##### 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, 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
 2400 East Ganson Street, Jackson, Michigan 49202
 (517) 787-8600
 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
    
    April 30, 2009$1.25 Par Value
    
    9,951,507




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##### 



TABLE OF CONTENTS
 Part I. Financial InformationItem 1. Financial Statements (Interim, Unaudited)Condensed Consolidated Balance Sheets
at March 31, 2009 and June 30, 2008
    
    
    3Condensed Consolidated Statements of Operations
for the three months and nine months ended March 31, 2009 and 2008
    
    
    4Condensed Consolidated Statements of Cash Flows
for the nine months ended March 31, 2009 and 2008
    
    
    5Condensed Consolidated Statements of Shareowners Equity
for the nine months ended March 31, 2009 and 2008
    
    
    6Notes to Condensed Consolidated Financial Statements
    
    
    7Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    20Item 3. Quantitative and Qualitative Disclosures About Market Risk
    
    
    33Item 4T. Controls and Procedures
    
    
    33Part II. Other InformationItem 1. Legal Proceedings
    
    
    34Item 1(A). Risk Factors
    
    
    35Item 5. Other Information
    
    
    37Item 6. Exhibits
    
    
    37Signatures
    
    
    38EX-31.1EX-31.2EX-32.1




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##### Table of Contents



Part I. Financial Information
 
 Item 1. Financial Statements (Interim, Unaudited)
 
 
 March 31, 2009
    
    
    June 30, 2008ASSETSCurrent assets:Cash and cash equivalents
    
    $
    6,223,872
    
    
    $
    2,928,433Accounts receivable
    
    
    33,605,895
    
    
    
    30,219,070Inventories and costs of contracts in progress
    
    
    51,078,613
    
    
    
    63,443,221Deferred income taxes
    
    
    
    
    
    
    251,545Prepaid expense and other current assets
    
    
    2,218,749
    
    
    
    844,130Assets held for sale
    
    
    5,915,511
    
    
    
    Total current assets
    
    
    99,042,640
    
    
    
    97,686,399Property, plant and equipment  net
    
    
    11,325,533
    
    
    
    17,278,713Deferred income taxes  non current
    
    
    1,087,643
    
    
    
    1,044,987Goodwill
    
    
    16,664,724
    
    
    
    16,664,804Other intangibles  net
    
    
    5,401,459
    
    
    
    5,762,397Other non current assets
    
    
    2,197,389
    
    
    
    4,289,092Total assets
    
    $
    135,719,388
    
    
    $
    142,726,392LIABILITIES AND SHAREOWNERS EQUITYCurrent liabilities:Short-term bank borrowings
    
    $
    15,500,000
    
    
    $
    13,500,000Current portion of long-term debt
    
    
    4,086,815
    
    
    
    4,029,757Accounts payable
    
    
    21,981,112
    
    
    
    23,503,857Salaries and wages
    
    
    3,830,429
    
    
    
    5,642,302Accrued health benefits
    
    
    1,222,481
    
    
    
    1,479,729Pension liability
    
    
    1,030,000
    
    
    
    Restructuring accrual
    
    
    567,223
    
    
    
    Advance billings on contracts
    
    
    5,618,318
    
    
    
    Other accrued liabilities
    
    
    4,824,525
    
    
    
    7,949,470Total current liabilities
    
    
    58,660,903
    
    
    
    56,105,115Pension liability
    
    
    4,956,545
    
    
    
    2,564,438Long-term debt  non current portion
    
    
    4,874,035
    
    
    
    8,058,497Environmental remediation  non current portion
    
    
    4,932,823
    
    
    
    5,138,588Total liabilities
    
    
    73,424,306
    
    
    
    71,866,638Shareowners equity:Preferred stock, no par value; 200,000 shares authorized, none outstanding
    
    
    
    
    
    
    Common stock, $1.25 par value; 15,000,000 shares authorized, 9,931,507 and 9,811,507
shares outstanding at March 31, 2009 and June 30, 2008, respectively
    
    
    12,414,384
    
    
    
    12,264,384Capital in excess of par value
    
    
    19,632,690
    
    
    
    19,650,481Retained earnings
    
    
    36,676,275
    
    
    
    43,592,351Accumulated other comprehensive loss
    
    
    (6,428,267
    )
    
