##### 



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,
2006
 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 þ
 o þ
  Shares Outstanding atOctober 31, 2006Class of Common Stock
    
    (Unadjusted for October 25, 2006, Stock dividend)$1.25 Par Value
    
    9,356,280




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##### 



TABLE OF CONTENTS
 Part I. Financial InformationItem 1. Financial Statements (Interim, Unaudited)Condensed Consolidated Balance Sheets
at September 30, 2006 and June 30, 2006
    
    
    3Condensed Consolidated Statements of Operations
for the three months ended September 30, 2006 and 2005
    
    
    4Condensed Consolidated Statements of Cash Flows
for the three months ended September 30, 2006 and 2005
    
    
    5Condensed Consolidated Statements of Shareowners Equity
for the three months ended September 30, 2006 and 2005
    
    
    6Notes to Condensed Consolidated Financial Statements
    
    
    7Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    17Item 3. Quantitative and Qualitative Disclosures About Market Risk
    
    
    24Item 4. Controls and Procedures
    
    
    24Part II. Other InformationItem 1. Legal Proceedings
    
    
    24Item 1(a). Risk Factors
    
    
    26Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    26Item 4. Submission of Matters to a Vote of Security Holders
    
    
    27Item 6. Exhibits
    
    
    28Signatures
    
    
    28
 2




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##### 



Part I. Financial Information
Item 1. Financial Statements (Interim, Unaudited)
 
 September 30, 2006
    
    
    June 30, 2006ASSETSCurrent assets:Cash and cash equivalents
    
    $
    6,199,185
    
    
    $
    7,503,438Investment securities
    
    
    11,140,191
    
    
    
    15,969,136Accounts receivable
    
    
    25,186,904
    
    
    
    25,108,442Income taxes recoverable
    
    
    987,434
    
    
    
    Inventories and costs of contracts in progress
    
    
    49,796,273
    
    
    
    46,892,183Deferred income taxes
    
    
    2,470,836
    
    
    
    2,662,692Prepaid expenses and other current assets
    
    
    608,665
    
    
    
    1,462,190Total current assets
    
    
    96,389,488
    
    
    
    99,598,081Pension asset
    
    
    4,284,038
    
    
    
    4,420,932Property, plant and equipment  net
    
    
    18,216,067
    
    
    
    17,598,906Goodwill and other intangibles  net
    
    
    22,348,385
    
    
    
    22,469,807Other assets
    
    
    5,966,734
    
    
    
    5,970,010Total assets
    
    $
    147,204,712
    
    
    $
    150,057,736LIABILITIES AND SHAREOWNERS EQUITYCurrent liabilities:Current portion of long-term debt
    
    $
    3,823,000
    
    
    $
    3,815,833Accounts payable
    
    
    16,599,572
    
    
    
    16,748,814Salaries and wages
    
    
    3,945,866
    
    
    
    4,388,396Accrued health benefits
    
    
    1,179,432
    
    
    
    1,142,693Other accrued liabilities
    
    
    6,042,691
    
    
    
    4,996,408Income taxes payable
    
    
    
    
    
    
    308,814Total current liabilities
    
    
    31,590,561
    
    
    
    31,400,958Long-term debt  noncurrent portion
    
    
    15,485,463
    
    
    
    16,010,616Environmental remediation  noncurrent portion
    
    
    5,725,180
    
    
    
    5,795,784Total liabilities
    
    
    52,801,204
    
    
    
    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,
9,841,091 shares outstanding (9,392,305 at June 30, 2006)
    
    
    12,301,364
    
    
    
    11,740,381Capital in excess of par value
    
    
    18,664,020
    
    
    
    15,191,990Retained earnings
    
    
    63,569,276
    
    
    
    70,183,104Accumulated other comprehensive loss
    
    
    (131,152
    )
    
    
    (265,097
    )Total shareowners equity
    
    
    94,403,508
    
    
    
