to Approve the Sparton Corporation 2010 Long-Term Stock Incentive Plan
  
 Item 5. Other Information
  33




---



##### Table of Contents



Item 6. Exhibits
 3.1
    
    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 (the LTIP) dated September 8, 2009, incorporated by reference from
Exhibit 10.1 to the Registrants Current Report on Form 8-K filed with the SEC on September 11, 2009.31.1
    
    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
  SPARTON CORPORATIONDate: November 16, 2009
    /s/ CARY B. WOODCary B. Wood, President and Chief Executive OfficerDate: November 16, 2009
    /s/ GREGORY A. SLOMEGregory A. Slome, Senior Vice President and Chief Financial Officer 34