##### Table of Contents



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 FORM 10-Q
 þ
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For
the quarterly period ended December 31, 2007
 or o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For
the transition period from  to
 Commission File number 1-1000
 SPARTON CORPORATION
  OHIO
  38-1054690
  2400 East Ganson Street, Jackson, Michigan 49202
  (517) 787-8600
  þ o
  Large
accelerated filer o
    
    Accelerated filer o
    
    Non-accelerated filer
þ
    
    Smaller reporting company o(Do not check if a smaller reporting company)
 o þ
  Class of Common Stock
    
    Shares Outstanding atJanuary 31, 2008$1.25 Par Value
    
    9,811,507




---



##### 



TABLE OF CONTENTS
 Part I. Financial InformationItem 1.
    
    Financial Statements (Interim, Unaudited)Condensed Consolidated Balance Sheets at December 31, 2007 and June 30, 2007
    
    
    3Condensed Consolidated Statements of Operations for the three months and six months ended December 31, 2007 and 2006
    
    
    4Condensed Consolidated Statements of Cash Flows for the six months ended December 31, 2007 and 2006
    
    
    5Condensed Consolidated Statements of Shareowners Equity for the six months ended December 31, 2007 and 2006
    
    
    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
    
    
    27Item 4T.
    
    Controls and Procedures
    
    
    27Part II. Other InformationItem 1.
    
    Legal Proceedings
    
    
    27Item 1(a).
    
    Risk Factors
    
    
    29Item 2.
    
    Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    29Item 6.
    
    Exhibits
    
    
    30Signatures
    
    
    30EX-31.1EX-31.2EX-32.1




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##### Table of Contents



Part I. Financial Information
 
 Item 1. Financial Statements (Interim, Unaudited)
 
 
 December 31, 2007
    
    
    June 30, 2007ASSETSCurrent assets:Cash and cash equivalents
    
    $
    6,505,132
    
    
    $
    3,982,485Accounts receivable
    
    
    28,598,258
    
    
    
    24,566,104Inventories and costs of contracts in progress
    
    
    53,505,175
    
    
    
    53,520,533Income taxes recoverable
    
    
    740,007
    
    
    
    485,074Deferred income taxes
    
    
    1,984,034
    
    
    
    2,287,438Prepaid expenses and other current assets
    
    
    916,888
    
    
    
    949,092Total current assets
    
    
    92,249,494
    
    
    
    85,790,726Property, plant and equipment  net
    
    
    17,409,669
    
    
    
    17,721,812Deferred income taxes  non current
    
    
    5,047,914
    
    
    
    4,630,819Goodwill
    
    
    16,377,805
    
    
    
    16,378,327Other intangibles  net
    
    
    6,003,021
    
    
    
    6,243,647Other non current assets
    
    
    4,291,594
    
    
    
    6,242,467Total assets
    
    $
    141,379,497
    
    
    $
    137,007,798LIABILITIES AND SHAREOWNERS EQUITYCurrent liabilities:Short-term bank borrowings
    
    $
    4,500,000
    
    
    $
    1,000,000Current portion of long-term debt
    
    
    3,973,282
    
    
    
    3,922,350Accounts payable
    
    
    21,815,968
    
    
    
    15,781,046Salaries and wages
    
    
    4,767,604
    
    
    
    4,806,724Accrued health benefits
    
    
    1,333,481
    
    
    
    1,359,844Other accrued liabilities
    
    
    5,879,641
    
    
    
    5,931,638Total current liabilities
    
    
    42,269,976
    
    
    
    32,801,602Pension liability
    
    
    211,565
    
    
    
    12,495Long-term debt  non current portion
    
    
    10,088,502
    
    
    
    12,088,254Environmental remediation  non current portion
    
    
    5,463,647
    
    
    
    5,625,776Total liabilities
    
    
    58,033,690
    
    
    
    50,528,127Shareowners equity:Preferred stock, no par value; 200,000 shares authorized, none outstanding
    
    
    
    
    
    
    Common stock, $1.25 par value; 15,000,000 shares authorized,
9,811,507 shares outstanding at December 31 and June 30, 2007
    
    
    12,264,384
    
    
    
    12,264,384Capital in excess of par value
    
    
    19,546,439
    
    
    
    19,474,097Retained earnings
    
    
    53,445,031
    
    
    
    56,730,643Accumulated other comprehensive loss
    
    
    (1,910,047
    )
    