    
    (4,647,462
    )Total shareowners equity
    
    
    62,295,082
    
    
    
    70,859,754Total liabilities and shareowners equity
    
    $
    135,719,388
    
    
    $
    142,726,392
  3




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Three months ended
    
    
    Nine months ended2009
    
    
    2008
    
    
    2009
    
    
    2008Net sales
    
    $
    54,592,034
    
    
    $
    58,138,830
    
    
    $
    163,104,134
    
    
    $
    171,941,620Costs of goods sold
    
    
    49,582,623
    
    
    
    53,404,144
    
    
    
    151,846,875
    
    
    
    161,883,298Gross profit
    
    
    5,009,411
    
    
    
    4,734,686
    
    
    
    11,257,259
    
    
    
    10,058,322Selling and administrative expenses
    
    
    4,151,843
    
    
    
    5,083,137
    
    
    
    14,223,214
    
    
    
    14,619,565Amortization of intangibles
    
    
    120,313
    
    
    
    120,313
    
    
    
    360,938
    
    
    
    360,938Restructuring charges
    
    
    660,160
    
    
    
    
    
    
    
    660,160
    
    
    
    EPA related  net environmental remediation
    
    
    8,224
    
    
    
    (8
    )
    
    
    10,225
    
    
    
    920Net (gain) loss on sale of property, plant and equipment
    
    
    (4,412
    )
    
    
    (44,663
    )
    
    
    10,025
    
    
    
    (976,685
    )4,936,128
    
    
    
    5,158,779
    
    
    
    15,264,562
    
    
    
    14,004,738Operating income (loss)
    
    
    73,283
    
    
    
    (424,093
    )
    
    
    (4,007,303
    )
    
    
    (3,946,416
    )Other income (expense):Interest and investment income (expense)
    
    
    (685
    )
    
    
    43,654
    
    
    
    28,965
    
    
    
    121,900Interest expense
    
    
    (397,485
    )
    
    
    (248,953
    )
    
    
    (1,255,481
    )
    
    
    (849,293
    )Equity loss in investment
    
    
    (36,000
    )
    
    
    (8,000
    )
    
    
    (56,000
    )
    
    
    (208,000
    )Other  net
    
    
    (219,392
    )
    
    
    (283,816
    )
    
    
    (1,245,257
    )
    
    
    309,989(653,562
    )
    
    
    (497,115
    )
    
    
    (2,527,773
    )
    
    
    (625,404
    )Loss before income taxes
    
    
    (580,279
    )
    
    
    (921,208
    )
    
    
    (6,535,076
    )
    
    
    (4,571,820
    )Provision (credit) for income taxes
    
    
    183,000
    
    
    
    (1,555,000
    )
    
    
    381,000
    
    
    
    (1,920,000
    )Net income (loss)
    
    $
    (763,279
    )
    
    $
    633,792
    
    
    $
    (6,916,076
    )
    
    $
    (2,651,820
    )Earnings (loss) per share  basic and diluted
    
    $
    (0.08
    )
    
    $
    0.06
    
    
    $
    (0.70
    )
    
    $
    (0.27
    )
  4




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Nine months ended March 31,2009
    
    
    2008Cash Flows From Operating Activities:Net loss
    
    $
    (6,916,076
    )
    
    $
    (2,651,820
    )Adjustments to reconcile net loss to net cash provided by (used in) operating activities:Depreciation and amortization
    
    
    1,441,852
    
    
    
    1,655,169Deferred income tax expense (credit)
    
    
    239,000
    
    
    
    (1,713,596
    )Equity loss in investment
    
    
    56,000
    
    
    
    208,000Pension expense
    
    
    1,686,159
    
    
    
    399,598Share-based compensation
    
    
    132,209
    
    
    
    124,598Net (gain) loss on sale of property, plant and equipment
    
    
    10,025
    
    
    
    (932,022
    )Gain from sale of non-operating land
    
    
    
    
    
    
    (44,663
    )Other, deferred assets
    
    
    600,000
    
    
    
    1,643,396Changes in operating assets and liabilities:Accounts receivable
    
    
    (3,386,825
    )
    
    
    (3,497,359
    )Income taxes recoverable
    
    
    
    
    
    
    485,074Inventories, prepaid expenses and other current assets
    
    
    12,426,143
    
    
    
