##### 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, 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
(State or other jurisdiction of incorporation or 
organization)
    
    38-1054690
(I.R.S. Employer Identification No.)425 N. Martingale Road, Suite 2050, Schaumburg, Illinois
(Address of principal executive offices)
    
    60173-2213
(Zip code)
 (847) 762-5800
 
 þ o
 o o
  Large accelerated filer o
    
    Accelerated filer o
    
    Non-accelerated filer o
    
    Smaller reporting company þ(Do not check if a smaller reporting company)
 o þ




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##### 



TABLE OF CONTENTS
 PART I
    
    FINANCIAL INFORMATION
    
    3ITEM 1.
    
    FINANCIAL STATEMENTS
    
    3CONDENSED CONSOLIDATED BALANCE SHEETS AS OF DECEMBER 31, 2009 AND JUNE 30, 2009 (UNAUDITED)
    
    3CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE THREE AND SIX MONTHS ENDEDDECEMBER 31, 2009 AND 2008 (UNAUDITED)
    
    4CONDENSED
CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE SIX MONTHS ENDED DECEMBER 31, 2009 AND 2008 (UNAUDITED)
    
    5CONDENSED
CONSOLIDATED STATEMENTS OF SHAREHOLDERS EQUITY FOR THE SIX MONTHS ENDEDDECEMBER 31, 2009 AND 2008 (UNAUDITED)
    
    6NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
    
    7ITEM 2.
    
    MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
    
    22ITEM 3.
    
    QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
    
    33ITEM 4T.
    
    CONTROLS AND PROCEDURES
    
    33PART II
    
    OTHER INFORMATION
    
    33ITEM 1.
    
    LEGAL PROCEEDINGS
    
    33ITEM 1A.
    
    RISK FACTORS
    
    33ITEM 2.
    
    UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
    
    33ITEM 3.
    
    DEFAULTS UPON SENIOR SECURITIES
    
    33ITEM 4.
    
    SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
    
    34ITEM 5.
    
    OTHER INFORMATION
    
    34ITEM 6.
    
    EXHIBITS
    
    35SIGNATURES
    
    36CERTIFICATIONSEX-31.1EX-31.2EX-32.1
  2




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##### Table of Contents



PART I. FINANCIAL INFORMATION
 
 Item 1. Financial Statements.
 
 SPARTON CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
  December 31,
    
    
    June 30,2009
    
    
    2009 (a)AssetsCurrent Assets:Cash and cash equivalents
    
    $
    12,012
    
    
    $
    36,261Accounts receivable, net of allowance for doubtful accounts of $365 and $534, respectively
    
    
    21,740
    
    
    
    38,163Inventories and costs of contracts in progress, net
    
    
    31,888
    
    
    
    38,435Deferred income taxes
    
    
    2,135
    
    
    
    35Property held for sale
    
    
    6,044
    
    
    
    5,129Prepaid expense and other current assets
    
    
    2,853
    
    
    
    1,992Total current assets
    
    
    76,672
    
    
    
    120,015Property, plant and equipment, net
    
    
    8,611
    
    
    
    9,833Goodwill
    
    
    17,693
    
    
    
    17,693Other intangible assets, net
    
    
    5,036
    
    
    
    5,270Restricted cash
    
    
    3,129
    
    
    
    Other non-current assets
    
    
    3,045
    
    
    
    2,191Total assets
    
    $
    114,186
    
    
    $
    155,002Liabilities
and Shareholders EquityCurrent Liabilities:Short-term bank borrowings
    
    $
    
    
    
    $
    15,500Current portion of long-term debt
    
    
    1,145
    
    
    
    4,142Accounts payable
    
    
    10,866
    
    
    
    26,418Accrued salaries and wages
    
    
    3,651
    
    
    
    5,023Accrued health benefits
    
    
    1,281
    
    
    
    1,578Current portion of pension liability
    
    
    160
    
    
    
    1,097Restructuring Accrual
    
    
    936
    
    
    
    2,365Advance billings on customer contracts
    
    
    19,682
    
    
    
    25,103Other accrued liabilities
    
    
    5,129
    
    
    
    5,891Total current liabilities
    
    
    42,850
    
    
    
    87,117Deferred income taxes  non-current
    
    
    1,340
    
    
    
    1,135Pension liability  non-current portion
    
    
    3,234
    
    
    
    4,061Long-term debt  non-current portion
    
    
    1,857
    
    
    
    3,317Environmental remediation  non-current portion
    
    
    4,336
    
    
    
    4,477Total liabilities
    
    
    53,617
    
    
    
    100,107Commitments and contingenciesShareholders Equity:Preferred stock, no par value; 200,000 shares authorized, none outstanding
    
    
    
    
    
    
    Common stock, $1.25 par value; 15,000,000 shares authorized, 9,978,507 and 9,951,507
shares outstanding, respectively
    
    
    12,473
    
    
    
    12,439Capital in excess of par value
    
    
    20,021
    
    
    
    19,671Retained earnings
    
    
    32,239
    
    
    
    27,586Accumulated other comprehensive loss
    
    
    (4,164
    )
    
