##### Table of Contents



UNITED STATES 
SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 FORM 10-Q
 [ X ]
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934
 March 31, 2007
  [  ]
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
  SPARTON CORPORATION
  OHIO
 38-1054690
 2400 East Ganson Street, Jackson, Michigan 49202
 (517) 787-8600
      Shares Outstanding atClass of Common Stock
    
    
    April 30, 2007$1.25 Par Value
    
    
    9,800,370




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##### 



TABLE OF CONTENTS
 Part I. Financial InformationItem 1.
    
    Financial Statements (Interim, Unaudited)Condensed Consolidated Balance Sheets at March 31, 2007 and June 30, 2006
    
    
    3Condensed Consolidated Statements of Operations for the three months and nine months ended March
31, 2007 and 2006
    
    
    4Condensed Consolidated Statements of Cash Flows for the nine months ended March 31, 2007 and 2006
    
    
    5Condensed Consolidated Statements of Shareowners Equity for the nine months ended March 31, 2007
and 2006
    
    
    6Notes to Condensed Consolidated Financial Statements
    
    
    7Item 2.
    
    Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    18Item 3.
    
    Quantitative and Qualitative Disclosures About Market Risk
    
    
    27Item 4.
    
    Controls and Procedures
    
    
    27Part II. Other InformationItem 1.
    
    Legal Proceedings
    
    
    28Item 1(a).
    
    Risk Factors
    
    
    29Item 2.
    
    Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    30Item 6.
    
    Exhibits
    
    
    30Signatures
    
    
    30EX-31.1EX-31.2EX-32.1
  2




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##### Table of Contents



Part I. Financial Information
 
 Item 1. Financial Statements (Interim, Unaudited)
  
  March 31, 2007
    
    
    June 30, 2006ASSETSCurrent assets:Cash and cash equivalents
    
    $
    4,946,232
    
    
    $
    7,503,438Investment securities
    
    
    
    
    
    
    15,969,136Accounts receivable
    
    
    21,151,784
    
    
    
    25,108,442Income taxes recoverable
    
    
    2,320,726
    
    
    
    Inventories and costs of contracts in progress
    
    
    52,951,608
    
    
    
    46,892,183Deferred income taxes
    
    
    2,571,000
    
    
    
    2,662,692Prepaid expenses and other current assets
    
    
    1,162,118
    
    
    
    1,462,190Total current assets
    
    
    85,103,468
    
    
    
    99,598,081Pension asset
    
    
    4,048,208
    
    
    
    4,420,932Property, plant and equipment  net
    
    
    18,139,631
    
    
    
    17,598,906Goodwill and other intangibles  net
    
    
    22,146,286
    
    
    
    22,469,807Other assets
    
    
    5,997,170
    
    
    
    5,970,010Total assets
    
    $
    135,434,763
    
    
    $
    150,057,736LIABILITIES AND SHAREOWNERS EQUITYCurrent liabilities:Current portion of long-term debt
    
    $
    3,873,593
    
    
    $
    3,815,833Accounts payable
    
    
    11,018,363
    
    
    
    16,748,814Salaries and wages
    
    
    3,841,222
    
    
    
    4,388,396Accrued health benefits
    
    
    1,316,897
    
    
    
    1,142,693Other accrued liabilities
    
    
    6,015,271
    
    
    
    4,996,408Income taxes payable
    
    
    
    
    
    
    308,814Total current liabilities
    
    
    26,065,346
    
    
    
    31,400,958Deferred income taxes  noncurrent
    
    
    32,000
    
    
    
    Long-term debt  noncurrent portion
    
    
    13,536,631
    
    
    
    16,010,616Environmental remediation  noncurrent portion
    
    
    5,584,288
    
    
    
    5,795,784Total liabilities
    
    
    45,218,265
    
    
    
    53,207,358Shareowners Equity:Preferred stock, no par value; 200,000 shares authorized, none outstanding
    
    
    
    
    
    
    Common stock, $1.25 par value; 15,000,000 shares authorized,
9,800,370 shares outstanding (9,392,305 at June 30, 2006)
    
    
    12,250,463
    
    
    
    11,740,381Capital in excess of par value
    
    
    19,557,047
    
    
    
    15,191,990Retained earnings
    
    
    58,363,988
    
    
    
    70,183,104Accumulated other comprehensive income (loss)
    
    
    45,000
    
    
    
