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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

FORM 10-Q

[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE
ACT OF 1934 FOR THE PERIOD ENDED   September 30, 2003

OR

[ ] 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
(Exact Name of Registrant as Specified in its Charter)

Ohio
(State or Other Jurisdiction of Incorporation or Organization)

38-1054690
(I.R.S. Employer Identification No.)

2400 East Ganson Street, Jackson, Michigan 49202
(Address of Principal Executive Offices, Zip Code)

(517) 787- 8600
(Registrants Telephone Number, Including Area Code)

Indicate by checkmark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X  No

Indicate by check mark whether the registrant is an accelerated filer (as
defined by Rule 12b-2 of the Exchange Act.).
Yes     No X

Common Stock, $1.25 Par Value  7,947,608shares outstanding as of October 31,
2003.

1



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TABLE OF CONTENTS



|                              |                                                                                       |                                                             |  |  |  |  |  | 
|----------------------------- | ------------------------------------------------------------------------------------- | ----------------------------------------------------------- |  |  |  |  |  | 
|Part I. Financial Information
|                              | Item 1. Financial Statements (Unaudited)                                             
|                              |                                                                                       | Condensed Consolidated Balance Sheets (Unaudited)          
|                              |                                                                                       | Condensed Consolidated Statements of Operations (Unaudited)
|                              |                                                                                       | Condensed Consolidated Statements of Cash Flows (Unaudited)
|                              |                                                                                       | Notes to Condensed Consolidated Financial Statements       
|                              | MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
|                              | Item 3. QUALITATIVE AND QUANTITATIVE DISCLOSURES ABOUT MARKET RISK                   
|                              | Item 4. CONTROLS AND PROCEDURES                                                      
|PART II - OTHER INFORMATION  
|                              | Item 1. LEGAL PROCEEDINGS                                                            
|                              | Item 6. EXHIBITS AND REPORTS ON FORM 8-K                                             
|SIGNATURES                   
|EX-31.1  302 CERT FOR CEO    
|EX-31.2  302 CERT FOR CFO    
|EX-32.1  906 CERT FOR CEO    
|EX-32.2  906 CERT FOR CFO    



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##### Table of Contents



SPARTON CORPORATION AND SUBSIDIARIES

INDEX

Part I. Financial Information

|        |  |                                                                                                       |  |   
|------- |  | ----------------------------------------------------------------------------------------------------- |  | --
|Item 1. |  | Financial Statements (Unaudited)                                                                      |  |   
|       
|       
|       
|       
|        |  | Condensed Consolidated Balance Sheets
September 30 and June 30, 2003                                  |  | 3 
|       
|       
|       
|       
|        |  | Condensed Consolidated Statements of Operations
Three-Month Periods ended September 30, 2003 and 2002 |  | 4 
|       
|       
|       
|       
|        |  | Condensed Consolidated Statements of Cash Flows
Three-Month Periods ended September 30, 2003 and 2002 |  | 5 
|       
|       
|       
|       
|        |  | Notes to Condensed Consolidated Financial Statements                                                  |  | 6 
|       
|       
|       
|       
|Item 2. |  | Managements Discussion and Analysis of Financial Condition
and Results of Operations                 |  | 10
|       
|       
|       
|       
|Item 3. |  | Quantitative and Qualitative Disclosures About Market Risk                                            |  | 12
|       
|       
|       
|       
|Item 4. |  | Controls and Procedures                                                                               |  | 12

Part II. Other Information

|        |  |                                  |  | 
|------- |  | -------------------------------- |  | 
|Item 1. |  | Legal Proceedings                |  | 
|       
|       
|       
|       
|Item 6. |  | Exhibits and Reports on Form 8-K |  | 
|       
|       
|       
|       
|        |  | Signatures                       |  | 

2



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SPARTON CORPORATION AND SUBSIDIARIES  Condensed Consolidated Balance Sheets (Unaudited)  September 30 and June 30, 2003