    
    (4,801
    )Total
shareholders equity
    
    
    60,569
    
    
    
    54,895Total
liabilities and shareholders equity
    
    $
    114,186
    
    
    $
    155,002
 
 (a)
    
    Derived from the Companys audited financial statements as of June 30, 2009.  3




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##### Table of Contents



SPARTON CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
  For the Three Months Ended
    
    
    For the Six Months EndedDecember 31, 2009
    
    
    December 31, 2008
    
    
    December 31, 2009
    
    
    December 31, 2008Net sales
    
    $
    47,223
    
    
    $
    54,516
    
    
    $
    95,327
    
    
    $
    108,512Cost of goods sold
    
    
    39,082
    
    
    
    50,619
    
    
    
    79,766
    
    
    
    101,954Gross profit
    
    
    8,141
    
    
    
    3,897
    
    
    
    15,561
    
    
    
    6,558Operating Expense:Selling and administrative expenses
    
    
    5,151
    
    
    
    4,954
    
    
    
    9,731
    
    
    
    10,071Amortization of intangibles
    
    
    117
    
    
    
    121
    
    
    
    234
    
    
    
    241Restructuring/impairment charges
    
    
    1,007
    
    
    
    31
    
    
    
    1,883
    
    
    
    310Other, net
    
    
    556
    
    
    
    19
    
    
    
    571
    
    
    
    17Total operating expense
    
    
    6,831
    
    
    
    5,125
    
    
    
    12,419
    
    
    
    10,639Operating income (loss)
    
    
    1,310
    
    
    
    (1,228
    )
    
    
    3,142
    
    
    
    (4,081
    )Other income (expense)Interest expense
    
    
    (203
    )
    
    
    (489
    )
    
    
    (462
    )
    
    
    (858
    )Interest income
    
    
    8
    
    
    
    16
    
    
    
    16
    
    
    
    30Equity income (loss) in investment
    
    
    36
    
    
    
    (23
    )
    
    
    24
    
    
    
    (20
    )Canadian translation adjustment
    
    
    (28
    )
    
    
    (1,090
    )
    
    
    (22
    )
    
    
    (1,031
    )Other, net
    
    
    196
    
    
    
    
    
    
    
    60
    
    
    
    5Other income (expense)
    
    
    9
    
    
    
    (1,586
    )
    
    
    (384
    )
    
    
    (1,874
    )Income
(loss) before provision for income taxes
    
    
    1,319
    
    
    
    (2,814
    )
    
    
    2,758
    
    
    
    (5,955
    )Provision for (benefit from) income taxes
    
    
    (1,929
    )
    
    
    (23
    )
    
    
    (1,895
    )
    
    
    198Net income (loss)
    
    $
    3,248
    
    
    $
    (2,791
    )
    
    $
    4,653
    
    
    $
    (6,153
    )Income (loss) per share of common stock  basic and diluted
    
    $
    0.33
    
    
    $
    (0.28
    )
    
    $
    0.47
    
    
    $
    (0.63
    )Weighted average shares of common stock outstanding 
basic and diluted
    
    
    9,964,420
    
    
    
    9,811,507
    
    
    
    9,957,964
    
    
    
    9,811,507
  4




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SPARTON CORPORATION AND SUBSIDIARIES
 
 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED)
 For the Six Months EndedDecember 31,
    
    
    December 31,2009
    
    
    2008Cash Flows from Operating Activities:Net income (loss)
    
    $
    4,653
    
    
    $
    (6,153
    )Adjustments to reconcile net income (loss) to net cash provided by operating activities:Depreciation and amortization
    
    
    739
    
    
    
    968Amortization of deferred financing costs
    
    
    126
    
    
    
    Deferred income tax expense (benefit)
    
    
    (1,895
    )
    
    
    144Equity loss (income) in investment
    
    
    (24
    )
    
    
    20Pension expense
    
    
    723
    
    
    
    515Stock-based compensation expense
    
    
    384
    
    
    
    115Non-cash restructuring/impairment charges
    
    
    150
    
    
    
    Net gain on sale of property, plant and equipment
    
    
    
    
    
    
    15Other, deferred assets
    
    
    
    
    
    
    600Changes in operating assets and liabilities:Accounts receivable
    
    
    16,423
    
    
    
    29Inventories, prepaid expenses and other current assets
    
    
    5,571
    
    
    
    7,707Advance billings on customer contracts
    
    
    (5,421
    )
    
    
    Accounts payable and accrued liabilities
    
    
    (20,534
    )
    
    
    1,328Net cash provided by operating activities
    
    
    895
    
    
    
    5,288Cash Flows from Investing Activities:Additional goodwill from SMS acquisition
    
    
    (977
    )
    
    
    (1,057
    )Change in restricted cash
    
    
    (3,129
    )
    
    
    Purchases of property, plant and equipment
    
    
    (687
    )
    
    
    (1,015
    )Proceeds from sale of property, plant and equipment
    
    
    450
    
    
    
    7Other, principally change in non-current assets
    
    
    
    
    