    (9,256,323
    )Accounts payable and accrued liabilities
    
    
    (811,923
    )
    
    
    7,735,578Net cash provided by (used in) operating activities
    
    
    5,476,564
    
    
    
    (5,844,370
    )Cash Flows From Investing Activities:Purchases of property, plant and equipment
    
    
    (1,064,713
    )
    
    
    (701,742
    )Proceeds from sale of property, plant and equipment
    
    
    11,443
    
    
    
    1,076,018Proceeds from sale of non-operating land
    
    
    
    
    
    
    49,000Other, principally noncurrent other assets
    
    
    (451
    )
    
    
    93,925Net cash (used in) provided by investing activities
    
    
    (1,053,721
    )
    
    
    517,201Cash Flows From Financing Activities:Net short-term bank borrowings
    
    
    2,000,000
    
    
    
    7,500,000Repayment of long-term debt
    
    
    (3,127,404
    )
    
    
    (2,473,972
    )Net cash (used in) provided by financing activities
    
    
    (1,127,404
    )
    
    
    5,026,028Increase (decrease) in cash and cash equivalents
    
    
    3,295,439
    
    
    
    (301,141
    )Cash and cash equivalents at beginning of period
    
    
    2,928,433
    
    
    
    3,982,485Cash and cash equivalents at end of period
    
    $
    6,223,872
    
    
    $
    3,681,344
  5




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Nine months ended March 31, 2009AccumulatedCapital
    
    
    
    
    
    
    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
    )
    
    $
    70,859,754Restricted stock grant issued
    
    
    120,000
    
    
    
    150,000
    
    
    
    (150,000
    )
    
    
    
    
    
    
    
    
    
    
    Share-based compensation
    
    
    
    
    
    
    
    
    
    
    132,209
    
    
    
    
    
    
    
    
    
    
    
    132,209Comprehensive income (loss), net of
tax:Net loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (6,916,076
    )
    
    
    
    
    
    
    (6,916,076
    )Change in unrecognized pension costs
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,780,805
    )
    
    
    (1,780,805
    )Comprehensive loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (8,696,881
    )Balance at March 31, 2009
    
    
    9,931,507
    
    
    $
    12,414,384
    
    
    $
    19,632,690
    
    
    $
    36,676,275
    
    
    $
    (6,428,267
    )
    
    $
    62,295,082
 Nine months ended March 31, 2008AccumulatedCapital
    
    
    
    
    
    
    otherCommon Stock
    
    
    in excess
    
    
    Retained
    
    
    comprehensiveShares
    
    
    Amount
    
    
    of par value
    
    
    earnings
    
    
    income (loss)
    
    
    TotalBalance at July 1, 2007
    
    
    9,811,507
    
    
    $
    12,264,384
    
    
    $
    19,474,097
    
    
    $
    56,730,643
    
    
    $
    (1,989,453
    )
    
    $
    86,479,671Share-based compensation
    
    
    
    
    
    
    
    
    
    
    124,598
    
    
    
    
    
    
    
    
    
    
    
    124,598Comprehensive income (loss), net of
tax:Net loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (2,651,820
    )
    
    
    
    
    
    
    (2,651,820
    )Change in unrecognized pension costs
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    119,107
    
    
    
    119,107Comprehensive loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (2,532,713
    )Balance at March 31, 2008
    
    
    9,811,507
    
    
    $
    12,264,384
    
    
    $
    19,598,695
    
    
    $
    54,078,823
    
    
    $
    (1,870,346
    )
    
    $
    84,071,556
  6




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




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




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Deferred income taxes 
 Supplemental cash flows information 
 2009
    
    
    2008Net cash paid (refunded) during the period for:Income taxes (1)
    
    $
    243,000
    
    
    $
    (797,000
    )Interest (2)
    
    $
    1,126,000
    
    
    $
    790,000
 
 Notes to supplemental cash flows information:
 1)
    
    Income taxes
consist primarily
of the U.S. dollar
equivalent of taxes
paid to the
Canadian government
related to our
Canadian
operations.2)
    
    Interest includes $2,000 and $8,000 of capitalized interest in fiscals 2009 and 2008. New accounting standards Employers Disclosures about Pensions and Other Postretirement
Benefits
 Business Combinations
 The Fair Value Option for Financial Assets and
Financial Liabilities Fair
Value Measurements
 9