    (265,097
    )Total shareowners equity
    
    
    90,216,498
    
    
    
    96,850,378Total liabilities and shareowners equity
    
    $
    135,434,763
    
    
    $
    150,057,736
  3




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##### Table of Contents



Three months ended
    
    
    Nine months ended2007
    
    
    2006
    
    
    2007
    
    
    2006Net sales
    
    $
    47,725,992
    
    
    $
    45,303,199
    
    
    $
    149,099,220
    
    
    $
    120,302,471Costs of goods sold
    
    
    47,030,124
    
    
    
    40,562,528
    
    
    
    144,193,397
    
    
    
    110,140,742Gross profit
    
    
    695,868
    
    
    
    4,740,671
    
    
    
    4,905,823
    
    
    
    10,161,729Selling and administrative expenses
    
    
    4,264,621
    
    
    
    3,930,958
    
    
    
    12,978,917
    
    
    
    11,694,855Amortization of intangibles
    
    
    120,313
    
    
    
    
    
    
    
    362,049
    
    
    
    EPA related environmental remediation (income) expense -
net
    
    
    (3,091
    )
    
    
    29,994
    
    
    
    (204,321
    )
    
    
    796Net (gain) loss on sale of property, plant and equipment
    
    
    3,872
    
    
    
    (5,693
    )
    
    
    (201,851
    )
    
    
    98,8984,385,715
    
    
    
    3,955,259
    
    
    
    12,934,794
    
    
    
    11,794,549Operating income (loss)
    
    
    (3,689,847
    )
    
    
    785,412
    
    
    
    (8,028,971
    )
    
    
    (1,632,820
    )Other income (expense):Interest and investment income
    
    
    74,896
    
    
    
    293,008
    
    
    
    145,923
    
    
    
    820,835Interest expense
    
    
    (205,877
    )
    
    
    
    
    
    
    (793,599
    )
    
    
    Equity gain in investment
    
    
    75,000
    
    
    
    3,000
    
    
    
    68,000
    
    
    
    2,000Other  net
    
    
    (23,730
    )
    
    
    (11,088
    )
    
    
    (283,635
    )
    
    
    266,176(79,711
    )
    
    
    284,920
    
    
    
    (863,311
    )
    
    
    1,089,011Income (loss) before income taxes
    
    
    (3,769,558
    )
    
    
    1,070,332
    
    
    
    (8,892,282
    )
    
    
    (543,809
    )Provision (credit) for income taxes
    
    
    (1,476,000
    )
    
    
    343,000
    
    
    
    (2,757,000
    )
    
    
    (174,000
    )Net income (loss)
    
    $
    (2,293,558
    )
    
    $
    727,332
    
    
    $
    (6,135,282
    )
    
    $
    (369,809
    )Earnings (loss) per share  basic and diluted(1)
    
    $
    (0.23
    )
    
    $
    0.07
    
    
    $
    (0.62
    )
    
    $
    (0.04
    )
 
 (1)
    
     All share and per share information have been adjusted to
reflect
the impact of the 5% stock dividend declared in October 2006.  4




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##### Table of Contents



Nine months ended March 31,2007
    
    
    2006Cash Flows From Operating Activities:Net loss
    
    $
    (6,135,282
    )
    
    $
    (369,809
    )Adjustments to reconcile net loss to net cash (used in) provided by operating activities:Depreciation, amortization and accretion
    
    
    1,941,812
    
    
    
    1,490,979Deferred income taxes
    
    
    
    
    
    
    679,731Loss on sale of investment securities
    
    
    244,562
    
    
    
    25,432Equity gain in investment
    
    
    (68,000
    )
    
    
    (2,000
    )Pension expense
    
    
    372,724
    
    
    
    410,681Share-based compensation
    
    
    187,901
    
    
    
    253,420(Gain) loss on sale of property, plant and equipment
    
    
    (3,176
    )
    
    
    98,898Gain from sale of non-operating land
    
    
    (198,675
    )
    
    
    Other, primarily changes in customer and vendor claims
    
    
    47,420
    
    
    
    (391,396
    )Changes in operating assets and liabilities:Accounts receivable
    
    
    3,956,658
    
    
    
    5,946,443Environmental settlement receivable
    
    
    
    
    
    
    5,455,000Income taxes recoverable
    
    
    (2,320,726
    )
    
    
    Inventories, prepaid expenses and other current assets
    
    
    (5,759,353
    )
    