    
    (4
    )Net cash used in investing activities
    
    
    (4,343
    )
    
    
    (2,069
    )Cash Flows from Financing Activities:Net short-term bank borrowings (repayments)
    
    
    (15,500
    )
    
    
    2,000Repayment of long-term debt
    
    
    (4,457
    )
    
    
    (2,600
    )Payment of debt financing costs
    
    
    (844
    )
    
    
    Net cash used in financing activities
    
    
    (20,801
    )
    
    
    (600
    )Net increase (decrease) in cash and cash equivalents
    
    
    (24,249
    )
    
    
    2,619Cash and cash equivalents at beginning of period
    
    
    36,261
    
    
    
    2,928Cash and cash equivalents at end of period
    
    $
    12,012
    
    
    $
    5,547Supplemental disclosure of cash flow information:Cash paid for interest
    
    $
    329
    
    
    $
    775Cash paid for income taxes
    
    $
    4
    
    
    $
    290
  5




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SPARTON CORPORATION AND SUBSIDIARIES
 
 CONDENSED CONSOLIDATED
STATEMENTS OF SHAREHOLDERS EQUITY

(UNAUDITED)
 Six Months Ended December 31, 2009Capital
    
    
    
    
    
    
    Accumulated OtherCommon Stock
    
    
    In Excess
    
    
    Retained
    
    
    ComprehensiveShares
    
    
    Amount
    
    
    of Par Value
    
    
    Earnings
    
    
    Income (loss)
    
    
    TotalBalance at June 30, 2009
    
    
    9,951,507
    
    
    $
    12,439
    
    
    $
    19,671
    
    
    $
    27,586
    
    
    $
    (4,801
    )
    
    $
    54,895Stock grants issued
    
    
    27,000
    
    
    
    34
    
    
    
    (34
    )
    
    
    
    
    
    
    
    
    
    
    Stock-based compensation
    
    
    
    
    
    
    
    
    
    
    384
    
    
    
    
    
    
    
    
    
    
    
    384Comprehensive income (loss), net of tax:Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    4,653
    
    
    
    
    
    
    
    4,653Change in
unrecognized pension costs
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    637
    
    
    
    637Comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    5,290Balance at December 31, 2009
    
    
    9,978,507
    
    
    $
    12,473
    
    
    $
    20,021
    
    
    $
    32,239
    
    
    $
    (4,164
    )
    
    $
    60,569
 Six Months Ended December 31, 2008Capital
    
    
    
    
    
    
    Accumulated OtherCommon Stock
    
    
    In Excess
    
    
    Retained
    
    
    ComprehensiveShares
    
    
    Amount
    
    
    of Par Value
    
    
    Earnings
    
    
    Income (loss)
    
    
    TotalBalance at June 30, 2008
    
    
    9,811,507
    
    
    $
    12,264
    
    
    $
    19,651
    
    
    $
    43,592
    
    
    $
    (4,647
    )
    
    $
    70,860Restricted stock grants issued
    
    
    120,000
    
    
    
    150
    
    
    
    (150
    )
    
    
    
    
    
    
    
    
    
    
    Stock-based compensation
    
    
    
    
    
    
    
    
    
    
    115
    
    
    
    
    
    
    
    
    
    
    
    115Comprehensive income (loss), net of tax:Net loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (6,153
    )
    
    
    
    
    
    
    (6,153
    )Change in unrecognized pension costs
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    95
    
    
    
    95Comprehensive loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (6,058
    )Balance at December 31, 2008
    
    
    9,931,507
    
    
    $
    12,414
    
    
    $
    19,616
    
    
    $
    37,439
    
    
    $
    (4,552
    )
    
    $
    64,917
  6




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SPARTON CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 (1) Business and Basis of Presentation
   (2) Summary of Significant Accounting Policies
 Use of estimates 
 Revenue recognition 
 Accounts receivable, credit practices, and allowance for probable losses 
 7




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Fair value of financial instruments 
 Other investment 
 Market risk exposure 
  Long-lived assets 
 Other assets 
  8




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##### Table of Contents



Deferred income taxes 
   New accounting standards The FASB Codification The
FASB Accounting Standards Codification TM and the Hierarchy of General Accepted Accounting
Principles
 Subsequent Events, Subsequent Events Accounting
for Uncertainty in Income Taxes Earnings per Share Accounting for Contingencies
 9




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




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##### Table of Contents



Fair Value Measurements and Disclosures,
  (3) Inventories and Cost of Contracts in Progress
  December 31, 2009
    
    
    June 30, 2009Raw materials
    
    $
    24,299
    
    
    $
    29,593Work in process
    
    
    4,570
    
    
    
    5,260Finished goods
    
    
    3,019
    
    
    
    3,582Total inventory and cost of contracts in progress, net
    
    $
    31,888
    
    
    $
    38,435
   (4) Defined Benefit Pension Plan
  11




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##### Table of Contents



For the Three Months Ended
    
    
    For the Six Months EndedDecember 31, 2009
    
    
    December 31, 2008
    
    
    December 31, 2009
    
    
    December 31, 2008Service cost
    
    $
    
    
    