    
    (1,989,453
    )Total shareowners equity
    
    
    83,345,807
    
    
    
    86,479,671Total liabilities and shareowners equity
    
    $
    141,379,497
    
    
    $
    137,007,798




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Three months ended
    
    
    Six months ended2007
    
    
    2006
    
    
    2007
    
    
    2006Net sales
    
    $
    54,950,927
    
    
    $
    53,056,457
    
    
    $
    113,802,790
    
    
    $
    101,373,228Costs of goods sold
    
    
    51,286,598
    
    
    
    49,587,268
    
    
    
    108,522,915
    
    
    
    97,163,273Gross profit
    
    
    3,664,329
    
    
    
    3,469,189
    
    
    
    5,279,875
    
    
    
    4,209,955Selling and administrative expenses
    
    
    5,015,704
    
    
    
    4,393,064
    
    
    
    9,492,667
    
    
    
    8,714,296Amortization of intangibles
    
    
    120,312
    
    
    
    120,312
    
    
    
    240,625
    
    
    
    241,736EPA related  net environmental remediation
    
    
    1,073
    
    
    
    (210,807
    )
    
    
    928
    
    
    
    (201,230
    )Net (gain) loss on sale of property, plant and equipment
    
    
    (4,200
    )
    
    
    (2,048
    )
    
    
    (932,022
    )
    
    
    (205,723
    )5,132,889
    
    
    
    4,300,521
    
    
    
    8,802,198
    
    
    
    8,549,079Operating loss
    
    
    (1,468,560
    )
    
    
    (831,332
    )
    
    
    (3,522,323
    )
    
    
    (4,339,124
    )Other income (expense):Interest and investment income (loss)
    
    
    51,528
    
    
    
    (79,904
    )
    
    
    78,246
    
    
    
    71,027Interest expense
    
    
    (295,248
    )
    
    
    (290,723
    )
    
    
    (600,340
    )
    
    
    (587,722
    )Equity loss in investment
    
    
    (76,000
    )
    
    
    (19,000
    )
    
    
    (200,000
    )
    
    
    (7,000
    )Other  net
    
    
    111,440
    
    
    
    (278,622
    )
    
    
    593,805
    
    
    
    (259,905
    )(208,280
    )
    
    
    (668,249
    )
    
    
    (128,289
    )
    
    
    (783,600
    )Loss before income taxes
    
    
    (1,676,840
    )
    
    
    (1,499,581
    )
    
    
    (3,650,612
    )
    
    
    (5,122,724
    )Provision (credit) for income taxes
    
    
    188,000
    
    
    
    (122,000
    )
    
    
    (365,000
    )
    
    
    (1,281,000
    )Net loss
    
    $
    (1,864,840
    )
    
    $
    (1,377,581
    )
    
    $
    (3,285,612
    )
    
    $
    (3,841,724
    )Loss per share  basic and diluted
    
    $
    (0.19
    )
    
    $
    (0.14
    )
    
    $
    (0.33
    )
    
    $
    (0.39
    )




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##### Table of Contents



Six months ended December 31,2007
    
    
    2006Cash Flows From Operating Activities:Net loss
    
    $
    (3,285,612
    )
    
    $
    (3,841,724
    )Adjustments to reconcile net loss to net cash provided by (used in) operating activities:Depreciation, amortization and accretion
    
    
    1,131,366
    
    
    
    1,309,563Deferred income tax credit
    
    
    (154,596
    )
    
    
    Loss on sale of investment securities
    
    
    
    
    
    
    244,765Equity loss in investment
    
    
    200,000
    
    
    
    7,000Pension expense
    
    
    319,381
    
    
    
    248,483Share-based compensation
    
    
    72,342
    
    
    
    134,360Gain on sale of property, plant and equipment
    
    
    (932,022
    )
    
    
    (7,048
    )Gain from sale of non-operating land
    
    
    
    
    
    
    (198,675
    )Other, NRTC litigation loss
    
    
    1,643,396
    
    
    
    47,420Changes in operating assets and liabilities:Accounts receivable
    
    
    (4,032,154
    )
    
    
    (838,678
    )Income taxes recoverable
    
    
    (254,933
    )
    
    
    (1,147,000
    )Inventories, prepaid expenses and other current assets
    
    
    (96,434
    )
    
    
    (2,848,009
    )Accounts payable and accrued liabilities
    
    
    5,755,836
    
    
    