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Employers Accounting for Defined Benefit Pension
and Other Postretirement Plans
 NOTE 2. INVENTORIES AND COSTS OF CONTRACTS IN PROGRESS
   March 31, 2009
    
    
    June 30, 2008Raw materials
    
    $
    39,575,000
    
    
    $
    48,237,000Work in process and finished goods
    
    
    11,504,000
    
    
    
    15,206,000$
    51,079,000
    
    
    $
    63,443,000
  10




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NOTE 3. DEFINED BENEFIT PENSION PLAN
 Periodic benefit cost 
  Three months ended
    
    
    Nine months ended2009
    
    
    2008
    
    
    2009
    
    
    2008Service cost
    
    $
    (1,000
    )
    
    $
    134,000
    
    
    $
    262,000
    
    
    $
    403,000Interest cost
    
    
    161,000
    
    
    
    152,000
    
    
    
    488,000
    
    
    
    455,000Expected return on plan assets
    
    
    (68,000
    )
    
    
    (187,000
    )
    
    
    (356,000
    )
    
    
    (560,000
    )Amortization of prior service cost
    
    
    
    
    
    
    26,000
    
    
    
    52,000
    
    
    
    77,000Amortization of unrecognized net actuarial loss
    
    
    132,000
    
    
    
    35,000
    
    
    
    292,000
    
    
    
    104,000Net periodic benefit cost
    
    
    224,000
    
    
    
    160,000
    
    
    
    738,000
    
    
    
    479,000Curtailment charge
    
    
    333,000
    
    
    
    
    
    
    
    333,000
    
    
    
    Pro rata recognition of lump-sum settlements
    
    
    615,000
    
    
    
    
    
    
    
    615,000
    
    
    
    Total periodic benefit cost
    
    $
    1,172,000
    
    
    $
    160,000
    
    
    $
    1,686,000
    
    
    $
    479,000
  NOTE 4. GOODWILL AND OTHER INTANGIBLES
 Business Combinations Goodwill and
Other Intangible Assets Accounting for the Impairment or Disposal
of Long-lived Assets
 Amortizable
    
    
    TotalGoodwill
    
    
    Intangibles
    
    
    IntangiblesBalance at July 1, 2007
    
    $
    15,608,000
    
    
    $
    6,244,000
    
    
    $
    21,852,000Goodwill addition
    
    
    1,057,000
    
    
    
    
    
    
    
    1,057,000Amortization
    
    
    
    
    
    
    (482,000
    )
    
    
    (482,000
    )Balance at June 30, 2008
    
    
    16,665,000
    
    
    
    5,762,000
    
    
    
    22,427,000Amortization
    
    
    
    
    
    
    (361,000
    )
    
    
    (361,000
    )Balance at March 31, 2009
    
    $
    16,665,000
    
    
    $
    5,401,000
    
    
    $
    22,066,000
 11




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Goodwill 
 Other intangibles 
 TotalNon-compete
    
    
    Customer
    
    
    AmortizableAgreements
    
    
    Relationships
    
    
    IntangiblesBalance at July 1, 2007, net
    
    $
    120,000
    
    
    $
    6,124,000
    
    
    $
    6,244,000Amortization
    
    
    (41,000
    )
    
    
    (441,000
    )
    
    
    (482,000
    )Balance at June 30, 2008, net
    
    
    79,000
    
    
    
    5,683,000
    
    
    
    5,762,000Amortization
    
    
    (31,000
    )
    
    
    (330,000
    )
    
    
    (361,000
    )Balance at March 31, 2009, net
    
    $
    48,000
    
    
    $
    5,353,000
    
    
    $
    5,401,000Accumulated amortization as of March 31, 2009
    
    $
    117,000
    
    
    $
    1,247,000
    
    
    $
    1,364,000
 NOTE 5. BORROWINGS
 Short-term debt maturities and line of credit 
  12




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Long-term debt 
 March 31, 2009
    
    
    June 30, 2008Industrial Revenue bonds, face value
    
    $
    2,180,000
    
    
    $
    2,266,000Unamortized purchase discount
    
    
    (124,000
    )
    
    
    (131,000
    )Industrial Revenue bonds, carrying value
    
    
    2,056,000
    
    
    