    $
    129
    
    
    $
    
    
    
    $
    264Interest cost
    
    
    137
    
    
    
    176
    
    
    
    288
    
    
    
    328Expected return on plan assets
    
    
    (131
    )
    
    
    (101
    )
    
    
    (202
    )
    
    
    (288
    )Amortization of prior service cost
    
    
    
    
    
    
    26
    
    
    
    
    
    
    
    52Amortization of unrecognized net actuarial loss
    
    
    83
    
    
    
    125
    
    
    
    187
    
    
    
    159Net periodic benefit cost
    
    
    89
    
    
    
    355
    
    
    
    273
    
    
    
    515Pro rata recognition of lump-sum settlements
    
    
    137
    
    
    
    
    
    
    
    450
    
    
    
    Total periodic pension expense
    
    $
    226
    
    
    $
    355
    
    
    $
    723
    
    
    $
    515
  (5) Goodwill and Other Intangible Assets
    December 31, 2009Weighted Average
    
    
    Gross
    
    
    
    
    
    
    NetAmortization
    
    
    Carrying
    
    
    Accumulated
    
    
    CarryingPeriod
    
    
    Amount
    
    
    Amortization
    
    
    ValueAmortized intangible assets:Non-compete agreements
    
    48 months
    
    $
    165
    
    
    $
    (152
    )
    
    $
    13Customer relationships
    
    180 months
    
    
    6,600
    
    
    
    (1,577
    )
    
    
    5,023$
    6,765
    
    
    $
    (1,729
    )
    
    $
    5,036
 June 30, 2009Weighted Average
    
    
    Gross
    
    
    
    
    
    
    NetAmortization
    
    
    Carrying
    
    
    Accumulated
    
    
    CarryingPeriod
    
    
    Amount
    
    
    Amortization
    
    
    ValueAmortized intangible assets:Non-compete agreements
    
    48 months
    
    $
    165
    
    
    $
    (138
    )
    
    $
    27Customer relationships
    
    180 months
    
    
    6,600
    
    
    
    (1,357
    )
    
    
    5,243$
    6,765
    
    
    $
    (1,495
    )
    
    $
    5,270
 12




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Fiscal Year Ended June 302010
    
    $
    4672011
    
    
    4402012
    
    
    4402013
    
    
    4402014
    
    
    440Thereafter
    
    
    3,043Total
    
    $
    5,270
 (6) Borrowings
 Short-term debt maturities and line of credit 
  Long-term debt 
 December 31,
    
    
    June 30,2009
    
    
    2008Industrial Revenue bonds, face value
    
    $
    2,090
    
    
    $
    2,150Less unamortized purchase discount
    
    
    (117
    )
    
    
    (122
    )Industrial Revenue bonds, carrying value
    
    
    1,973
    
    
    
    2,028Notes payable  former owners
    
    
    1,029
    
    
    
    2,031Bank term loan
    
    
    
    
    
    
    3,400Total long-term debt
    
    
    3,002
    
    
    
    7,459Less: current portion
    
    
    (1,145
    )
    
    
    (4,142
    )Long-term debt, net of current portion
    
    $
    1,857
    
    
    $
    3,317
 Industrial Revenue Bonds
   13




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Notes Payable  Former Owners
  Bank Term Loan
  (7) Commitments and Contingencies
 Environmental Remediation
   Customer Relationships
 14




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Product Issues
  Other
 (8) Stock-Based Compensation
  2001 Plan. 1 2
 2010 Plan.
 15




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##### Table of Contents



Weighted AverageRisk free interest rate
    
    
    1.25
    %Volatility
    
    
    78.10
    %Dividend yield
    
    
    0.00
    %Expected life in years
    
    
    3.00Fair value price
    
    $
    2.25
   For the Three Months Ended
    
    
    For the Six Months EndedDecember 31, 2009
    
    
    December 31, 2008
    
    
    December 31, 2009
    
    
    December 31, 2008Fair value expense of stock option awards
    
    $
    292
    
    
    $
    42
    
    
    $
    263
    
    
    $
    93Restricted stock
    
    
    92
    
    
    
    22
    
    
    
    121
    
    
    
    22Total stock-based compensation
    
    $
    384
    
    
    $
    64
    
    
    $
    384
    
    
    $
    115
  Total Remaining
    
    
    Weighted AverageUnrecognized
    
    
    Remaining RequiredCompensation Cost
    
    
    Service Period(in thousands)
    
    
    (in years)Fair value expense of stock option awards
    
    $
    13
    
    
    
    0.50Restricted stock
    
    
    141
    
    
    
    0.59$
    154
    
    
    
    0.59
  WeightedAverageWeighted Average
    
    
    Remaining
    
    
    AggregateNumber of Shares
    
    
    Exercise Price
    
    
    Contractual Life
    
    
    Intrinsic Value(in years)
    
    
    (in thousands)Outstanding at June 30, 2009
    
    
    184,127
    
    
    $
    8.23Granted
    
    
    111,250
    
    
    