|                                    |                                                                                                                                                   |                |                           |                                           |            |            |             |            |            |            |             | 
|----------------------------------- | ------------------------------------------------------------------------------------------------------------------------------------------------- | -------------- | ------------------------- | ----------------------------------------- | ---------- | ---------- | ----------- | ---------- | ---------- | ---------- | ----------- | 
|                                    |                                                                                                                                                   |                |                           |                                           |            | September  |             | June      
|Assets                              |                                                                                                                                                   |                |                           |                                           |            |            |             |           
|                                   
|                                   
|                                   
|                                   
|Current assets:                     |                                                                                                                                                   |                |                           |                                           |            |            |             |           
|                                   
|                                   
|                                   
|                                   
|                                    | Cash and cash equivalents                                                                                                                         |                | $                         | 13,368,808                                |            |            | $           | 10,562,222 |           
|                                   
|                                   
|                                   
|                                   
|                                    | Investment securities                                                                                                                             |                |                           | 23,490,651                                |            |            |             | 23,214,783 |           
|                                   
|                                   
|                                   
|                                   
|                                    | Accounts receivable:                                                                                                                              |                |                           |                                           |            |            |             |            |           
|                                   
|                                   
|                                   
|                                   
|                                    |                                                                                                                                                   | Trade          |                           |                                           | 19,802,031 |            |             |            | 28,236,904 |           
|                                   
|                                   
|                                   
|                                   
|                                    |                                                                                                                                                   | EPA settlement |                           |                                           |           |            |             |            | 1,000,000  |           
|                                   
|                                   
|                                   
|                                   
|                                    | Income taxes recoverable                                                                                                                          |                |                           | 616,557                                   |            |            |             |           |           
|                                   
|                                   
|                                   
|                                   
|                                    | Inventories and costs on contracts in progress, less progress payments of
$7,092,000 at September 30 ($8,317,000 at June 30)                      |                |                           | 35,347,263                                |            |            |             | 31,809,088 |           
|                                    | Prepaid expenses                                                                                                                                  |                |                           | 949,577                                   |            |            |             | 1,174,618  |           
|                                    |                                                                                                                                                   |                |                           |                                           |            |            |             |            |           
|                                   
|                                   
|                                   
|                                   
|                                    |                                                                                                                                                   |                | Total Current assets      |                                           |            | 93,574,887 |             |            |            | 95,997,615 |            
|                                   
|                                   
|                                   
|                                   
|Pension asset                       |                                                                                                                                                   |                | 6,144,077                 |                                           |            |            | 6,176,085   |           
|                                   
|                                   
|                                   
|                                   
|Other assets                        |                                                                                                                                                   |                | 5,733,747                 |                                           |            |            | 5,583,577   |           
|                                   
|                                   
|                                   
|                                   
|Property, plant and equipment, net  |                                                                                                                                                   |                | 8,234,858                 |                                           |            |            | 8,256,593   |           
|                                    |                                                                                                                                                   |                |                           |                                           |            |            |             |            |           
|                                    |                                                                                                                                                   |                |                           | Total Assets                              |            | $          | 113,687,569 |            |            | $          | 116,013,870 | 
|                                    |                                                                                                                                                   |                |                           |                                           |            |            |             |            |           
|Liabilities and Shareowners Equity |                                                                                                                                                   |                |                           |                                           |            |            |             |           
|                                   
|                                   
|                                   
|                                   
|Current liabilities:                |                                                                                                                                                   |                |                           |                                           |            |            |             |           
|                                   
|                                   
|                                   
|                                   
|                                    | Account payable                                                                                                                                   |                | $                         | 9,731,653                                 |            |            | $           | 8,893,348  |           
|                                   
|                                   
|                                   
|                                   
|                                    | Salaries and wages                                                                                                                                |                |                           | 3,959,158                                 |            |            |             | 3,879,947  |           
|                                   
|                                   
|                                   
|                                   
|                                    | Accrued liabilities                                                                                                                               |                |                           | 4,125,783                                 |            |            |             | 4,532,795  |           
|                                   
|                                   
|                                   
|                                   
|                                    | Income taxes payable                                                                                                                              |                |                           |                                          |            |            |             | 709,443    |           
|                                    |                                                                                                                                                   |                |                           |                                           |            |            |             |           
|                                    |                                                                                                                                                   |                | Total Current liabilities |                                           |            | 17,816,594 |             |            |            | 18,015,533 |            
|                                   
|                                   
|                                   
|                                   
|Environmental remediation           |                                                                                                                                                   |                | 6,754,473                 |                                           |            |            | 6,830,131   |           
|                                   
|                                   
|                                   
|                                   
|Shareowners equity:                |                                                                                                                                                   |                |                           |                                           |            |            |             |           
|                                   
|                                   
|                                   
|                                   
|                                    | Preferred stock, no par value; 200,000 shares authorized, none outstanding                                                                        |                |                           |                                          |            |            |             |           |           
|                                   
|                                   
|                                   
|                                   
|                                    | Common stock, $1.25 par value; 15,000,000 shares authorized, 7,947,608
and 7,943,671 shares outstanding at September 30 and June 30, respectively |                |                           | 9,934,510                                 |            |            |             | 9,929,589  |           
|                                   
|                                   
|                                   
|                                   
|                                    | Capital in excess of par value                                                                                                                    |                |                           | 3,025,752                                 |            |            |             | 3,015,989  |           
|                                   
|                                   
|                                   
|                                   
|                                    | Accumulated other comprehensive income                                                                                                            |                |                           | 473,587                                   |            |            |             | 359,486    |           
|                                   
|                                   
|                                   
|                                   
|                                    | Retained earnings                                                                                                                                 |                |                           | 75,682,653                                |            |            |             | 77,863,142 |           
|                                    |                                                                                                                                                   |                |                           |                                           |            |            |             |           
|                                    |                                                                                                                                                   |                | Total Shareowners equity |                                           |            | 89,116,502 |             |            |            | 91,168,206 |            
|                                    |                                                                                                                                                   |                |                           |                                           |            |            |             |           
|                                    |                                                                                                                                                   |                |                           | Total Liabilities and Shareowners equity |            | $          | 113,687,569 |            |            | $          | 116,013,870 | 
|                                    |                                                                                                                                                   |                |                           |                                           |            |            |             |           

See accompanying notes.