    2,135,000Bank term loan
    
    
    3,900,000
    
    
    
    6,000,000Notes payable  former owners
    
    
    3,005,000
    
    
    
    3,953,000Total long-term debt
    
    
    8,961,000
    
    
    
    12,088,000Current portion long-term debt
    
    
    (4,087,000
    )
    
    
    (4,030,000
    )Long-term debt, net of current portion
    
    $
    4,874,000
    
    
    $
    8,058,000
     NOTE 6. COMMITMENTS AND CONTINGENCIES
 Environmental Remediation
  13




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Customer Relationships
    Product Issues
   14




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Employment Agreements
    NOTE 7. COMMON STOCK
  Share-Based Payment
  Three months ended
    
    
    Nine months ended2009
    
    
    2008
    
    
    2009
    
    
    2008Share-based compensation expense:Stock options
    
    $
    (50,000
    )
    
    $
    52,000
    
    
    $
    43,000
    
    
    $
    125,000Restricted stock
    
    
    67,000
    
    
    
    
    
    
    
    89,000
    
    
    
    $
    17,000
    
    
    $
    52,000
    
    
    $
    132,000
    
    
    $
    125,000
  Unrecognized
    
    
    Remaining weighted-averagecompensation costs
    
    
    number of years to expenseNonvested stock options
    
    $
    55,000
    
    
    
    0.84Nonvested restricted stock
    
    
    180,000
    
    
    
    0.79Total nonvested awards
    
    $
    235,000
    
    
    
    0.80
 15




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Common Stock Options:
    Wtd. Avg. RemainingTotal Shares
    
    Wtd. Avg.
    
    Contractual
    
    AggregateUnder Option
    
    Exercise Price
    
    Term (years)
    
    Intrinsic ValueOutstanding at July 1, 2008
    
    
    223,385
    
    
    $
    8.22
    
    
    
    6.65
    
    
    
    Granted
    
    
    Exercised
    
    
    Forfeited or expired
    
    
    (30,038
    )
    
    $
    8.19
    
    
    
    
    
    
    
    Outstanding at March 31, 2009
    
    
    193,347
    
    
    $
    8.23
    
    
    
    5.94
    
    
    
    Exercisable at March 31, 2009
    
    
    146,181
    
    
    $
    8.13
    
    
    
    5.78
    
    
    
    
   Restricted Stock Awards:
  16




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Number
    
    
    Wtd. Avg.of Shares
    
    
    Fair ValueNonvested at July 1, 2008
    
    
    
    
    
    
    Granted and issued
    
    
    120,000
    
    
    $
    2.25Vested
    
    
    
    
    
    
    Forfeited
    
    
    
    
    
    
    Nonvested at March 31, 2009
    
    
    120,000
    
    
    $
    2.25
  NOTE 8. EARNINGS (LOSS) PER SHARE
    Three months ended
    
    Nine months ended2009
    
    2008
    
    2009
    
    2008Weighted average shares outstanding
    
    
    9,811,507
    
    
    
    9,811,507
    
    
    
    9,811,507
    
    
    
    9,811,507Basic and diluted income (loss) per share
    
    $
    (0.08
    )
    
    $
    0.06
    
    
    $
    (0.70
    )
    
    $
    (0.27
    )
 NOTE 9. COMPREHENSIVE INCOME (LOSS)
  Three months ended
    
    
    Nine months ended2009
    
    
    2008
    
    
    2009
    
    
    2008Net income (loss)
    
    $
    (763,000
    )
    
    $
    634,000
    
    
    $
    (6,916,000
    )
    
    $
    (2,652,000
    )Change in unrecognized pension costs
    
    
    (1,876,000
    )
    
    
    40,000
    
    
    
    (1,781,000
    )
    
    
    119,000Comprehensive
income (loss)
    
    $
    (2,639,000
    )
    
    $
    674,000
    
    
    $
    (8,697,000
    )
    
    $
    (2,533,000
    )
 17




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Three months ended
    
    
    Nine months ended2009
    
    
    2008
    
    
    2009
    
    
    2008Prior service cost  net of tax
    
    $
    347,000
    
    
    $
    17,000
    
    
    $
    382,000
    
    
    $
    51,000Net actuarial (loss) gain  net of tax
    
    
    (2,223,000
    )
    