    5.00Exercised
    
    
    
    
    
    
    Forfeited
    
    
    (17,242
    )
    
    
    8.56Expired
    
    
    
    
    
    
    Outstanding at December 31, 2009
    
    
    278,135
    
    
    $
    6.91
    
    
    
    4.25
    
    
    $
    116Exercisable at December 31, 2009
    
    
    272,883
    
    
    $
    6.89
    
    
    
    4.21
    
    
    $
    116
 16




---



##### Table of Contents



Weighted AverageGrant DateShares
    
    
    Fair ValueRestricted shares at June 30, 2009
    
    
    93,334
    
    
    $
    2.10Granted
    
    
    27,000
    
    
    
    4.60Vested
    
    
    (30,400
    )
    
    
    4.26Forfeited
    
    
    
    
    
    
    Restricted shares at December 31, 2009
    
    
    89,934
    
    
    $
    2.13
 (9) Earnings Per Share Data
   For the Three Months Ended
    
    
    For the Six Months EndedDecember 31, 2009
    
    
    December 31, 2008
    
    
    December 31, 2009
    
    
    December 31, 2008Weighted
average shares of
common stock
outstanding  basic
and diluted
    
    
    9,964,420
    
    
    
    9,811,507
    
    
    
    9,957,964
    
    
    
    9,811,507Income (loss) per
share of common
stock  basic and
diluted
    
    $
    0.33
    
    
    $
    (0.28
    )
    
    $
    0.47
    
    
    $
    (0.63
    )
  (10) Comprehensive Income (Loss)
  For the Three Months Ended
    
    For the Six Months EndedDecember 31, 2009
    
    
    December 31, 2008
    
    
    December 31, 2009
    
    
    December 31, 2008Net income (loss)
    
    $
    3,248
    
    
    $
    (2,791
    )
    
    $
    4,653
    
    
    $
    (6,153
    )Other comprehensive income
 Change in unrecognized
pension costs, net of tax
    
    
    637
    
    
    
    55
    
    
    
    637
    
    
    
    95Comprehensive income (loss)
    
    $
    3,885
    
    
    $
    (2,736
    )
    
    $
    5,290
    
    
    $
    (6,058
    )
 17




---



##### Table of Contents



(11) Restructuring Activities
  Recent Plant Closures
 London, Ontario, Canada
  Jackson, Michigan
  Reductions in Force
   Relocation of Corporate Headquarters
  18




---



##### Table of Contents



Summary of Restructuring Charges
  WorkforceReduction(principallyseverance andretention bonuses)
    
    
    Facility Closing
    
    
    Lease Terminations
    
    
    Production Transfer
    
    
    TotalAccrual balance at June 30, 2009
    
    $
    375
    
    
    $
    
    
    
    $
    1,990
    
    
    $
    
    
    
    $
    2,365Restructuring charges
    
    
    327
    
    
    
    1,139
    
    
    
    267
    
    
    
    
    
    
    
    1,733Less: cash payments
    
    
    (434
    )
    
    
    (689
    )
    
    
    (2,039
    )
    
    
    
    
    
    
    (3,162
    )Restructuring reversals
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Accrual balance at December 31, 2009
    
    $
    268
    
    
    $
    450
    
    
    $
    218
    
    
    $
    
    
    
    $
    936
   Inventory Write-Downs
  Other Plant Closure
 Albuquerque, New Mexico
   December 31,
    
    
    June 30,2009
    
    
    2009Current assets
    
    $
    5,035
    
    
    $
    5,048Current liabilities
    
    $
    964
    
    
    $
    1,201Long-term liabilities (EPA, see Note 7)
    
    
    4,336
    
    
    
    4,477Total liabilities
    
    $
    5,300
    
    
    $
    5,678
 19




---



##### Table of Contents



(12) Business Segments
    Medical Device (Medical) operations
 Electronic Manufacturing Services (EMS) operations
 Defense & Security Systems (DSS) operations
 20




---



##### Table of Contents



For the Three Months Ended December 31, 2009OtherMedical
    
    
    EMS
    
    
    DSS
    
    
    Unallocated
    
    
    Eliminations
    
    
    TotalSales
    
    $
    17,358
    
    
    $
    14,399
    
    
    $
    19,022
    
    
    $
    
    
    
    $
    (3,556
    )
    
    $
    47,223Gross profit
    
    $
    2,469
    
    
    $
    711
    
    
    $
    4,961
    
    
    $
    
    
    
    $
    
    
    
    $
    8,141Operating income (loss)
    
    $
    1,548
    
    
    $
    (470
    )
    
    $
    4,150
    
    
    $
    (3,918
    )
    
    $
    
    
    
    $
    1,310Restructuring
    
    $
    
    
    
    $
    354
    
    
    $
    
    
    
    $
    653
    
    
    $
    
    
    
    $
    1,007Depreciation/amortization
    
    $
    153
    
    
    $
    114
    
    
    $
    42
    
    
    $
    3
    
    
    $
    
    
    