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SPARTON CORPORATION AND SUBSIDIARIES  Condensed Consolidated Statements of Operations (Unaudited)  For the Three-Month Periods ended September 30, 2003 and 2002


|                                              |                                    |                   |            |           |            |      |            |            |           | 
|--------------------------------------------- | ---------------------------------- | ----------------- | ---------- | --------- | ---------- | ---- | ---------- | ---------- | --------- | 
|                                              |                                    |                   |            | 2003      |            | 2002
|Net sales                                     |                                    | $                 | 36,424,801 |           |            | $    | 36,767,907 |           
|                                             
|                                             
|                                             
|                                             
|Costs of goods sold                           |                                    |                   | 35,990,843 |           |            |      | 33,003,645 |           
|                                              |                                    |                   |            |           |            |      |            |           
|                                              |                                    |                   | 433,958    |           |            |      | 3,764,262  |           
|                                             
|                                             
|                                             
|                                             
|Selling and administrative (income) expenses: |                                    |                   |            |           |            |      |            |           
|                                             
|                                             
|                                             
|                                             
|                                              | Selling and administrative         |                   |            | 3,759,004 |            |      |            | 3,524,214  |          
|                                             
|                                             
|                                             
|                                             
|                                              | EPA related  net                  |                   |            | 74,000    |            |      |            | (5,347,000 | )        
|                                              |                                    |                   |            |           |            |      |            |           
|                                              |                                    |                   | 3,833,004  |           |            |      | (1,822,786 | )         
|                                              |                                    |                   |            |           |            |      |            |           
|Operating income (loss)                       |                                    |                   | (3,399,046 | )         |            |      | 5,587,048  |           
|                                             
|                                             
|                                             
|                                             
|Other income (expenses):                      |                                    |                   |            |           |            |      |            |           
|                                             
|                                             
|                                             
|                                             
|                                              | Interest and investment income     |                   |            | 230,542   |            |      |            | 117,297    |          
|                                             
|                                             
|                                             
|                                             
|                                              | Equity income (loss) in investment |                   |            | 21,000    |            |      |            | (39,000    | )        
|                                             
|                                             
|                                             
|                                             
|                                              | Other  net                        |                   |            | (58,985   | )          |      |            | 14,490     |          
|                                              |                                    |                   |            |           |            |      |            |           
|                                              |                                    |                   | 192,557    |           |            |      | 92,787     |           
|                                              |                                    |                   |            |           |            |      |            |           
|Income (loss) before income taxes             |                                    |                   | (3,206,489 | )         |            |      | 5,679,835  |           
|                                             
|                                             
|                                             
|                                             
|Provision (credit) for income taxes           |                                    |                   | (1,026,000 | )         |            |      | 2,102,000  |           
|                                              |                                    |                   |            |           |            |      |            |           
|                                              |                                    | Net income (loss) |            | $         | (2,180,489 | )    |            | $          | 3,577,835 | 
|                                              |                                    |                   |            |           |            |      |            |           
|Basic and diluted earnings (loss) per share   |                                    | $                 | (0.27      | )         |            | $    | 0.47       |           
|                                              |                                    |                   |            |           |            |      |            |           

See accompanying notes.

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SPARTON CORPORATION AND SUBSIDIARIES  Condensed Consolidated Statements of Cash Flows (Unaudited)  For the Three-Month Periods ended September 30, 2003 and 2002