    (2,414,705
    )Net cash provided by (used in) operating activities
    
    
    366,570
    
    
    
    (9,304,248
    )Cash Flows From Investing Activities:Proceeds from sale of investment securities
    
    
    
    
    
    
    15,578,362Proceeds from maturity of investment securities
    
    
    
    
    
    
    465,645Purchases of property, plant and equipment
    
    
    (573,903
    )
    
    
    (2,167,460
    )Proceeds from sale of non-operating land
    
    
    
    
    
    
    811,175Proceeds from sale of property, plant and equipment
    
    
    1,076,018
    
    
    
    7,048Other, principally noncurrent other assets
    
    
    107,477
    
    
    
    176Net cash provided by investing activities
    
    
    609,592
    
    
    
    14,694,946Cash Flows From Financing Activities:Net short-term bank borrowings
    
    
    3,500,000
    
    
    
    Repayment of long-term debt
    
    
    (1,953,515
    )
    
    
    (1,895,766
    )Proceeds from the exercise of stock options
    
    
    
    
    
    
    1,332,402Tax effect from stock transactions
    
    
    
    
    
    
    175,911Repurchases of common stock
    
    
    
    
    
    
    (2,523,920
    )Net cash provided by (used in) financing activities
    
    
    1,546,485
    
    
    
    (2,911,373
    )Increase in cash and cash equivalents
    
    
    2,522,647
    
    
    
    2,479,325Cash and cash equivalents at beginning of period
    
    
    3,982,485
    
    
    
    7,503,438Cash and cash equivalents at end of period
    
    $
    6,505,132
    
    
    $
    9,982,763




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Six months ended December 31, 2007Capital
    
    
    
    
    
    
    Accumulated 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
    
    
    
    
    
    
    
    
    
    
    72,342
    
    
    
    
    
    
    
    
    
    
    
    72,342Comprehensive income (loss), net of tax:Net loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (3,285,612
    )
    
    
    
    
    
    
    (3,285,612
    )Amortization of unrecognized pension
costs
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    79,406
    
    
    
    79,406Comprehensive loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (3,206,206
    )Balance at December 31, 2007
    
    
    9,811,507
    
    
    $
    12,264,384
    
    
    $
    19,546,439
    
    
    $
    53,445,031
    
    
    $
    (1,910,047
    )
    
    $
    83,345,807
 Six months ended December 31, 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)
    
    
    466,365
    
    
    
    582,956
    
    
    
    3,404,465
    
    
    
    (3,989,398
    )
    
    
    
    
    
    
    (1,977
    )Stock options exercised, net of common
stock surrendered to facilitate exercise
    
    
    232,347
    
    
    
    290,434
    
    
    
    1,041,968
    
    
    
    
    
    
    
    
    
    
    
    1,332,402Repurchases of common stock as part
of 2005 share repurchase program
    
    
    (292,744
    )
    
    
    (365,930
    )
    
    
    (463,554
    )
    
    
    (1,694,436
    )
    
    
    
    
    
    
    (2,523,920
    )Share-based compensation
    
    
    
    
    
    
    
    
    
    
    134,360
    
    
    
    
    
    
    
    
    
    
    
    134,360Tax effect of stock transactions
    
    
    
    
    
    
    
    
    
    
    175,911
    
    
    
    
    
    
    
    
    
    
    
    175,911Comprehensive income (loss), net of tax:Net loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (3,841,724
    )
    
    
    
    
    
    
    (3,841,724
    )Net unrealized loss on investment
securities owned
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    122,606
    
    
    
    122,606Reclassifcation adjustment for net gain
realized and reported in net loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    161,545
    
    
    
    161,545Net unrealized gain on equity investment
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    50,000
    
    
    
    50,000Comprehensive loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (3,507,573
    )Balance at December 31, 2006
    
    
    9,798,273
    
    
    $
    12,247,841
    
    
    $
    19,485,140
    
    
    $
    60,657,546
    
    
    $
    69,054
    
    
    $
    92,459,581




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##### Table of Contents



NOTE 1. BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
 Basis of presentation 
  Business Acquisition  Business Combinations;
 Operations 
 Use of estimates 




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##### Table of Contents



Revenue recognition 
 Accounts receivable, credit practices, and allowance for probable losses 
  Fair value of financial instruments 
 Investment securities 
  Other investment 
 Market risk exposure