    $
    312
 For the Three Months Ended December 31, 2008OtherMedical
    
    
    EMS
    
    
    DSS
    
    
    Unallocated
    
    
    Eliminations
    
    
    TotalSales
    
    $
    15,259
    
    
    $
    34,561
    
    
    $
    7,784
    
    
    $
    
    
    
    $
    (3,088
    )
    
    $
    54,516Gross profit
    
    $
    1,651
    
    
    $
    1,420
    
    
    $
    826
    
    
    $
    
    
    
    $
    
    
    
    $
    3,897Operating income (loss)
    
    $
    500
    
    
    $
    479
    
    
    $
    (119
    )
    
    $
    (2,088
    )
    
    $
    
    
    
    $
    (1,228
    )Restructuring
    
    $
    
    
    
    $
    31
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    31Depreciation/amortization
    
    $
    168
    
    
    $
    246
    
    
    $
    52
    
    
    $
    3
    
    
    $
    
    
    
    $
    469
 For the Six Months Ended December 31, 2009OtherMedical
    
    
    EMS
    
    
    DSS
    
    
    Unallocated
    
    
    Eliminations
    
    
    TotalSales
    
    $
    36,914
    
    
    $
    33,622
    
    
    $
    32,367
    
    
    $
    
    
    
    $
    (7,576
    )
    
    $
    95,327Gross profit
    
    $
    5,451
    
    
    $
    1,729
    
    
    $
    8,381
    
    
    $
    
    
    
    $
    
    
    
    $
    15,561Operating income (loss)
    
    $
    3,460
    
    
    $
    (763
    )
    
    $
    7,077
    
    
    $
    (6,632
    )
    
    $
    
    
    
    $
    3,142Restructuring
    
    $
    
    
    
    $
    809
    
    
    $
    
    
    
    $
    1,074
    
    
    $
    
    
    
    $
    1,883Depreciation/amortization
    
    $
    306
    
    
    $
    344
    
    
    $
    82
    
    
    $
    7
    
    
    $
    
    
    
    $
    739
 For the Six Months Ended December 31, 2008OtherMedical
    
    
    EMS
    
    
    DSS
    
    
    Unallocated
    
    
    Eliminations
    
    
    TotalSales
    
    $
    29,361
    
    
    $
    69,102
    
    
    $
    15,960
    
    
    $
    
    
    
    $
    (5,911
    )
    
    $
    108,512Gross profit
    
    $
    2,923
    
    
    $
    2,039
    
    
    $
    1,596
    
    
    $
    
    
    
    $
    
    
    
    $
    6,558Operating income (loss)
    
    $
    821
    
    
    $
    (613
    )
    
    $
    (70
    )
    
    $
    (4,219
    )
    
    $
    
    
    
    $
    (4,081
    )Restructuring
    
    $
    
    
    
    $
    310
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    310Depreciation/amortization
    
    $
    336
    
    
    $
    527
    
    
    $
    101
    
    
    $
    4
    
    
    $
    
    
    
    $
    968
 As of December 31, 2009OtherMedical
    
    
    EMS
    
    
    DSS
    
    
    Unallocated
    
    
    Eliminations
    
    
    TotalTotal assets
    
    $
    50,985
    
    
    $
    32,432
    
    
    $
    8,864
    
    
    $
    21,905
    
    
    $
    
    
    
    $
    114,186
 As of June 30, 2009OtherMedical
    
    
    EMS
    
    
    DSS
    
    
    Unallocated
    
    
    Eliminations
    
    
    TotalTotal assets
    

    $
    53,424
    
    
    $
    41,364
    
    
    $
    19,444
    
    
    $
    40,770
    
    
    $
    
    
    
    $
    155,002
 21




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##### Table of Contents



Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations.
   Risks
and Uncertainties
    Medical Device (Medical) operations
 22




---



##### Table of Contents



Electronic Manufacturing Services (EMS) operations
 Defense & Security Systems (DSS) operations
 Overall Challenges
   23




---



##### Table of Contents



Consolidated Results of Operations
  Summary
  Net loss year-to-date fiscal 2009
    
    
    
    
    
    $
    (6.2
    )Improved gross margin on DSS programs
    
    $
    6.8Improved gross margin on Medical programs
    
    
    2.5Decreased gross margin on EMS programs
    
    
    (0.3
    )Decreased selling and administrative expenses
    
    
    0.4Increase restructuring/impairment charges
    
    
    (1.6
    )Decreased Canadian translation adjustment
    
    
    1.0Increased tax benefit
    
    
    2.1Net change
    
    
    
    
    
    
    10.9Net income year-to-date fiscal 2010
    
    
    
    
    
    $
    4.7
  -
    
    Increased margin on DSS programs due to a greater mix of products sold to foreign
governments, successful lot acceptance resulting in minimal rework
costs, manufacturing cost structure improvements and an overall
increase in sales volume.-
    
    Increased margin on Medical programs due to favorable material costs, improved
pricing, increased sales volume and facility consolidation.-
    
    Decreased margin on EMS programs due mainly to a significant decrease in sales
volume, partially offset by cost savings related to plant closures and consolidations.-
    