|                                                                    |                                                           |                                                                            |            |            |            |      |            |            |            |  
|------------------------------------------------------------------- | --------------------------------------------------------- | -------------------------------------------------------------------------- | ---------- | ---------- | ---------- | ---- | ---------- | ---------- | ---------- | -
|                                                                    |                                                           |                                                                            |            | 2003       |            | 2002
|Cash flows provided (used) by Operating Activities:                 |                                                           |                                                                            |            |            |            |      |            |           
|                                                                   
|                                                                   
|                                                                   
|                                                                   
|                                                                    | Net income (loss)                                         |                                                                            | $          | (2,180,489 | )          |      | $          | 3,577,835  |           
|                                                                   
|                                                                   
|                                                                   
|                                                                   
|                                                                    | Add (deduct) noncash items affecting operations:          |                                                                            |            |            |            |      |            |            |           
|                                                                   
|                                                                   
|                                                                   
|                                                                   
|                                                                    |                                                           | Depreciation, amortization and accretion                                   |            |            | 365,273    |      |            |            | 363,426    |  
|                                                                   
|                                                                   
|                                                                   
|                                                                   
|                                                                    |                                                           | EPA settlement                                                             |            |            | 1,000,000  |      |            |            | (5,500,000 | )
|                                                                   
|                                                                   
|                                                                   
|                                                                   
|                                                                    |                                                           | Change in pension asset                                                    |            |            | 32,008     |      |            |            | 14,778     |  
|                                                                   
|                                                                   
|                                                                   
|                                                                   
|                                                                    |                                                           | Loss on sale of investments                                                |            |            | 13,880     |      |            |            | 18,995     |  
|                                                                   
|                                                                   
|                                                                   
|                                                                   
|                                                                    |                                                           | Equity (gain) loss in investment                                           |            |            | (21,000    | )    |            |            | 39,000     |  
|                                                                   
|                                                                   
|                                                                   
|                                                                   
|                                                                    |                                                           | Other                                                                      |            |            | 54,050     |      |            |            | 35,654     |  
|                                                                   
|                                                                   
|                                                                   
|                                                                   
|                                                                    | Add (deduct) changes in operating assets and liabilities: |                                                                            |            |            |            |      |            |            |           
|                                                                   
|                                                                   
|                                                                   
|                                                                   
|                                                                    |                                                           | Accounts receivable                                                        |            |            | 8,434,873  |      |            |            | (1,641,465 | )
|                                                                   
|                                                                   
|                                                                   
|                                                                   
|                                                                    |                                                           | Income taxes recoverable                                                   |            |            | (616,557   | )    |            |            | 1,055,965  |  
|                                                                   
|                                                                   
|                                                                   
|                                                                   
|                                                                    |                                                           | Inventories and prepaid expenses                                           |            |            | (3,313,134 | )    |            |            | 2,179,749  |  
|                                                                   
|                                                                   
|                                                                   
|                                                                   
|                                                                    |                                                           | Accounts payable, salaries and wages, accrued liabilities
and income taxes |            |            | (274,597   | )    |            |            | 1,146,454  |  
|                                                                    |                                                           |                                                                            |            |            |            |      |            |            |           
|                                                                    |                                                           |                                                                            | 3,494,307  |            |            |      | 1,290,391  |           
|                                                                   
|                                                                   
|                                                                   
|                                                                   
|Cash flows provided (used) by Investing Activities:                 |                                                           |                                                                            |            |            |            |      |            |           
|                                                                   
|                                                                   
|                                                                   
|                                                                   
|                                                                    | Purchases of investment securities                        |                                                                            |            | (908,720   | )          |      |            | (3,033,817 | )         
|                                                                   
|                                                                   
|                                                                   
|                                                                   
|                                                                    | Proceeds from sale of investment securities               |                                                                            |            | 400,000    |            |      |            | 450,339    |           
|                                                                   
|                                                                   
|                                                                   
|                                                                   
|                                                                    | Purchases of property, plant and equipment  net          |                                                                            |            | (343,538   | )          |      |            | (374,230   | )         
|                                                                   
|                                                                   
|                                                                   
|                                                                   
|                                                                    | Other, principally noncurrent other assets                |                                                                            |            | 149,852    |            |      |            | 273,632    |           
|                                                                    |                                                           |                                                                            |            |            |            |      |            |            |           
|                                                                    |                                                           |                                                                            | (702,406   | )          |            |      | (2,684,076 | )         
|                                                                   
|                                                                   
|                                                                   
|                                                                   
|Cash flows provided by Financing Activities:                        |                                                           |                                                                            |            |            |            |      |            |           
|                                                                   
|                                                                   
|                                                                   
|                                                                   
|                                                                    | Proceeds from exercise of stock options                   |                                                                            |            | 14,685     |            |      |            | 15,312     |           
|                                                                    |                                                           |                                                                            |            |            |            |      |            |            |           
|Increase (decrease) in cash and cash equivalents                    |                                                           |                                                                            | 2,806,586  |            |            |      | (1,378,373 | )         
|                                                                   
|                                                                   
|                                                                   
|                                                                   
|                                                                    | Cash and cash equivalents at beginning of period          |                                                                            |            | 10,562,222 |            |      |            | 8,687,873  |           
|                                                                    |                                                           |                                                                            |            |            |            |      |            |            |           
|Cash and cash equivalents at end of period                          |                                                           | $                                                                          | 13,368,808 |            |            | $    | 7,309,500  |           
|                                                                    |                                                           |                                                                            |            |            |            |      |            |            |           
|Supplemental disclosures of cash paid (refunded) during the period: |                                                           |                                                                            |            |            |            |      |            |           
|                                                                   
|                                                                   
|                                                                   
|                                                                   
|                                                                    | Income taxes  net                                        |                                                                            | $          | 300,000    |            |      | $          | (693,000   | )         
|                                                                    |                                                           |                                                                            |            |            |            |      |            |            |           

See accompanying notes.