    
    1,061,929Accounts payable and accrued liabilities
    
    
    (5,604,852
    )
    
    
    (7,032,653
    )Net cash (used in) provided by operating activities
    
    
    (13,338,987
    )
    
    
    7,626,655Cash Flows From Investing Activities:Additional goodwill incurred in purchase of Astro
    
    
    (38,528
    )
    
    
    Purchases of investment securities
    
    
    
    
    
    
    (7,052,763
    )Proceeds from sale of investment securities
    
    
    15,619,068
    
    
    
    1,677,746Proceeds from maturity of investment securities
    
    
    465,645
    
    
    
    2,583,602Purchases of property, plant and equipment
    
    
    (2,672,559
    )
    
    
    (459,895
    )Proceeds from sale of non-operating land
    
    
    811,175
    
    
    
    Proceeds from sale of property, plant and equipment
    
    
    7,422
    
    
    
    Other, principally noncurrent other assets
    
    
    9,420
    
    
    
    (26,460
    )Net cash provided by (used in) investing activities
    
    
    14,201,643
    
    
    
    (3,277,770
    )Cash Flows From Financing Activities:Repayment of long-term debt
    
    
    (2,423,266
    )
    
    
    Proceeds from the exercise of stock options
    
    
    1,346,208
    
    
    
    571,251Tax effect from stock transactions
    
    
    183,093
    
    
    
    70,029Stock dividends  cash paid in lieu of fractional shares
    
    
    (1,977
    )
    
    
    (3,654
    )Repurchases of common stock
    
    
    (2,523,920
    )
    
    
    (270,186
    )Cash dividend
    
    
    
    
    
    
    (889,409
    )Net cash used in financing activities
    
    
    (3,419,862
    )
    
    
    (521,969
    )(Decrease) increase in cash and cash equivalents
    
    
    (2,557,206
    )
    
    
    3,826,916Cash and cash equivalents at beginning of period
    
    
    7,503,438
    
    
    
    9,368,120Cash and cash equivalents at end of period
    
    $
    4,946,232
    
    
    $
    13,195,036
  5




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Nine months ended March 31, 2007Capital
    
    
    
    
    
    
    Accumulated otherCommon Stock
    
    
    in excess
    
    
    Retained
    
    
    comprehensiveShares
    
    
    Amount
    
    
    of par value
    
    
    earnings
    
    
    income (loss)
    
    
    TotalBalance at July 1, 2006
    
    
    9,392,305
    
    
    $
    11,740,381
    
    
    $
    15,191,990
    
    
    $
    70,183,104
    
    
    $
    (265,097
    )
    
    $
    96,850,378Stock dividend (5%
declared October
25, 2006)
    
    
    466,365
    
    
    
    582,956
    
    
    
    3,404,465
    
    
    
    (3,989,398
    )
    
    
    
    
    
    
    (1,977
    )Stock options exercised, net of common
stock surrendered to facilitate
exercise
    
    
    234,444
    
    
    
    293,056
    
    
    
    1,053,152
    
    
    
    
    
    
    
    
    
    
    
    1,346,208Repurchases of common stock as part of
share repurchase program
    
    
    (292,744
    )
    
    
    (365,930
    )
    
    
    (463,554
    )
    
    
    (1,694,436
    )
    
    
    
    
    
    
    (2,523,920
    )Share-based compensation
    
    
    
    
    
    
    
    
    
    
    187,901
    
    
    
    
    
    
    
    
    
    
    
    187,901Tax effect of stock transactions
    
    
    
    
    
    
    
    
    
    
    183,093
    
    
    
    
    
    
    
    
    
    
    
    183,093Comprehensive income (loss), net of tax:Net loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (6,135,282
    )
    
    
    
    
    
    
    (6,135,282
    )Net unrealized gain on investment
securities owned
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    122,686
    
    
    
    122,686Reclassification adjustment for net
loss realized and reported in net loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    161,411
    
    
    
    161,411Net unrealized gain on equity investment
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    26,000
    
    
    
    26,000Comprehensive loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (5,825,185
    )Balance at March 31, 2007
    
    
    9,800,370
    
    
    $
    12,250,463
    
    
    $
    19,557,047
    
    
    $
    58,363,988
    
    
    $
    45,000
    
    
    $
    90,216,498
 Nine months ended March 31, 2006Capital
    
    
    
    
    