    Decreased selling and administrative expenses due to closure of several production
facilities and other cost reduction actions implemented in fiscal 2009.-
    
    Restructuring/impairment charges of approximately $1.9 million in fiscal 2010
compared to $0.3 million in the prior period.-
    
    Increased tax benefit related to a change in tax carryback laws.
  24




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##### Table of Contents



For the Three Months Ended December 31, 2009 compared to the Three Months Ended December 31, 2008
  2009
    
    
    2008Net sales
    
    
    100.0
    %
    
    
    100.0
    %Cost of goods sold
    
    
    82.8
    
    
    
    92.9Gross profit
    
    
    17.2
    
    
    
    7.1Selling and administrative expenses
    
    
    10.9
    
    
    
    9.1Restructuring/impairment charges
    
    
    2.1
    
    
    
    0.1Other
operating expense  net
    
    
    1.4
    
    
    
    0.2Operating income (loss)
    
    
    2.8
    
    
    
    (2.3
    )Other income
(expense)   net
    
    
    0.0
    
    
    
    (2.9
    )Income (loss) before income taxes
    
    
    2.8
    
    
    
    (5.2
    )Provision
for (benefit from) income taxes
    
    
    (4.1
    )
    
    
    (0.1
    )Net income (loss)
    
    
    6.9
    %
    
    
    (5.1
    )%
  2009
    
    
    2008SEGMENT
    
    Total
    
    
    % of Total
    
    
    Total
    
    
    % of Total
    
    
    % ChangeMedical
    
    $
    17,358
    
    
    
    37
    %
    
    $
    15,259
    
    
    
    28
    %
    
    
    14
    %EMS
    
    
    14,399
    
    
    
    31
    
    
    
    34,561
    
    
    
    64
    
    
    
    (58
    )DSS
    
    
    19,022
    
    
    
    40
    
    
    
    7,784
    
    
    
    14
    
    
    
    144Eliminations
    
    
    (3,556
    )
    
    
    (8
    )
    
    
    (3,088
    )
    
    
    (6
    )
    
    
    15Totals
    
    $
    47,223
    
    
    
    100
    %
    
    $
    54,516
    
    
    
    100
    %
    
    
    (13
    )
  2009
    
    
    2008SEGMENT
    
    Total
    
    
    GP%
    
    
    Total
    
    
    GP%Medical
    
    $
    2,469
    
    
    
    14
    %
    
    $
    1,651
    
    
    
    11
    %EMS
    
    
    711
    
    
    
    5
    
    
    
    1,420
    
    
    
    4DSS
    
    
    4,961
    
    
    
    26
    
    
    
    826
    
    
    
    11Totals
    
    $
    8,141
    
    
    
    17
    
    
    $
    3,897
    
    
    
    7
 Medical
   25




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##### Table of Contents



EMS
   DSS
    2009
    
    
    2008SEGMENT
    
    Total
    
    
    % of Sales
    
    
    Total
    
    
    % of SalesMedical
    
    $
    1,548
    
    
    
    9
    %
    
    $
    500
    
    
    
    3
    %EMS
    
    
    (470
    )
    
    
    (3
    )
    
    
    479
    
    
    
    1DSS
    
    
    4,150
    
    
    
    22
    
    
    
    (119
    )
    
    
    (2
    )Other unallocated
    
    
    (3,918
    )
    
    
    
    
    
    
    (2,088
    )
    
    
    Totals
    
    $
    1,310
    
    
    
    3
    
    
    $
    (1,228
    )
    
    
    (2
    )
  26




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##### Table of Contents



For the Six Months Ended December 31, 2009 compared to the Six Months Ended December 31, 2008
  2009
    
    
    2008Net sales
    
    
    100.0
    %
    
    
    100.0
    %Cost of goods sold
    
    
    83.7
    
    
    
    94.0Gross profit
    
    
    16.3
    
    
    
    6.0Selling and administrative expenses
    
    
    10.2
    
    
    
    9.3Restructuring/impairment charges
    
    
    2.0
    
    
    
    0.3Other
operating expense  net
    
    
    0.8
    
    
    
    0.2Operating income (loss)
    
    
    3.3
    
    
    
    (3.8
    )Other
expense net
    
    
    (0.4
    )
    
    
    (1.7
    )Income (loss) before income taxes
    
    
    2.9
    
    
    
    (5.5
    )Provision
for (benefit from) income taxes
    
    
    (2.0
    )
    
    
    0.2Net income (loss)
    
    
    4.9
    %
    
    
    (5.7
    )%
  2009
    
    
    2008SEGMENT
    
    Total
    
    
    % of Total
    
    
    Total
    
    
    % of Total
    
    
    % ChangeMedical
    
    $
    36,914
    
    
    
    39
    %
    
    $
    29,361
    
    
    
    27
    %
    
    
    26
    %EMS
    
    
    33,622
    
    
    
    35
    
    
    
    69,102
    
    
    
    64
    
    
    
    (51
    )DSS
    
    
    32,367
    
    
    
    34
    
    
    
    15,960
    
    
    
    15
    
    
    