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SPARTON CORPORATION & SUBSIDIARIES  Notes to Condensed Consolidated Financial Statements


1. ACCOUNTING POLICIES

The following is a summary of the Companys accounting policies not discussed
elsewhere within this report.

Basis of presentation The accompanying unaudited Condensed Consolidated
Financial Statements of Sparton Corporation and all active subsidiaries have
been prepared in accordance with accounting principles generally accepted in
the United States for interim financial information and with the instructions
to Article 10 of Regulation S-X. Accordingly, they do not include all of the
information and footnotes required by accounting principles generally accepted
in the United States for complete annual financial statements. All significant
intercompany transactions and accounts have been eliminated. The Condensed
Consolidated Balance Sheet at September 30, 2003, and the related Condensed
Consolidated Statements of Operations for the three-month periods ended
September 30, 2003 and 2002, and cash flows for the three-month periods ended
September 30, 2003 and 2002, are unaudited, but include all adjustments
(consisting of normal recurring accruals) which the Company considers necessary
for a fair presentation of such financial statements. Operating results for
the three-month period ended September 30, 2003, are not necessarily indicative
of the results that may be expected for the fiscal year ended June 30, 2004.

The balance sheet at June 30, 2003, has been derived from the audited financial
statements at that date but does not include all of the information and
footnotes required by accounting principles generally accepted in the United
States for complete financial statements. For further information, refer to
the Consolidated Financial Statements and footnotes thereto included in the
Companys Annual Report on Form 10-K for the year ended June 30, 2003.

Operations The Companys operations are in one line of business, electronic
contract manufacturing services (EMS). Products and services include complete
Box Build products for Original Equipment Manufacturers, microprocessor-based
systems, transducers, printed circuit boards and assemblies, sensors and
electromechanical devices for the telecommunications, medical/scientific
instrumentation, electronics, aerospace, and other industries. The Company
also develops and manufactures sonobuoys, anti-submarine warfare (ASW) devices,
used by the U.S. Navy and other free-world countries.

Use of estimates Accounting principles generally accepted in the United
States require management to make estimates and assumptions that affect the
disclosure of assets and liabilities and the amounts reported in the financial
statements and accompanying notes. Actual results could differ from those
estimates.

Revenue recognition The Companys net sales are comprised primarily of
product sales, with supplementary revenues earned from engineering and design
services. Standard contract terms are FOB shipping point. Revenue from
product sales is generally recognized upon shipment of the goods; service
revenue is recognized as the service is performed or under the percentage of
completion method, depending on the nature of the arrangement. Long-term
contracts relate principally to government defense contracts. These contracts
are accounted for based on completed units accepted and their estimated average
contract cost per unit. Development contracts are accounted for based on
percentage of completion. Costs and fees billed under cost-reimbursement-type
contracts are recorded as sales. A provision for the entire amount of a loss
on a contract is charged to operations as soon as the loss is determinable.
Shipping and handling costs are included in costs of goods sold.

Market risk exposure The Company manufactures its products in the United
States and Canada. Sales of the Companys products are in the U.S. and
Canada, as well as other foreign markets. The Company is potentially subject
to foreign currency exchange rate risk relating to intercompany activity and
balances, receipts from customers, and payments to suppliers in foreign
currencies. Also, adjustments related to the translation of the Companys
Canadian financial statements into U.S. dollars are included in current
earnings. As a result, the Companys financial results could be affected by
factors such as changes in foreign currency exchange rates or weak economic
conditions in the foreign markets in which the Company operates. However,
minimal third party receivables and payables are denominated in foreign
currency and, historically, foreign currency gains and losses have not been
significant. The Company does not consider the market risk exposure relating
to currency exchange to be material.

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The Company has financial instruments that are subject to interest rate risk,
principally short-term investments. Historically, the Company has not
experienced material gains or losses due to such interest rate changes. Based
on the current holdings of short-term investments, the interest rate risk is
not considered to be material.

Stock options The Company follows Accounting Principles Board Opinion No.
25, Accounting for Stock Issued to Employees (APB 25), and related
Interpretations in accounting for its employee stock options. Under APB 25, no
compensation expense is recognized as the exercise price of the Companys
employee stock options equals the market price of the underlying stock on the
date of grant. The Company follows the disclosure requirements of Statement of
Financial Accounting Standards (SFAS) No. 123, Accounting for Stock-Based
Compensation, as amended by SFAS No. 148, Accounting for Stock-Based
Compensation-Transition and Disclosure.

At September 30, 2003, the per share weighted-average exercise price of options
outstanding was $6.35. The weighted-average remaining contractual life of
those options was approximately 3 years. At September 30, 2003, there were
240,040 options exercisable at the weighted-average per share price of $5.77.
Remaining shares available for grant under the plan were 211,312 at September
30, 2003.