    
    23,000
    
    
    
    (2,163,000
    )
    
    
    68,000Total
    
    $
    (1,876,000
    )
    
    $
    40,000
    
    
    $
    (1,781,000
    )
    
    $
    119,000
   NOTE 10. RESTRUCTURING ACTIVITIES
  Recent Plant Closures
 London, Ontario, Canada
  Jackson, Michigan
  18




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Reductions in Force
    Workforce Reduction(principally severance)
    

    
    Lease Costs
    
    
    TotalRestructuring charge
    
    $
    260,000
    

    
    $
    400,000
    

    
    $
    660,000Less cash payments
    
    
    93,000
    

    
    
    
    

    
    
    93,000Restructuring reversals and adjustments
    
    
    
    

    
    
    
    

    
    
    Accrual balance at March 31, 2009
    
    $
    167,000
    

    
    $
    400,000
    

    
    $
    567,000
 NOTE 11. FISCAL 2008 and 2007 PRIOR PERIOD PLANT CLOSURES
 Albuquerque, New Mexico
    19




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March
    
    
    JuneCurrent assets
    
    $
    5,875,000
    
    
    $
    8,837,000Property, plant and equipment (net)
    
    
    
    
    
    
    6,121,000Total assets
    
    $
    5,875,000
    
    
    $
    14,958,000Current liabilities
    
    $
    735,000
    
    
    $
    2,814,000Long term liabilities (EPA, see Note 6)
    
    
    5,144,000
    
    
    
    5,139,000Total liabilities
    
    $
    5,879,000
    
    
    $
    7,953,000
 Deming, New Mexico
   
 Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
   20




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21




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EXECUTIVE SUMMARY
  Net loss year-to-date fiscal 2008
    
    
    
    
    $
    (2.7
    )Deferred asset write-off in fiscal 2008
    
    $
    1.6Gain on Deming, NM plant sale in fiscal 2008
    
    
    (0.9
    )0.7Increased margin resulting from disengagement
terms with one customer
    
    
    1.0Restructuring expense
    
    
    (0.7
    )Improved margin on government programs
    
    
    0.5Increased income tax expense
    
    
    (2.3
    )Increased legal and consulting expense
    
    
    (1.2
    )Increased pension expense
    
    
    (1.2
    )Increased translation/transaction exchange expense
    
    
    (0.8
    )Other
    
    
    (0.2
    )(4.9
    )Net change
    
    
    
    
    
    (4.2
    )Net loss year-to-date fiscal 2009
    
    
    
    
    $
    (6.9
    )
  
    
    Consistent and successful sonobuoy drop tests contributing to sales and improved margins.
Margins improved due to improved labor efficiencies and less rework cost. There were no
minimal or no margin contracts in sales in fiscal 2009.
    
    Higher sales in the Aerospace market of $19.4 million over the same period last year.
    
    Increased margin resulting from disengagement agreement with one
aerospace customer.
    
    Increased administrative expenses primarily related to legal and consulting fees totaling
$1.2 million above prior year.
    
    Increased pension expense, primarily related to lump-sum settlement and curtailment charges, of $1.2 million above prior year.
    
    Restructuring expense of approximately $0.7 million in fiscal 2009.
    
    Income tax expense of $0.4 million in fiscal 2009, compared to a tax benefit of $1.9
million in the same nine month period last year.
    22




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RESULTS OF OPERATIONS  :
 2009
    
    
    2008MARKET
    
    Net Sales
    
    
    % of Total
    
    
    Net Sales
    
    
    % of Total
    
    
    % ChangeAerospace
    
    $
    21,462,000
    
    
    
    39
    %
    
    $
    16,234,000
    
    
    
    28
    %
    
    
    32
    %Medical/Scientific Instrumentation
    
    
    18,377,000
    
    
    
    34
    
    
    
    19,174,000
    
    
    
    33
    
    
    
    (4
    )Government
    
    
    7,657,000
    
    
    
    14
    
    
    
    12,847,000
    
    
    
    22
    
    
    
    (40
    )Industrial/Other
    
    
    7,096,000
    
    
    
    13
    
    
    
    9,884,000
    
    
    
    17
    
    
    
    (28
    )Totals
    
    $
    54,592,000
    
    
    
    100
    %
    
    $
    58,139,000
    
    
    