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##### Table of Contents



Long-lived assets 
 Other assets 
 Common stock repurchases 
 Deferred income taxes 
 Supplemental cash flows information 
 2007
    
    
    2006Net cash paid (refunded) during the period for:Income taxes
    
    $
    (46,000
    )
    
    $
    2,000Interest (including $4,000 of capitalized interest in fiscal 2008)
    
    $
    601,000
    
    
    $
    575,000
 New accounting standards The Fair Value Option for Financial Assets and Financial Liabilities Fair Value Measurements
 Employers Accounting for Defined Benefit Pension
and Other Postretirement Plans




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Accounting for Uncertainty in Income Taxes Accounting for Income Taxes. Definition of Settlement in FASB
Interpretation No. 48
  NOTE 2. INVENTORIES AND COSTS OF CONTRACTS IN PROGRESS
   December 31, 2007
    
    
    June 30, 2007Raw materials
    
    $
    36,629,000
    
    
    $
    36,627,000Work in process and finished goods
    
    
    16,876,000
    
    
    
    16,894,000$
    53,505,000
    
    
    $
    53,521,000




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##### Table of Contents



NOTE 3. DEFINED BENEFIT PENSION PLAN
 Periodic benefit cost 
 Three months ended
    
    
    Six months ended2007
    
    
    2006
    
    
    2007
    
    
    2006Service cost
    
    
    146,000
    
    
    $
    111,000
    
    
    
    269,000
    
    
    $
    247,000Interest cost
    
    
    145,000
    
    
    
    141,000
    
    
    
    303,000
    
    
    
    316,000Expected return on plan assets
    
    
    (160,000
    )
    
    
    (194,000
    )
    
    
    (373,000
    )
    
    
    (434,000
    )Amortization of prior service cost
    
    
    25,000
    
    
    
    23,000
    
    
    
    51,000
    
    
    
    51,000Amortization of net loss
    
    
    39,000
    
    
    
    31,000
    
    
    
    69,000
    
    
    
    68,000Net periodic benefit cost
    
    $
    195,000
    
    
    $
    112,000
    
    
    $
    319,000
    
    
    $
    248,000
  NOTE 4. GOODWILL AND OTHER INTANGIBLES
 Business Combinations Goodwill and
Other Intangible Assets Accounting for the Impairment or Disposal
of Long-lived Assets
 AmortizableGoodwill
    
    
    Intangibles
    
    
    Total IntangiblesBalance at July 1, 2006
    
    $
    15,744,000
    
    
    $
    6,726,000
    
    
    $
    22,470,000Goodwill additions
    
    
    634,000
    
    
    
    
    
    
    
    634,000Amortization
    
    
    
    
    
    
    (482,000
    )
    
    
    (482,000
    )Balance at June 30, 2007
    
    $
    16,378,000
    
    
    $
    6,244,000
    
    
    $
    22,622,000Amortization
    
    
    
    
    
    
    (241,000
    )
    
    
    (241,000
    )Balance at December 31, 2007
    
    $
    16,378,000
    
    
    $
    6,003,000
    
    
    $
    22,381,000
 Goodwill 
 Other intangibles 




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##### Table of Contents



NOTE 5. BORROWINGS
 Short-term debt maturities and line of credit 
  Long-term debt 
 December 31, 2007
    
    
    June 30, 2007Industrial Revenue bonds, face value
    
    $
    2,321,000
    
    
    $
    2,376,000Less unamortized purchase discount
    
    
    136,000
    
    
    
    141,000Industrial Revenue bonds, carrying value
    
    
    2,185,000
    
    
    
    2,235,000Bank loan
    
    
    7,000,000
    
    
    
    8,000,000Notes payable
    
    
    4,877,000
    
    
    
    5,776,000Total long-term debt
    
    
    14,062,000
    
    
    
    16,011,000Less current portion
    
    
    3,973,000
    
    
    
    3,922,000Long-term debt, net of current portion
    
    $
    10,089,000
    
    
    $
    12,089,000




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NOTE 6. COMMITMENTS AND CONTINGENCIES
 Environmental Remediation
   Customer Relationships
    Product Issues




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##### Table of Contents



14




NOTE 7. COMMON STOCK OPTIONS


Share-Based Payment,








Three months ended
    
    Six months ended2007
    
    2006
    
    2007
    
    2006Share-based compensation expense
    
    $
    52,000
    
    
    $
    68,000
    
    
    $
    72,000
    
    
    $
    134,000Related tax benefit
    
    
    
    
    
    $
    21,000
    
    
    
    
    
    
    $
    21,000Share-based compensation
expense impacted basic and
diluted per share amounts by
approximately
    
    
    
    
    
    $
    0.01
    
    
    
    
    
    
    $
    0.01










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##### Table of Contents



15


Wtd. Avg.RemainingTotal Shares
    
    Wtd. Avg.
    