    96,850,378Total liabilities and shareowners equity
    
    $
    147,204,712
    
    
    $
    150,057,736
  3




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##### 



Three months ended September 30,2006
    
    
    2005Net sales
    
    $
    48,316,771
    
    
    $
    37,306,118Costs of goods sold
    
    
    47,664,636
    
    
    
    35,611,558Gross profit
    
    
    652,135
    
    
    
    1,694,560Selling and administrative expenses
    
    
    4,321,232
    
    
    
    4,014,271Amortization of intangibles
    
    
    121,424
    
    
    
    EPA related  net environmental remediation
    
    
    9,577
    
    
    
    (29,198
    )Net (gain) loss on sale of property, plant and equipment
    
    
    (203,675
    )
    
    
    11,1564,248,558
    
    
    
    3,996,229Operating loss
    
    
    (3,596,423
    )
    
    
    (2,301,669
    )Other income (expense):Interest and investment income
    
    
    150,931
    
    
    
    264,448Interest expense
    
    
    (296,999
    )
    
    
    Equity income in investment
    
    
    12,000
    
    
    
    17,000Other  net
    
    
    107,348
    
    
    
    109,275(26,720
    )
    
    
    390,723Loss before income taxes
    
    
    (3,623,143
    )
    
    
    (1,910,946
    )Credit for income taxes
    
    
    (1,159,000
    )
    
    
    (612,000
    )Net loss
    
    $
    (2,464,143
    )
    
    $
    (1,298,946
    )Loss per share  basic and diluted1
    
    $
    (0.25
    )
    
    $
    (0.13
    )
 
 (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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##### 



Three months ended September 30,2006
    
    
    2005Cash Flows From Operating Activities:Net loss
    
    $
    (2,464,143
    )
    
    $
    (1,298,946
    )Adjustments to reconcile net loss to net cash (used in) provided by operating activities:Depreciation, amortization and accretion
    
    
    748,422
    
    
    
    484,270Deferred income taxes
    
    
    145,000
    
    
    
    14,000Loss on sale of investment securities
    
    
    52,846
    
    
    
    2,151Equity income in investment
    
    
    (12,000
    )
    
    
    (17,000
    )Pension expense
    
    
    136,894
    
    
    
    120,115Share-based compensation
    
    
    66,710
    
    
    
    65,229(Gain) loss on sale of property, plant and equipment
    
    
    (5,000
    )
    
    
    11,156Gain from sale of non-operating land
    
    
    (198,675
    )
    
    
    Other, primarily changes in customer and vendor claims
    
    
    
    
    
    
    (26,694
    )Changes in operating assets and liabilities:Accounts receivable
    
    
    (78,462
    )
    
    
    3,283,178Environmental settlement receivable
    
    
    
    
    
    
    5,455,000Income taxes recoverable
    
    
    (987,434
    )
    
    
    (685,706
    )Inventories, prepaid expenses and other current assets
    
    
    (2,663,065
    )
    
    
    970,193Accounts payable and accrued liabilities
    
    
    112,179
    
    
    
    (7,405,793
    )Net cash (used in) provided by operating activities
    
    
    (5,146,728
    )
    
    
    971,153Cash Flows From Investing Activities:Purchases of investment securities
    
    
    
    
    
    
    (2,855,879
    )Proceeds from sale of investment securities
    
    
    4,806,900
    
    
    
    538,167Proceeds from maturity of investment securities
    
    
    150,000
    
    
    
    178,047Purchases of property, plant and equipment
    
    
    (1,244,161
    )
    
    
    (195,298
    )Proceeds from non-operating land sale
    
    
    811,175
    
    
    
    Proceeds from sale of property, plant and equipment
    
    
    5,000
    
    
    
    Other, principally noncurrent other assets
    
    
    15,276
    
    
    
    (9,476
    )Net cash provided by (used in) investing activities
    
    
    4,544,190
    
    
    
    (2,344,439
    )Cash Flows From Financing Activities:Repayment of long-term debt
    
    
    (518,333
    )
    
    
    Proceeds from the exercise of stock options
    
    
    24,552
    
    
    