    
    Accumulated otherCommon Stock
    
    
    in excess
    
    
    Retained
    
    
    comprehensiveShares
    
    
    Amount
    
    
    of par value
    
    
    earnings
    
    
    income (loss)
    
    
    TotalBalance at July 1, 2005
    
    
    8,830,428
    
    
    $
    11,038,035
    
    
    $
    10,558,757
    
    
    $
    75,619,392
    
    
    $
    (44,198
    )
    
    $
    97,171,986Stock dividend (5%
declared October
25, 2005)
    
    
    446,337
    
    
    
    557,921
    
    
    
    3,820,645
    
    
    
    (4,382,220
    )
    
    
    
    
    
    
    (3,654
    )Stock options exercised, net of common
stock surrendered to facilitate
exercise
    
    
    143,294
    
    
    
    179,118
    
    
    
    392,133
    
    
    
    
    
    
    
    
    
    
    
    571,251Repurchases of common stock as part of
share repurchase program
    
    
    (28,237
    )
    
    
    (35,296
    )
    
    
    (34,199
    )
    
    
    (200,691
    )
    
    
    
    
    
    
    (270,186
    )Cash dividend ($0.10 per share)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (889,409
    )
    
    
    
    
    
    
    (889,409
    )Share-based compensation
    
    
    
    
    
    
    
    
    
    
    253,420
    
    
    
    
    
    
    
    
    
    
    
    253,420Tax effect of stock transactions
    
    
    
    
    
    
    
    
    
    
    70,029
    
    
    
    
    
    
    
    
    
    
    
    70,029Comprehensive income (loss), net of tax:Net loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (369,809
    )
    
    
    
    
    
    
    (369,809
    )Net unrealized loss on investment
securities owned
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (224,767
    )
    
    
    (224,767
    )Reclassification adjustment for net
loss realized and reported in net loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    16,785
    
    
    
    16,785Net unrealized gain on equity investment
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    82,000
    
    
    
    82,000Comprehensive loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (495,791
    )Balance at March 31, 2006
    
    
    9,391,822
    
    
    $
    11,739,778
    
    
    $
    15,060,785
    
    
    $
    69,777,263
    
    
    $
    (170,180
    )
    
    $
    96,407,646
  6




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NOTE 1. BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
 Basis of presentation -
  Business Acquisition -
 Business Combinations;
  Total
    
    
    SMSNet sales
    
    $
    149,099,000
    
    
    $
    37,328,000Costs of goods sold
    
    
    144,193,000
    
    
    
    33,767,000Gross profit
    
    $
    4,906,000
    
    
    $
    3,561,000Total assets at March 31, 2007
    
    $
    135,435,000
    
    
    $
    45,220,000
 Operations -
 7




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Use of estimates -
 Revenue recognition -
 Fair value of financial instruments -
 Investment securities -
 Other investment -
 Market risk exposure -
  Long-lived assets -
 8




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Other assets -
 Common stock repurchases -
 Supplemental cash flows information -
 2007
    
    
    2006Net cash paid (received) for:Income taxes
    
    $
    (314,000
    )
    
    $
    1,395,000Interest (including $60,000 of capitalized interest)
    
    $
    749,000
    
    
    $
    -
 Tax rate -
 New accounting standards The Fair Value Option for Financial Assets and Financial Liabilities
 Employers Accounting for Defined Benefit Pension
and Other Post-retirement Plans
  9




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Fair Value Measurements
 Accounting for Uncertainty in Income Taxes Accounting for Income Taxes.
 How Taxes Collected from Customers and Remitted to Governmental Authorities
Should Be Presented in the Income Statement
 Accounting Changes and Error Corrections, Accounting Changes,
 NOTE 2. INVESTMENT SECURITIES
   NOTE 3. INVENTORIES AND COSTS OF CONTRACTS IN PROGRESS
  10




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March 31, 2007
    
    
    June 30, 2006Raw materials
    
    $
    34,607,000
    
    
    $
    29,388,000Work in process and finished goods
    
    
    18,345,000
    
    
    
    17,504,000$
    52,952,000
    
    
    $
    46,892,000
  NOTE 4. PENSION ASSET
 Periodic benefit cost 
 Three months ended
    
    
    Nine months ended2007
    
    
    2006
    
    
    2007
    
    
    2006Service cost
    
    $
    124,000
    
    
    $
    128,000
    
    
    $
    371,000
    
    
    $
    410,000Interest cost
    
    
    158,000
    
    
    