The following sets forth a reconciliation of net income (loss) and earnings
(loss) per share information for the three months ended September 30, 2003 and
2002, as if the Company had recognized compensation expense based on the fair
value at the grant date for awards under the plan.

|                                                                                                                               |                                                                       |                             |            |       |            |      |           |      |           | 
|------------------------------------------------------------------------------------------------------------------------------ | --------------------------------------------------------------------- | --------------------------- | ---------- | ----- | ---------- | ---- | --------- | ---- | --------- | 
|                                                                                                                               |                                                                       |                             |            | 2003  |            | 2002
|Net income (loss), as reported                                                                                                 |                                                                       | $                           | (2,180,489 | )     |            | $    | 3,577,835 |     
|                                                                                                                              
|                                                                                                                              
|                                                                                                                              
|                                                                                                                              
|Deduct: Total stock-based compensation expense determined under
the fair value based method for all awards, net of tax effects |                                                                       |                             | 47,880     |       |            |      | 43,313    |     
|                                                                                                                               |                                                                       |                             |            |       |            |      |           |     
|                                                                                                                               |                                                                       | Pro forma net income (loss) |            | $     | (2,228,369 | )    |           | $    | 3,534,522 | 
|                                                                                                                               |                                                                       |                             |            |       |            |      |           |     
|Pro
forma earnings (loss) per share:                                                                                           |                                                                       |                             |            |       |            |      |           |     
|                                                                                                                              
|                                                                                                                              
|                                                                                                                              
|                                                                                                                              
|                                                                                                                               | Basic earnings (loss) per share  after January 2003 stock dividend   |                             | $          | (0.28 | )          |      | $         | 0.45 |          
|                                                                                                                               |                                                                       |                             |            |       |            |      |           |     
|                                                                                                                               | Diluted earnings (loss) per share  after January 2003 stock dividend |                             | $          | (0.28 | )          |      | $         | 0.44 |          
|                                                                                                                               |                                                                       |                             |            |       |            |      |           |     

2. INVENTORIES

Inventories are valued at the lower of cost (first-in, first-out basis) or
market and include costs related to long-term contracts. Inventories, other
than contract costs, are principally raw materials and supplies. The following
are the major classifications of inventory:

|                                   |  |                    |            |               |  |   |            | 
|---------------------------------- |  | ------------------ | ---------- | ------------- |  | - | ---------- | 
|                                   |  | September
30, 2003 |            | June 30,
2003
|Raw materials                      |  | $                  | 16,139,000 |               |  | $ | 20,157,000 | 
|                                  
|                                  
|                                  
|                                  
|Work in process and finished goods |  |                    | 19,208,000 |               |  |   | 11,652,000 | 
|                                   |  |                    |            |               |  |   |            | 
|                                   |  | $                  | 35,347,000 |               |  | $ | 31,809,000 | 
|                                   |  |                    |            |               |  |   |            | 

Work in progress and finished goods inventories include $3.0 and $1.1 million
of completed, but not yet accepted, sonobuoys at September 30, 2003 and June
30, 2003, respectively.

3. EARNINGS PER SHARE

All share and per share information for 2002 have been adjusted to reflect the
impact of the 5% stock dividend declared in January 2003. For the three months
ended September 30, 2002, the exercise price for all stock options granted was
less than the average market price of the Companys common stock and therefore,
they were included in the computation for weighted average diluted shares
outstanding. Stock options were not considered in the
September 30, 2003, calculation as the effect would be anti-dilutive due to the current period
loss. Basic and diluted earnings (loss) per share were computed on the following:

|                                            |                                             |   |           |           |      |   |           |           | 
|------------------------------------------- | ------------------------------------------- | - | --------- | --------- | ---- | - | --------- | --------- | 
|                                            |                                             |   | 2003      |           | 2002
|Basic  weighted average shares outstanding |                                             |   | 7,946,495 |           |      |   | 7,941,260 |          
|                                           
|                                           
|                                           
|                                           
|Effect of dilutive stock options            |                                             |   |          |           |      |   | 179,097   |          
|                                            |                                             |   |           |           |      |   |           |          
|                                            | Weighted average diluted shares outstanding |   |           | 7,946,495 |      |   |           | 8,120,357 | 
|                                            |                                             |   |           |           |      |   |           |          
|Basic earnings (loss) per share             |                                             | $ | (0.27     | )         |      | $ | 0.45      |          
|                                            |                                             |   |           |           |      |   |           |          
|Diluted earnings (loss) per share           |                                             | $ | (0.27     | )         |      | $ | 0.44      |          
|                                            |                                             |   |           |           |      |   |           |          

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On October 21, 2003, Spartons Board of Directors approved a 5% stock dividend.
Eligible shareowners of record on November 21, 2003, will receive the stock
dividend. The dividend distribution or payment date was established as
December 19, 2003. Cash will be paid in lieu of fractional shares of stock.
This is a continuation of a process the Company began last fiscal year. The
effect of this stock dividend will be reflected in the Companys shareowners
equity in the quarter ending December 31, 2003. Per share data will also be
restated for all periods presented to give effect to the stock dividend
beginning in that quarter.