    258,142Tax effect from stock transactions
    
    
    3,248
    
    
    
    Repurchases of common stock
    
    
    (211,182
    )
    
    
    Cash dividend
    
    
    
    
    
    
    (889,409
    )Net cash used in financing activities
    
    
    (701,715
    )
    
    
    (631,267
    )Decrease in cash and cash equivalents
    
    
    (1,304,253
    )
    
    
    (2,004,553
    )Cash and cash equivalents at beginning of period
    
    
    7,503,438
    
    
    
    9,368,120Cash and cash equivalents at end of period
    
    $
    6,199,185
    
    
    $
    7,363,567
  5




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##### 



Three months ended September 30, 2006Capital
    
    
    
    
    
    
    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)
    
    
    468,623
    
    
    
    585,779
    
    
    
    3,420,951
    
    
    
    (4,006,730
    )
    
    
    
    
    
    
    Stock options exercised
    
    
    4,255
    
    
    
    5,319
    
    
    
    19,233
    
    
    
    
    
    
    
    
    
    
    
    24,552Repurchases of common stock as part
of 2005 share repurchase program
    
    
    (24,092
    )
    
    
    (30,115
    )
    
    
    (38,112
    )
    
    
    (142,955
    )
    
    
    
    
    
    
    (211,182
    )Share-based compensation
    
    
    
    
    
    
    
    
    
    
    66,710
    
    
    
    
    
    
    
    
    
    
    
    66,710Tax effect of stock transactions
    
    
    
    
    
    
    
    
    
    
    3,248
    
    
    
    
    
    
    
    
    
    
    
    3,248Comprehensive income (loss), net of tax:Net loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (2,464,143
    )
    
    
    
    
    
    
    (2,464,143
    )Net unrealized gain on investment
securities owned
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    88,067
    
    
    
    88,067Reclassification adjustment for net gain
realized and reported in net loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    34,878
    
    
    
    34,878Net unrealized gain on equity investment
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    11,000
    
    
    
    11,000Comprehensive loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (2,330,198
    )Balance at September 30, 2006
    
    
    9,841,091
    
    
    $
    12,301,364
    
    
    $
    18,664,020
    
    
    $
    63,569,276
    
    
    $
    (131,152
    )
    
    $
    94,403,508
 Three months ended September 30, 2005Capital
    
    
    
    
    
    
    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)
    
    
    444,792
    
    
    
    555,990
    
    
    
    3,807,417
    
    
    
    (4,363,407
    )
    
    
    
    
    
    
    Stock options exercised, net of common
stock surrendered to facilitate exercise
    
    
    65,407
    
    
    
    81,759
    
    
    
    176,383
    
    
    
    
    
    
    
    
    
    
    
    258,142Cash dividend ($0.10 per share)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (889,409
    )
    
    
    
    
    
    
    (889,409
    )Share-based compensation
    
    
    
    
    
    
    
    
    
    
    65,229
    
    
    
    
    
    
    
    
    
    
    
    65,229Comprehensive income (loss), net of tax:Net loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,298,946
    )
    
    
    
    
    
    
    (1,298,946
    )Net unrealized loss on investment
securities owned
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (116,055
    )
    
    
    (116,055
    )Reclassification adjustment for net loss
realized and reported in net loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,420
    
    
    
    1,420Net unrealized gain on equity investment
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    14,000
    
    
    
    14,000Comprehensive loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,399,581
    )Balance at September 30, 2005
    
    
    9,340,627
    
    
    $
    11,675,784
    
    
    $
    14,607,786
    
    
    $
    69,067,630
    
    
    $
    (144,833
    )
    
    $
    95,206,367
  6




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##### 



NOTE 1. BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
 Basis of presentation 
  Business Acquisition 
 Business Combinations
  Total
    
    
    AstroNet sales
    
    $
    48,317,000
    
    
    $
    11,355,000Costs of goods sold
    
    
    47,665,000
    
    
    