    163,000
    
    
    
    474,000
    
    
    
    511,000Expected return on plan assets
    
    
    (217,000
    )
    
    
    (227,000
    )
    
    
    (651,000
    )
    
    
    (726,000
    )Amortization of prior service cost
    
    
    26,000
    
    
    
    24,000
    
    
    
    77,000
    
    
    
    75,000Amortization of net loss
    
    
    34,000
    
    
    
    49,000
    
    
    
    102,000
    
    
    
    141,000Net periodic benefit cost
    
    $
    125,000
    
    
    $
    137,000
    
    
    $
    373,000
    
    
    $
    411,000
  NOTE 5. GOODWILL AND OTHER INTANGIBLES
 Business Combinations Goodwill
and Other Intangible Assets
 Amortizable
    
    
    TotalGoodwill
    
    
    Intangibles
    
    
    IntangiblesBeginning balance at July 1, 2006
    
    $
    15,744,000
    
    
    $
    6,726,000
    
    
    $
    22,470,000Goodwill additions
    
    
    38,000
    
    
    
    
    
    
    
    38,000Amortization
    
    
    
    
    
    
    (362,000
    )
    
    
    (362,000
    )Ending balance at March 31, 2007
    
    $
    15,782,000
    
    
    $
    6,364,000
    
    
    $
    22,146,000
  11




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Goodwill 
 Other intangibles 
 NOTE 6. BORROWINGS
 Current debt maturities 
  Long-term debt 
 March 31, 2007
    
    
    June 30, 2006Industrial Revenue bonds, face value
    
    $
    2,404,000
    
    
    $
    2,477,000Less unamortized purchase discount
    
    
    143,000
    
    
    
    150,000Industrial Revenue bonds, carrying value
    
    
    2,261,000
    
    
    
    2,327,000Bank loan
    
    
    8,500,000
    
    
    
    10,000,000Notes payable (to former Astro owners)
    
    
    6,650,000
    
    
    
    7,500,000Total long-term debt
    
    
    17,411,000
    
    
    
    19,827,000Less current portion
    
    
    3,874,000
    
    
    
    3,816,000Long-term debt, net of current portion
    
    $
    13,537,000
    
    
    $
    16,011,000
     12




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NOTE 7. COMMITMENTS AND CONTINGENCIES
 Environmental Remediation
   Customer Relationships
    13




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Product Issues
  NOTE 8. STOCK OPTIONS
 Share-Based Payment,
    Three months ended
    
    Nine months ended2007
    
    2006
    
    2007
    
    2006Share-based compensation expense
    
    $
    54,000
    
    
    $
    78,000
    
    
    $
    188,000
    
    
    $
    253,000Related tax benefit
    
    $
    1,000
    
    
    $
    2,000
    
    
    $
    23,000
    
    
    $
    4,000Share-based compensation
expense impacted basic and
diluted per share amounts by
approximately
    
    $
    0.01
    
    
    $
    0.01
    
    
    $
    0.02
    
    
    $
    0.03
   Options Outstanding
    
    Options ExercisableRange of
    
    
    
    
    
    Wtd. Avg. Remaining
    
    Wtd. Avg.
    
    
    
    Wtd. Avg.Exercise Prices
    
    Number of shares
    
    Contractual Life (years)
    

Exercise Price
    

Number
of
shares
    
Exercise
Price$6.52 to $8.57
    
    
    316,946
    
    
    
    5.79
    
    
    $
    7.77
    
    
    
    160,599
    
    
    $
    7.14
 14




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##### Table of Contents



Wtd. Avg. RemainingTotal Shares
    
    Wtd. Avg.
    