    100
    %
    
    
    (6
    )%
   2009
    
    
    2008Net sales
    
    
    100.0
    %
    
    
    100.0
    %Costs of goods sold
    
    
    90.8
    
    
    
    91.9Gross profit
    
    
    9.2
    
    
    
    8.1Selling and administrative expenses
    
    
    7.8
    
    
    
    8.9Restructuring charges
    
    
    1.2
    
    
    
    0.0Other
operating expense (income)  net
    
    
    0.1
    
    
    
    (0.1
    )Operating income (loss)
    
    
    0.1
    
    
    
    (0.7
    )Other income (expense)  net
    
    
    (1.2
    )
    
    
    (0.9
    )Loss before income taxes
    
    
    (1.1
    )
    
    
    (1.6
    )Provision (credit) for income taxes
    
    
    0.3
    
    
    
    (2.7
    )Net income (loss)
    
    
    (1.4
    )%
    
    
    1.1
    %
  23




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RESULTS OF OPERATIONS  :
 2009
    
    
    2008MARKET
    
    Net Sales
    
    
    % of Total
    
    
    Net Sales
    
    
    % of Total
    
    
    % ChangeAerospace
    
    $
    65,370,000
    
    
    
    40
    %
    
    $
    45,929,000
    
    
    
    27
    %
    
    
    42
    %Medical/Scientific Instrumentation
    
    
    49,876,000
    
    
    
    31
    
    
    
    57,928,000
    
    
    
    33
    
    
    
    (14
    )Government
    
    
    23,639,000
    
    
    
    14
    
    
    
    37,378,000
    
    
    
    22
    
    
    
    (37
    )Industrial/Other
    
    
    24,219,000
    
    
    
    15
    
    
    
    30,707,000
    
    
    
    18
    
    
    
    (21
    )Totals
    
    $
    163,104,000
    
    
    
    100
    %
    
    $
    171,942,000
    
    
    
    100
    %
    
    
    (5
    )%
  24




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##### Table of Contents



2009
    
    2008Net sales
    
    
    100.0
    %
    
    
    100.0
    %Costs of goods sold
    
    
    93.1
    
    
    
    94.2Gross profit
    
    
    6.9
    
    
    
    5.8Selling and administrative expenses
    
    
    9.0
    
    
    
    8.7Restructuring charges
    
    
    0.4
    
    
    
    0.0Other operating expense (income)  net
    
    
    0.0
    
    
    
    (0.6
    )Operating loss
    
    
    (2.5
    )
    
    
    (2.3
    )Other expense  net
    
    
    (1.5
    )
    
    
    (0.4
    )Loss before income taxes
    
    
    (4.0
    )
    
    
    (2.7
    )Provision (credit) for income taxes
    
    
    0.2
    
    
    
    (1.2
    )Net loss
    
    
    (4.2
    )%
    
    
    (1.5
    )%
       25




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LIQUIDITY AND CAPITAL RESOURCES
     26




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27




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##### Table of Contents



CONTRACTUAL OBLIGATIONS AND COMMITMENTS
  CRITICAL ACCOUNTING POLICIES AND ESTIMATES
  Environmental Contingencies
  28




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Government Contract Cost Estimates
  Commercial Inventory Valuation Allowances
   Allowance for Probable Losses on Receivables
  29




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Pension Obligations
 Employers Accounting for Pensions
   Employers Accounting for Defined Benefit Pension and Other Postretirement Plans
 Business Combinations
  30




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Valuation of Property, Plant and Equipment
 Accounting for the Impairment or Disposal of Long-lived Assets
 Goodwill and Customer Relationships
 Goodwill and Other Intangible Assets. The Equity Method of
Accounting for Investments in Common Stock Accounting for the Impairment or Disposal of Long-lived Assets
  Deferred Costs and Claims for Reimbursement
  31




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Income Taxes
  Restructuring Accrual
 Accounting for Costs Associated with Exit or Disposal Activities
 OTHER
 Change of Executive Officers
   Litigation
   32




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Item 3. Quantitative and Qualitative Disclosures About Market Risk
 MARKET RISK EXPOSURE
   