    10,458,000Gross profit
    
    $
    652,000
    
    
    $
    897,000Total assets at September 30, 2006
    
    $
    147,205,000
    
    
    $
    42,803,000
 Operations 
 Use of estimates 
 7




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##### 



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 
 2006
    
    
    2005Net cash paid for:Income taxes
    
    $
    3,000
    
    
    $
    2,509,000Interest
    
    $
    184,000
    
    
    $
    
 New
accounting standards Employers Accounting for
Defined Benefit Pension and Other Postretirement Plans
  Fair Value Measurements
 Accounting for Uncertainty in Income Taxes Accounting for Income Taxes.
 9




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##### 



Accounting Changes and Error Corrections, Accounting Changes,
 NOTE 2. INVESTMENT SECURITIES
   YearsWithin 1
    
    
    1 to 5
    
    
    5 to 10
    
    
    Over 10
    
    
    TotalDebt securities:Corporate  primarily U.S.
    
    $
    1,232,000
    
    
    $
    1,661,000
    
    
    $
    184,000
    
    
    $
    99,000
    
    
    $
    3,176,000U.S. government and federal agency
    
    
    1,484,000
    
    
    
    1,249,000
    
    
    
    1,815,000
    
    
    
    625,000
    
    
    
    5,173,000State and municipal
    
    
    1,169,000
    
    
    
    1,168,000
    
    
    
    454,000
    
    
    
    
    
    
    
    2,791,000Total debt securities
    
    $
    3,885,000
    
    
    $
    4,078,000
    
    
    $
    2,453,000
    
    
    $
    724,000
    
    
    $
    11,140,000
  NOTE 3. INVENTORIES AND COSTS OF CONTRACTS IN PROGRESS
   September 30, 2006
    
    
    June 30, 2006Raw materials
    
    $
    30,869,000
    
    
    $
    29,388,000Work in process and finished goods
    
    
    18,927,000
    
    
    
    17,504,000$
    49,796,000
    
    
    $
    46,892,000
  10




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##### 



NOTE 4. PENSION ASSET
 Periodic benefit cost 
 2006
    
    
    2005Service cost
    
    $
    128,000
    
    
    $
    137,000Interest cost
    
    
    163,000
    
    
    
    166,000Expected return on plan assets
    
    
    (227,000
    )
    
    
    (245,000
    )Amortization of prior service cost
    
    
    24,000
    
    
    
    24,000Amortization of net loss
    
    
    49,000
    
    
    
    38,000Net periodic benefit cost
    
    $
    137,000
    
    
    $
    120,000
  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
    
    
    $
    22,470,000Amortization
    
    
    
    
    
    
    (122,000
    )
    
    
    (122,000
    )Ending balance at September 30, 2006
    
    $
    15,744,000
    
    
    $
    6,604,000
    
    
    $
    22,348,000
  Goodwill 
 Other intangibles 
 NOTE 6. BORROWINGS
 Current debt maturities 
 11




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##### 



Long-term debt 
 September 30, 2006
    
    
    June 30, 2006Industrial Revenue bonds, face value
    
    $
    2,457,000
    
    
    $
    2,477,000Less unamortized purchase discount
    
    
    148,000
    
    
    
    150,000Industrial Revenue bonds, carrying value
    
    
    2,309,000
    
    
    
    2,327,000Bank loan
    
    
    9,500,000
    
    
    
    10,000,000Notes payable
    
    
    7,500,000
    
    
    
    7,500,000Total long-term debt
    
    
    19,309,000
    
    
    
    19,827,000Less current portion
    
    
    3,823,000
    
    
    
    3,816,000Long-term debt, net of current portion
    
    $
    15,486,000
    
    
    $
    16,011,000
      NOTE 7. COMMITMENTS AND CONTINGENCIES
 Environmental Remediation
  12




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##### 



Customer Relationships
    Product Issues
  NOTE 8. STOCK OPTIONS
  13




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##### 



Options Outstanding
    
    Options ExercisableWtd. Avg. Remaining
    
    Wtd. Avg.
    