    Contractual
    
    AggregateUnder Option
    
    Exercise Price
    
    Term (years)
    
    Intrinsic ValueOutstanding at July 1, 2006
    
    
    542,924
    
    
    $
    6.69
    
    
    
    3.59
    
    
    $
    817,000Granted
    
    
    26,250
    
    
    $
    8.48Exercised
    
    
    (234,444
    )Forfeited or expired
    
    
    (17,784
    )Outstanding at March 31, 2007
    
    
    316,946
    
    
    $
    7.77
    
    
    
    5.79
    
    
    $
    197,000Exercisable at March 31, 2007
    
    
    160,599
    
    
    $
    7.14
    
    
    
    3.46
    
    
    $
    181,000
   Expected option life
    
    10 yearsExpected volatility
    
    
    32.2
    %Risk-free interest rate
    
    
    4.7
    %Cash dividend yield
    
    
    0.0
    %Weighted average grant date fair value
    
    $
    4.75
 
  NOTE 9. EARNINGS (LOSS) PER SHARE
    Three months ended
    
    
    Nine months ended2007
    
    
    2006
    
    
    2007
    
    
    2006Weighted average shares outstanding
    
    
    9,798,902
    
    
    
    9,788,779
    
    
    
    9,822,999
    
    
    
    9,786,190Effect of dilutive stock options
    
    
    
    
    
    
    41,132
    
    
    
    
    
    
    
    Weighted average diluted shares outstanding
    
    
    9,798,902
    
    
    
    9,829,911
    
    
    
    9,822,999
    
    
    
    9,786,190Basic and diluted earnings (loss) per share
    
    $
    (0.23
    )
    
    $
    0.07
    
    
    $
    (0.62
    )
    
    $
    (0.04
    )
 NOTE 10. COMPREHENSIVE INCOME (LOSS)
  15




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##### Table of Contents



Three months ended
    
    
    Nine months ended2007
    
    
    2006
    
    
    2007
    
    
    2006Net income (loss)
    
    $
    (2,294,000
    )
    
    $
    727,000
    
    
    $
    (6,135,000
    )
    
    $
    (370,000
    )Other comprehensive income (loss), net of taxInvestment securities owned
    
    
    
    
    
    
    (48,000
    )
    
    
    284,000
    
    
    
    (208,000
    )Investment securities held by investee accounted for
by the equity method
    
    
    (24,000
    )
    
    
    26,000
    
    
    
    26,000
    
    
    
    82,000(24,000
    )
    
    
    (22,000
    )
    
    
    310,000
    
    
    
    (126,000
    )Comprehensive income (loss)
    
    $
    (2,318,000
    )
    
    $
    705,000
    
    
    $
    (5,825,000
    )
    
    $
    (496,000
    )
  March 31, 2007
    
    
    June 30, 2006Accumulated other comprehensive income (loss), net of tax:Investment securities owned
    
    $
    
    
    
    $
    (284,000
    )Investment securities held by investee accounted for by the equity method
    
    
    45,000
    
    
    
    19,000Accumulated other comprehensive income (loss)
    
    $
    45,000
    
    
    $
    (265,000
    )
  NOTE 11. PLANT CLOSURE
  Three months ended
    
    
    Nine months ended2007
    
    
    2006
    
    
    2007
    
    
    2006Net sales
    
    $
    265,000
    
    
    $
    880,000
    
    
    $
    900,000
    
    
    $
    2,644,000Gross profit (loss)
    
    $
    (91,000
    )
    
    $
    63,000
    
    
    $
    (146,000
    )
    
    $
    104,000
  16




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##### Table of Contents



Current assets  net of assets held for sale
    
    $
    447,000Property and plant (net), held for sale
    
    
    29,000Total assets (all current)
    
    $
    476,000Liabilities (all current)
    
    $
    399,000
 17




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##### Table of Contents



Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
    
 18




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##### Table of Contents



RESULTS OF OPERATIONS
 Three months ended March 31:CURRENT QUARTER
    
    2007
    
    
    2006MARKET
    
    Sales
    
    
    % of Total
    
    
    Sales
    
    
    % of Total
    
    
    % ChangeMedical/Scientific Instrumentation
    
    $
    14,891,000
    
    
    
    31.2
    %
    
    $
    3,840,000
    
        
    8.5
    %

    
    
    287.8
    %Aerospace
    
    
    13,441,000
    
    
    
    28.2
    
    
    
    14,531,000
    
    
    
    32.1
    
    
    
    (7.5
    )Industrial/Other
    
    
    12,293,000
    
    
    
    25.8
    
    
    
    16,147,000
    
    
    
    35.6
    
    
    
    (23.9
    )Government
    
    
    7,101,000
    
    
    
    14.8
    
    
    
    10,785,000
    
    
    
    23.8
    
    
    
    (34.2
    )Totals
    
    $
    47,726,000
    
    
    
    100.0
    %
    
    $
    45,303,000
    
    
    