    103Eliminations
    
    
    (7,576
    )
    
    
    (8
    )
    
    
    (5,911
    )
    
    
    (6
    )
    
    
    28Totals
    
    $
    95,327
    
    
    
    100
    %
    
    $
    108,512
    
    
    
    100
    %
    
    
    (12
    )
 27




---



##### Table of Contents



2009
    
    
    2008SEGMENT
    
    Total
    
    
    GP%
    
    
    Total
    
    
    GP%Medical
    
    $
    5,451
    
    
    
    15
    %
    
    $
    2,923
    
    
    
    10
    %EMS
    
    
    1,729
    
    
    
    5
    
    
    
    2,039
    
    
    
    3DSS
    
    
    8,381
    
    
    
    26
    
    
    
    1,596
    
    
    
    10Totals
    
    $
    15,561
    
    
    
    16
    
    
    $
    6,558
    
    
    
    6
 Medical
   EMS
   DSS
   28




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##### Table of Contents



2009
    
    
    2008SEGMENT
    
    Total
    
    
    % of Sales
    
    
    Total
    
    
    % of SalesMedical
    
    $
    3,460
    
    
    
    9
    %
    
    $
    821
    
    
    
    3
    %EMS
    
    
    (763
    )
    
    
    (2
    )
    
    
    (613
    )
    
    
    (1
    )DSS
    
    
    7,077
    
    
    
    22
    
    
    
    (70
    )
    
    
    (0
    )Other unallocated
    
    
    (6,632
    )
    
    
    
    
    
    
    (4,219
    )
    
    
    Totals
    
    $
    3,142
    
    
    
    3
    
    
    $
    (4,081
    )
    
    
    (4
    )
        Liquidity and Capital Resources
  29




---



##### Table of Contents



Commitments and Contingencies
 Environmental Remediation
  30




---



##### Table of Contents



Customer Relationships
  Product Issues
   Other
  31




---



##### Table of Contents



Contractual Obligations and Off-Balance Sheet Arrangements
  Critical Accounting Policies
   
    
    Environmental contingencies
    
    Government contract cost estimates
    
    Inventory valuation allowances
    
    Allowances for probable losses on receivables
    
    Pension obligations
    
    Business combinations
    
    Valuation of property, plant and equipment
    
    Goodwill and customer relations
    
    Deferred costs and claims for reimbursement
    
    Income taxes
    
    Restructuring accrual
  32




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##### Table of Contents



New Accounting Pronouncements
  
 Item 3. Quantitative and Qualitative Disclosures About Market Risk.
   
 Item 4T. Controls and Procedures.
   
 PART II. OTHER INFORMATION
 
 Item 1. Legal Proceedings.
   
 Item 1A. Risk Factors.
  
 Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
  
 Item 3. Defaults Upon Senior Securities.
  33




---



##### Table of Contents



Item 4. Submission of Matters to a Vote of Security Holders.
  
 Item 5. Other Information.
  34




---



##### Table of Contents



Item 6. Exhibits.
 ExhibitNumber
    
    Description3.1
    
    By-Laws of the Registrant as amended, incorporated herein by reference from Exhibit 3.1
to the Registrants Current Report on Form 8-K, filed with the SEC on November 3, 2008.3.2
    
    Amended Articles of Incorporation of the Registrant, incorporated herein by reference
from the Registrants Quarterly Report on Form 10-Q for the three-month period ended
September 30, 2004.3.3
    
    Amended Code of Regulations of the Registrant, incorporated herein by reference from the
Registrants Quarterly Report on Form 10-Q for the three-month period ended September 30,
2004.10.1
    
    Amended and Restated Revolving Credit and Security Agreement dated August 14, 2009 among
the Company, its subsidiaries and National City Business Credit, Inc., incorporated by
reference from Exhibit 10.1 to the Registrants Current Report on Form 8-K filed with the
SEC on August 18, 2009.10.2
    
    Post-closing Agreement dated August 14, 2009 among the Company, its subsidiaries and
National City Business Credit, Inc., incorporated by reference from Exhibit 10.2 to the
Registrants Current Report on Form 8-K filed with the SEC on August 18, 2009.10.3
    
    Long-Term Stock Option Incentive Plan (the LTIP), incorporated by reference from
Exhibit 10.1 to the Registrants Current Report on Form 8-K filed with the SEC on
September 11, 2009.31.1*
    
    Chief Executive Officer certification under Section 302 of the Sarbanes-Oxley Act of 2002.31.2*
    
    Chief Financial Officer certification under Section 302 of the Sarbanes-Oxley Act of 2002.32.1*
    
    Chief Executive Officer and Chief Financial Officer certification pursuant to 18 U.S.C.
Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
 
 *
    
    Filed herewith. 35




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##### Table of Contents



SIGNATURES
  Sparton CorporationBy:
    /s/ CARY B. WOODCary B. Wood


President and Chief Executive Officer 
(Principal
Executive Officer)  By:
    /s/ GREGORY A. SLOMEGregory A. Slome

Senior Vice President and Chief Financial Officer

(Principal Financial Officer)  36