Pro forma earnings (loss) per share after October 2003 stock dividend:

|                                            |                                             |   |           |           |      |   |           |           | 
|------------------------------------------- | ------------------------------------------- | - | --------- | --------- | ---- | - | --------- | --------- | 
|                                            |                                             |   | 2003      |           | 2002
|Weighted average diluted shares outstanding |                                             |   | 7,946,495 |           |      |   | 8,120,357 |          
|                                           
|                                           
|                                           
|                                           
|Effect of 5% stock dividend                 |                                             |   | 397,325   |           |      |   | 406,018   |          
|                                            |                                             |   |           |           |      |   |           |          
|                                            | Weighted average diluted shares outstanding |   |           | 8,343,820 |      |   |           | 8,526,375 | 
|                                            |                                             |   |           |           |      |   |           |          
|Diluted earnings (loss) per share           |                                             | $ | (0.26     | )         |      | $ | 0.42      |          
|                                            |                                             |   |           |           |      |   |           |          

4. COMPREHENSIVE INCOME (LOSS)

Comprehensive income (loss) includes net income (loss) as well as unrealized
gains and losses, net of tax, which are excluded from net income. They are,
however, reflected as a direct charge or credit to shareowners equity. Total
comprehensive income (loss) is as follows for the three months ended September
30:

|                                              |                                                                                                  |                             |            |          |            |      |           |         |           | 
|--------------------------------------------- | ------------------------------------------------------------------------------------------------ | --------------------------- | ---------- | -------- | ---------- | ---- | --------- | ------- | --------- | 
|                                              |                                                                                                  |                             |            | 2003     |            | 2002
|Net income (loss)                             |                                                                                                  | $                           | (2,180,000 | )        |            | $    | 3,578,000 |        
|                                             
|                                             
|                                             
|                                             
|Other comprehensive income (loss), net of tax |                                                                                                  |                             |            |          |            |      |           |        
|                                             
|                                             
|                                             
|                                             
|                                              | Net unrealized gains (losses)  investment securities owned                                      |                             |            | (103,000 | )          |      |           | 199,000 |          
|                                             
|                                             
|                                             
|                                             
|                                              | Net unrealized gains  investment securities held by
investee accounted for by the equity method |                             |            | 218,000  |            |      |           | 214,000 |          
|                                              |                                                                                                  |                             |            |          |            |      |           |        
|                                              |                                                                                                  | Comprehensive income (loss) |            | $        | (2,065,000 | )    |           | $       | 3,991,000 | 
|                                              |                                                                                                  |                             |            |          |            |      |           |        

At September 30, 2003, shareowners equity includes accumulated other
comprehensive income of $368,000 and $106,000, which relate to unrealized
gains, net of tax, on investment securities owned and investment securities
held by an investee accounted for by the equity method, respectively. At June
30, 2003, these amounts were $471,000 and $(112,000) respectively.

5. INVESTMENT SECURITIES

The fair value of cash and cash equivalents, accounts receivable, and accounts
payable approximate their carrying value. Cash and cash equivalents consist of
demand deposits and other highly liquid investments with an original term of
three months or less.

Investments in debt securities that are not cash equivalents and marketable
equity securities have been designated as available for sale. Those securities
are reported at fair value, with net unrealized gains and losses included in
accumulated other comprehensive income, net of applicable taxes. Unrealized
losses that are other than temporary are recognized in earnings. Realized
gains and losses on investments are determined using the specific
identification method. The Companys investment in Cybernet Systems
Corporation is accounted for under the equity method.

Cash and cash equivalents consist of demand deposits and other highly liquid
investments. The investment portfolio has various maturity dates up to 25
years. A daily market exists for all investment securities. The Company
believes that the impact of fluctuations in interest rates on its investment
portfolio should not have a material impact on financial position or results of
operations. It is the Companys intention to use these investment securities
to provide working capital and fund the expansion of its business and for other
business purposes.

At September 30, 2003, the Company had net unrealized gains of $584,000. At
that date, the net after-tax effect of these gains was $368,000, which amount
is included in accumulated other comprehensive income within shareowners
equity. For the three months ended September 30, 2003 and 2002, purchases of
investments totaled $909,000 and $3,034,000, and sales of investment securities
totaled $400,000 and $450,000, respectively.

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Sparton owns a 14% interest in Cybernet, which was purchased for $3,000,000 in
June 1999. This investment, which amounted to $1,778,000 and $1,490,000 at
September 30, 2003 and 2002, respectively, is accounted for under the equity
method and is included in other assets on the condensed consolidated balance
sheet. Spartons share of unrealized gains (losses) on available-for-sale
securities held by Cybernet is carried in accumulated other comprehensive
income (loss) within the Shareowners Equity section of Spartons balance
sheet.