    Contractual
    
    AggregateUnder Option
    
    Exercise Price
    
    Term (years)
    
    Intrinsic ValueOutstanding at July 1, 2007
    
    
    300,303
    
    
    $
    7.82
    
    
    
    5.74
    
    
    $
    66,000Granted
    
    
    Exercised
    
    
    Forfeited or expired
    
    
    (76,918
    )Outstanding at December 31, 2007
    
    
    223,385
    
    
    $
    8.22
    
    
    
    7.15
    
    
    
    Exercisable at December 31, 2007
    
    
    123,813
    
    
    $
    7.97
    
    
    
    6.80
    
    
    
    






NOTE 8. EARNINGS (LOSS) PER SHARE






Three months ended
    
    
    Six months ended2007
    
    
    2006
    
    
    2007
    
    
    2006Weighted average
shares outstanding
    
    
    9,811,507
    
    
    
    9,834,019
    
    
    
    9,811,507
    
    
    
    9,842,970Basic and diluted
loss per share
    
    $
    (0.19
    )
    
    $
    (0.14
    )
    
    $
    (0.33
    )
    
    $
    (0.39
    )


NOTE 9. COMPREHENSIVE INCOME (LOSS)




Three months ended
    
    
    Six months ended2007
    
    
    2006
    
    
    2007
    
    
    2006Net loss
    
    $
    (1,865,000
    )
    
    $
    (1,378,000
    )
    
    $
    (3,286,000
    )
    
    $
    (3,842,000
    )Other comprehensive income (loss), net of taxInvestment securities owned
    
    
    
    
    
    
    161,000
    
    
    
    
    
    
    
    284,000Investment securities held by investee accounted for
by the equity method
    
    
    
    
    
    
    39,000
    
    
    
    
    
    
    
    50,000Amortization of unrecognized pension costs
    
    
    42,000
    
    
    
    
    
    
    
    79,000
    
    
    
    42,000
    
    
    
    200,000
    
    
    
    79,000
    
    
    
    334,000Comprehensive loss
    
    $
    (1,823,000
    )
    
    $
    (1,178,000
    )
    
    $
    (3,207,000
    )
    
    $
    (3,508,000
    )








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16




NOTE 10. PLANT CLOSURE








Current assets  net of assets held for sale
    
    $
    9,000Property and plant (net), held for sale
    
    
    29,000Total assets (all current)
    
    $
    38,000Liabilities (all current)
    
    $
    136,000








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17





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














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18
  EXECUTIVE SUMMARY
  
    
    Consistent and successful sonobuoy drop tests contributing to increased sales and improved margins.
    
    Continued sales growth in the Medical/Scientific Instrumentation market and a
number of significant new program orders now in start-up.
    
    Improved margins from a better product mix, improved performance, and repricing on some products.
    
    The completion of the sale of the Deming, New Mexico facility at a gain.
  
    
    Sales of several lots of sonobuoys in the six month period which
carried minimal or no margin, which programs are now essentially complete.
    
    Significant new program start-up costs related to hiring staff,
training personnel and ordering material in advance of production,
compounded by customer delays leading to further unexpected cost growth.
    
    Increased selling and administrative expenses to support new program start-ups.
    
    Decreased sales and depressed margins in the Industrial/Other market,
due primarily to reduced sales and pricing concessions to one customer.
    
    The write-off of a $1.6 million claim (previously recorded as a
deferred asset), due to an adverse court opinion.
    