    100.0
    %
    
    
    5.3
    %
   2007
    
    
    2006Net sales
    
    
    100.0
    %
    
    
    100.0
    %Costs of goods sold
    
    
    98.5
    
    
    
    89.5Gross profit
    
    
    1.5
    
    
    
    10.5Selling and administrative expenses
    
    
    8.9
    
    
    
    8.7Other operating expenses  net
    
    
    0.3
    
    
    
    0.1Operating income (loss)
    
    
    (7.7
    )
    
    
    1.7Other income (expense)  net
    
    
    (0.2
    )
    
    
    0.7Income (loss) before income taxes
    
    
    (7.9
    )
    
    
    2.4Provision (credit) for income taxes
    
    
    (3.1
    )
    
    
    0.8Net income (loss)
    
    
    (4.8
    )%
    
    
    1.6
    %
  19




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##### Table of Contents



Nine months ended March 31:YEAR TO DATE
    
    2007
    
    
    2006MARKET
    
    Sales
    
    
    % of Total
    
    
    Sales
    
    
    % of Total
    
    
    % ChangeMedical/Scientific Instrumentation
    
    $
    45,707,000
    
    
    
    30.7
    %
    
    $
    10,537,000
    
    
    
    8.7
    %
    
    
    333.8
    %Aerospace
    
    
    42,187,000
    
    
    
    28.3
    
    
    
    38,363,000
    
    
    
    31.9
    
    
    
    10.0Industrial/Other
    
    
    41,827,000
    
    
    
    28.0
    
    
    
    43,513,000
    
    
    
    36.2
    
    
    
    (3.9
    )Government
    
    
    19,378,000
    
    
    
    13.0
    
    
    
    27,889,000
    
    
    
    23.2
    
    
    
    (30.5
    )Totals
    
    $
    149,099,000
    
    
    
    100.0
    %
    
    $
    120,302,000
    
    
    
    100.0
    %
    
    
    23.9
    %
   20




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##### Table of Contents



2007
    
    
    2006Net sales
    
    
    100.0
    %
    
    
    100.0
    %Costs of goods sold
    
    
    96.7
    
    
    
    91.6Gross profit
    
    
    3.3
    
    
    
    8.4Selling and administrative expenses
    
    
    8.7
    
    
    
    9.7Other operating (income) expenses  net
    
    
    0.0
    
    
    
    0.1Operating loss
    
    
    (5.4
    )
    
    
    (1.4
    )Other income (expense)  net
    
    
    (0.6
    )
    
    
    0.9Loss before income taxes
    
    
    (6.0
    )
    
    
    (0.5
    )Credit for income taxes
    
    
    (1.9
    )
    
    
    (0.2
    )Net loss
    
    
    (4.1
    )%
    
    
    (0.3
    )%
    21




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##### Table of Contents



22




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##### Table of Contents



LIQUIDITY AND CAPITAL RESOURCES
        23




---



##### Table of Contents



CONTRACTUAL OBLIGATIONS AND COMMITMENTS
  CRITICAL ACCOUNTING POLICIES AND ESTIMATES
  Environmental Contingencies
  24




---



##### Table of Contents



Government Contract Cost Estimates
  Commercial Inventory Valuation Allowances
   Allowance for Probable Losses on Receivables
  Pension Obligations
 Employers Accounting for Pensions
 25




---



##### Table of Contents



Business Combinations
   Goodwill and Customer Relationships
 Goodwill and Other
Intangible Assets.
  26




---



##### Table of Contents



OTHER
 Litigation
     
 Item 3. Quantitative and Qualitative Disclosures About Market Risk
 Market Risk Exposure
   
 Item 4. Controls and Procedures
  27




---



##### Table of Contents



Part II. Other Information
 
 Item 1. Legal Proceedings
  Environmental Remediation
      28




---



##### Table of Contents



Customer Relationships
    Product Issues
  
 Item 1(a). Risk Factors
  29




---



##### Table of Contents



Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
 (c) Issuer
Repurchases of Equity Securities 
  
 Item 6. Exhibits
 3.1
    
    Amended Articles of Incorporation of the Registrant were filed on Form 10-Q for
the three-month period ended September 30, 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 September 30, 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: May 10, 2007
    
    /s/ DAVID W. HOCKENBROCHTDavid W. Hockenbrocht, Chief Executive OfficerDate: May 10, 2007
    
    /s/ RICHARD L. LANGLEYRichard L. Langley, Chief Financial
Officer
 30