    
    
    
    
    Wtd. Avg.Range
of Exercise Prices
    
    Number of shares
    
    Contractual Life (years)
    
    Exercise Price
    
    Number of shares
    
    Exercise Price$5.49 to $6.66
    
    
    374,807
    
    
    
    1.11
    
    
    $
    5.90
    
    
    
    364,528
    
    
    $
    5.88$7.70 to $8.57
    
    
    189,900
    
    
    
    8.74
    
    
    $
    8.53
    
    
    
    41,694
    
    
    $
    8.54564,707
    
    
    
    
    
    
    
    
    
    
    
    406,222
  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
    
    
    $
    935,000Granted
    
    
    26,250Exercised
    
    
    (4,255
    )Forfeited or expired
    
    
    (212
    )Outstanding at September 30, 2006
    
    
    564,707
    
    
    $
    6.77
    
    
    
    3.67
    
    
    $
    846,000Exercisable at September 30, 2006
    
    
    406,222
    
    
    $
    6.14
    
    
    
    1.74
    
    
    $
    884,000
  14




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##### 



Three months ended September 30, 2006Expected 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
 
 Black-Scholes assumption information: Expected life used is the time until expiration of the
options, which is consistent with the timing of the exercise of options historically experienced by
the Company. The expected volatility is based on a 10-year look-back of average stock prices which
is consistent with the current exercise life of options awarded. Risk free interest rate is based
upon the yield on 10-year treasury notes. Cash dividend yield has been set at zero, as the Company
has not historically declared or paid cash dividends on a regularly scheduled basis. NOTE 9. EARNINGS (LOSS) PER SHARE
    2006
    
    
    2005Weighted average shares outstanding
    
    
    9,385,557
    
    
    
    9,290,149Estimated weighted additional shares to be issued for the 5% common stock
dividend declared October 25, 2006.
    
    
    469,278
    
    
    
    464,507Weighted average shares outstanding  after stock dividend
    
    
    9,854,835
    
    
    
    9,754,656Effect of dilutive stock options
    
    
    
    
    
    
    Weighted average diluted shares outstanding
    
    
    9,854,835
    
    
    
    9,754,656Basic and diluted loss per share  after stock dividend
    
    $
    (0.25
    )
    
    $
    (0.13
    )
 NOTE 10. COMPREHENSIVE INCOME (LOSS)
  2006
    
    
    2005Net loss
    
    $
    (2,464,000
    )
    
    $
    (1,299,000
    )Other comprehensive income (loss), net of taxInvestment securities owned
    
    
    123,000
    
    
    
    (115,000
    )Investment securities held by investee accounted for by the equity method
    
    
    11,000
    
    
    
    14,000134,000
    
    
    
    (101,000
    )Comprehensive loss
    
    $
    (2,330,000
    )
    
    $
    (1,400,000
    )
 15




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September 30, 2006
    
    
    June 30, 2006Accumulated other comprehensive income (loss), net of tax:Investment securities owned
    
    $
    (161,000
    )
    
    $
    (284,000
    )Investment securities held by investee accounted for by the equity method
    
    
    30,000
    
    
    
    19,000Accumulated other comprehensive loss
    
    $
    (131,000
    )
    
    $
    (265,000
    )
 Goodwill and Other Intangible Assets
 16




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##### 



Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
     17




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##### 



RESULTS OF OPERATIONS
 Three months ended September 30:Fiscal 2006
    
    
    Fiscal 2005MARKET
    
    Sales
    
    
    % of Total
    
    
    Sales
    
    
    % of Total
    
    
    % ChangeMedical/Scientific Instrumentation
    
    $
    14,848,000
    
    
    
    30.7
    %
    
    $
    3,008,000
    
    
    
    8.1
    %
    
    
    393.6
    %Aerospace
    
    
    14,631,000
    
    
    
    30.3
    
    
    
    12,398,000
    
    
    
    33.2
    
    
    