 Item 4T. Controls and Procedures
     33




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Part II. Other Information
 
 Item 1. Legal Proceedings
  Environmental Remediation
      34




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##### Table of Contents



Customer Relationships
    Product Issues
   
 Item 1(A). Risk Factors
  The tightened credit market, both nationally and world-wide, may adversely affect the availability
of funds to the Company for working capital, liquidity requirements, and other purposes, which may
adversely affect the Companys cash flows and financial condition.
  35




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##### Table of Contents



Current market volatility may have an adverse impact on the Companys pension costs associated with
the defined benefit plan.
  Possible delisting from the New York Stock Exchange (NYSE) could affect the liquidity of our
common stock.
     36




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##### Table of Contents



Item 5. Other Information
       
 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
    
    Employment agreement dated November 6, 2008, between the Registrant
and Cary B. Wood, incorporated herein by reference from Exhibit 10.2
to the Registrants Current Report on Form 8-K filed with the SEC on
November 13, 2008.10.2
    
    Employment Agreement, effective as of January 5, 2009, between the
Registrant and Gordon Madlock, incorporated herein by reference from
the Registrants Current Report on Form 8-K filed with the SEC on
January 29, 2009.
 37




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##### Table of Contents



10.3
    
    Employment Agreement, effective as of April 1, 2009, between the Registrant and Gregory
Slome, incorporated herein by reference from the Registrants Current Report on Form 8-K
filed with the SEC on March 31, 2009.10.4
    
    Fourth Master Amendment to Loan Documents, dated as of January 20, 2009, by and between
the Registrant, Sparton Medical Systems, Inc., Sparton Technology, Inc, Spartronics,
Inc., Sparton Electronics Florida, Inc., Sparton of Canada, Limited and National City
Bank, incorporated herein by reference from Exhibit 10.1 to the Registrants Current
Report on Form 8-K filed with the SEC on January 28, 2009.10.5
    
    Third Master Amendment to Loan Documents, dated as of November 12, 2008, by and between
the Registrant, Sparton Medical Systems, Inc., Sparton Technology, Inc, Spartronics,
Inc., Sparton Electronics Florida, Inc., Sparton of Canada, Limited and National City
Bank, incorporated herein by reference from Exhibit 10.2 to the Registrants Current
Report on Form 8-K filed with the SEC on January 28, 2009.10.6
    
    Second Master Amendment to Loan Documents, dated as of July 31, 2008, by and between the
Registrant, Sparton Medical Systems, Inc., Sparton Technology, Inc, Spartronics, Inc.,
Sparton Electronics Florida, Inc., Sparton of Canada, Limited and National City Bank,
incorporated herein by reference from Exhibit 10.3 to the Registrants Current Report on
Form 8-K filed with the SEC on January 28, 2009.10.7
    
    First Master Amendment to Loan Documents, dated as of April 21, 2008, by and between the
Registrant, Sparton Medical Systems, Inc., Sparton Technology, Inc, Spartronics, Inc.,
Sparton Electronics Florida, Inc., Sparton of Canada, Limited and National City Bank,
incorporated herein by reference from Exhibit 10.4 to the Registrants Current Report on
Form 8-K filed with the SEC on January 28, 2009.10.8
    
    Promissory Note, dated as of January 22, 2008, by and between Sparton Corporation and
National City Bank and guaranteed by Sparton Medical Systems, Inc., Sparton Technology,
Inc, Spartronics, Inc., Sparton Electronics Florida, Inc., and Sparton of Canada,
Limited, incorporated herein by reference from Exhibit 10.5 to the Registrants Current
Report on Form 8-K filed with the SEC on January 28, 2009.10.9
    
    Retirement Agreement and Release of All Claims dated April 6, 2009, by and between
Sparton Corporation and Richard Langley, incorporated herein by reference from Exhibit
10.1 to the Registrants Current Report on Form 8-K filed with the SEC on April 9, 200910.10
    
    Promissory Note Modification Agreement dated April 30, 2009 and May 1, 2009, by and
between Sparton Corporation and National City Bank, incorporated herein by reference from
Exhibit 10.1 to the Registrants Current Report on Form 8-K filed with the SEC on May 1,
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: May 13, 2009
    /s/ CARY B. WOODCary B. Wood, President and Chief Executive OfficerDate: May 13, 2009
    /s/ GREGORY A. SLOMEGregory A. Slome, Senior Vice President and Chief Financial Officer 38