    Increased outside service costs related to the obligation to report
on internal control over financial reporting which begins at the end of this
fiscal year.
  RESULTS OF OPERATIONS
 Three months ended December 31:2007
    
    
    2006MARKET
    
    Sales
    
    
    % of Total
    
    
    Sales
    
    
    % of Total
    
    
    % ChangeMedical/Scientific Instrumentation
    
    $
    19,551,000
    
    
    
    35.6
    %
    
    $
    15,968,000
    
    
    
    30.1
    %
    
    
    22.4
    %Aerospace
    
    
    15,164,000
    
    
    
    27.6
    
    
    
    14,115,000
    
    
    
    26.6
    
    
    
    7.4Industrial/Other
    
    
    9,438,000
    
    
    
    17.2
    
    
    
    15,450,000
    
    
    
    29.1
    
    
    
    (38.9
    )Government
    
    
    10,798,000
    
    
    
    19.6
    
    
    
    7,523,000
    
    
    
    14.2
    
    
    
    43.5Totals
    
    $
    54,951,000
    
    
    
    100.0
    %
    
    $
    53,056,000
    
    
    
    100.0
    %
    
    
    3.6
    %
   2007
    
    2006Net sales
    
    
    100.0
    %
    
    
    100.0
    %Costs of goods sold
    
    
    93.3
    
    
    
    93.5Gross profit
    
    
    6.7
    
    
    
    6.5Selling and administrative expenses
    
    
    9.1
    
    
    
    8.3Other operating (income) expense  net
    
    
    0.3
    
    
    
    (0.2
    )Operating loss
    
    
    (2.7
    )
    
    
    (1.6
    )Other income (expense)  net
    
    
    (0.4
    )
    
    
    (1.2
    )Loss before income taxes
    
    
    (3.1
    )
    
    
    (2.8
    )Provision (credit) for income taxes
    
    
    0.3
    
    
    
    (0.2
    )Net loss
    
    
    (3.4
    )%
    
    
    (2.6
    )%




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19




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20 Six months ended December 31:2007
    
    
    2006MARKET
    
    Sales
    
    
    % of Total
    
    
    Sales
    
    
    % of Total
    
    
    % ChangeMedical/Scientific Instrumentation
    
    $
    38,754,000
    
    
    
    34.0
    %
    
    $
    30,816,000
    
    
    
    30.4
    %
    
    
    25.8
    %Aerospace
    
    
    29,695,000
    
    
    
    26.1
    
    
    
    28,746,000
    
    
    
    28.4
    
    
    
    3.3Industrial/Other
    
    
    20,823,000
    
    
    
    18.3
    
    
    
    29,534,000
    
    
    
    29.1
    
    
    
    (29.5
    )Government
    
    
    24,531,000
    
    
    
    21.6
    
    
    
    12,277,000
    
    
    
    12.1
    
    
    
    99.8Totals
    
    $
    113,803,000
    
    
    
    100.0
    %
    
    $
    101,373,000
    
    
    
    100.0
    %
    
    
    12.3
    %
    2007
    
    2006Net sales
    
    
    100.0
    %
    
    
    100.0
    %Costs of goods sold
    
    
    95.4
    
    
    
    95.8Gross profit
    
    
    4.6
    
    
    
    4.2Selling and administrative expenses
    
    
    8.3
    
    
    
    8.6Other operating income  net
    
    
    (0.6
    )
    
    
    (0.1
    )Operating loss
    
    
    (3.1
    )
    
    
    (4.3
    )Other expense  net
    
    
    (0.1
    )
    
    
    (0.8
    )Loss before income taxes
    
    
    (3.2
    )
    
    
    (5.1
    )Credit for income taxes
    
    
    (0.3
    )
    
    
    (1.3
    )Net loss
    
    
    (2.9
    )%
    
    
    (3.8
    )%




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21




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22 LIQUIDITY AND CAPITAL RESOURCES




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




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




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25  Employers Accounting for Defend Benefit Pension and Other Postretirement Plans
 Business Combinations
   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.




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26 Accounting for the
Impairment or Disposal of Long-lived Assets
  Income Taxes
  OTHER
 Litigation




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27 
 Item 3. Quantitative and Qualitative Disclosures About Market Risk
 MARKET RISK EXPOSURE
   
 Item 4T. Controls and Procedures
   
 Part II. Other Information
 
 Item 1. Legal Proceedings
  Environmental Remediation




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28     Customer Relationships




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29  Product Issues
   
 Item 1(a). Risk Factors
  
 Item 2. Unregistered Sales of Equity Securities and Use of Proceeds




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30 
 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: February 11, 2008
    /s/ DAVID W. HOCKENBROCHTDavid W. Hockenbrocht, Chief Executive OfficerDate: February 11, 2008
    /s/ RICHARD L. LANGLEYRichard L. Langley, Chief Financial Officer