    18.0Industrial/Other
    
    
    14,084,000
    
    
    
    29.2
    
    
    
    12,534,000
    
    
    
    33.6
    
    
    
    12.4Government
    
    
    4,754,000
    
    
    
    9.8
    
    
    
    9,366,000
    
    
    
    25.1
    
    
    
    (49.2
    )Totals
    
    $
    48,317,000
    
    
    
    100.0
    %
    
    $
    37,306,000
    
    
    
    100.0
    %
    
    
    29.5
    %
    2006
    
    2005Net sales
    
    
    100.0
    %
    
    
    100.0
    %Costs of goods sold
    
    
    98.7
    
    
    
    95.5Gross profit
    
    
    1.3
    
    
    
    4.5Selling and administrative expenses
    
    
    8.9
    
    
    
    10.7Other operating (income) expenses  net
    
    
    (0.2
    )
    
    
    Operating loss
    
    
    (7.4
    )
    
    
    (6.2
    )Other income (expense)  net
    
    
    (0.1
    )
    
    
    1.1Loss before income taxes
    
    
    (7.5
    )
    
    
    (5.1
    )Credit for income taxes
    
    
    (2.4
    )
    
    
    (1.6
    )Net loss
    
    
    (5.1
    )%
    
    
    (3.5
    )%
  18




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##### 



19




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##### 



LIQUIDITY AND CAPITAL RESOURCES
        20




---



##### 



CONTRACTUAL OBLIGATIONS AND COMMITMENTS
  CRITICAL ACCOUNTING POLICIES AND ESTIMATES
  Environmental Contingencies
  Government Contract Cost Estimates
  21




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##### 



Commercial Inventory Valuation Allowances
   Allowance for Probable Losses on Receivables
  Pension Obligations
 Employers Accounting for Pensions
 22




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##### 



Business Combinations
   Goodwill and Customer Relationships
 Goodwill and Other Intangible Assets.
  OTHER
 Litigation
   23




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##### 



Item 3. Quantitative and Qualitative Disclosures About Market Risk
 Market Risk Exposure
   Item 4. Controls and Procedures
   Part II. Other Information
 Item 1. Legal Proceedings
  Environmental Remediation
  24




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##### 



Customer Relationships
  25




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##### 



Product Issues
  Item 1(a). Risk Factors
  Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
 (c) Issuer Repurchases of Equity Securities 
  Total number
    
    Approximate dollar value ofTotal number of
    
    Average price
    
    shares purchased as part of
    
    shares that may yet bePeriod
    
    shares purchased
    
    paid per share
    
    publicly announced programs
    
    purchased under the programJuly 1-31
    
    
    4,200
    
    
    $
    8.65
    
    
    
    4,200
    
    
    $
    3,601,000August 1-31
    
    
    3,100
    
    
    
    8.90
    
    
    
    3,100
    
    
    
    3,573,000September 1-30
    
    
    16,792
    
    
    
    8.77
    
    
    
    16,792
    
    
    
    3,426,000Total
    
    
    24,092
    
    
    
    
    
    
    
    24,092
  26




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##### 



Item 4. Submission of Matters to a Vote of Security Holders
   NAME
    
    
    Votes FOR
    
    
    
    Votes ABSTAINEDJames N. DeBoer
    
    
    7,679,017
    
    
    
    1,123,246James D. Fast
    
    
    7,677,285
    
    
    
    1,124,978David W. Hockenbrocht
    
    
    7,657,917
    
    
    
    1,144,346
   27




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##### 



Item 6. Exhibits
 2
    
    Membership Purchase Agreement for the acquisition of Astro Instrumentation, LLC
was filed with Form 8-K on June 2, 2006, and is incorporated herein by reference.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: November 10, 2006
    
    /s/ DAVID W. HOCKENBROCHTDavid W. Hockenbrocht, Chief Executive OfficerDate: November 10, 2006
    
    /s/ RICHARD L. LANGLEYRichard L. Langley, Chief Financial Officer
 28