The contractual maturities of debt securities, and total equity securities, as
of September 30, 2003, are as follows:

|                                              |                                    |                       |                             |           |           |           |        |           |            |            |         |           |           |           |   |         |         |         |           |            |            |            | 
|--------------------------------------------- | ---------------------------------- | --------------------- | --------------------------- | --------- | --------- | --------- | ------ | --------- | ---------- | ---------- | ------- | --------- | --------- | --------- | - | ------- | ------- | ------- | --------- | ---------- | ---------- | ---------- | 
|                                              |                                    |                       |                             |           | Years    
|                                              |                                    |                       |                             |           |          
|                                              |                                    |                       |                             |           | Within 1  |           | 1 to 5 |           | 5 to 10    |            | Over 10 |           | Total    
|                                              |                                    |                       |                             |           |           |           |        |           |            |            |         |           |          
|Debt securities:                              |                                    |                       |                             |           |           |           |        |           |            |            |         |           |           |           |   |         |         |         |           |           
|                                             
|                                             
|                                             
|                                             
|                                              | Corporate  primarily U.S          |                       | $                           | 1,224,000 |           |           | $      | 6,923,000 |            |            | $       | 1,882,000 |           |           | $ |        |         |         | $         | 10,029,000 |           
|                                             
|                                             
|                                             
|                                             
|                                              | U.S. government and federal agency |                       |                             | 407,000   |           |           |        | 3,575,000 |            |            |         | 1,592,000 |           |           |   |        |         |         |           | 5,574,000  |           
|                                             
|                                             
|                                             
|                                             
|                                              | State and municipal                |                       |                             | 101,000   |           |           |        | 3,079,000 |            |            |         | 1,677,000 |           |           |   | 694,000 |         |         |           | 5,551,000  |           
|                                              |                                    |                       |                             |           |           |           |        |           |            |            |         |           |           |           |   |         |         |         |           |            |           
|                                              |                                    | Total debt securities |                             |           | 1,732,000 |           |        |           | 13,577,000 |            |         |           | 5,151,000 |           |   |         | 694,000 |         |           |            | 21,154,000 |           
|                                             
|                                             
|                                             
|                                             
|Equity securities  primarily preferred stock |                                    |                       |                            |           |           |           |       |           |            |            |        |           |           |           |  |         |         |         | 2,337,000 |           
|                                              |                                    |                       |                             |           |           |           |        |           |            |            |         |           |           |           |   |         |         |         |           |            |           
|                                              |                                    |                       | Total investment securities |           | $         | 1,732,000 |        |           | $          | 13,577,000 |         |           | $         | 5,151,000 |   |         | $       | 694,000 |           |            | $          | 23,491,000 | 
|                                              |                                    |                       |                             |           |           |           |        |           |            |            |         |           |           |           |   |         |         |         |           |            |           

6. COMMITMENTS AND CONTINGENCIES

One of Spartons former manufacturing facilities, located in Albuquerque, New
Mexico (Coors Road), has been involved
with ongoing environmental remediation since the early 1980s.

At September 30, 2003, Sparton has a remaining accrual of $7,397,000 as its
estimate of the minimum future undiscounted financial liability with respect
to this matter, of which $643,000 is classified as a current liability and
included on the balance sheet in accrued liabilities. The Companys minimum
cost estimate is based upon existing technology and excludes legal and related
consulting costs, which are expensed as incurred. The Companys estimate
includes equipment and operating costs for onsite and offsite pump and treat
containment systems, a soil vapor extraction program and continued onsite and
offsite monitoring.

During the first quarter of fiscal 2003, Sparton reached an agreement with the
United States Department of Energy (DOE) and others to recover certain
remediation costs. Under the settlement terms, Sparton received $4,850,000 from
the DOE and others in fiscal 2003, plus an additional $1,000,000, which was
received during the first quarter of fiscal 2004. In addition, the DOE has
agreed to reimburse Sparton for 37.5% of certain future environmental expenses
in excess of $8,400,000 incurred at the site. The settlement concluded a very
lengthy negotiation process and two court actions, one in the Federal Court of
Claims and one in the Federal District Court in Albuquerque, New Mexico. With
the settlement, Sparton received cash and gained some degree of risk
protection, with the DOE agreeing to reimburse future costs incurred above the
established level. The financial impact of the settlement was recorded in the
first quarter of fiscal 2003 with $5,500,000 recorded as income.

Uncertainties associated with environmental remediation contingencies are
pervasive and often result in wide ranges of reasonably possible outcomes.
Estimates developed in the early stages of remediation can vary significantly.
Normally a finite estimate of cost does not become fixed and determinable at a
specific point in time. Rather, the costs associated with environmental
remediation become estimable over a continuum of events and activities that
help to frame and define a liability.

Factors which cause uncertainties for the Company include, but are not limited
to, the effectiveness of the current work plans in achieving targeted results
and proposals of regulatory agencies for desired methods and outcomes. It is
possible that cash flows and results of operations could be significantly
affected by the impact of changes associated with the ultimate resolution of
this contingency.

Amounts charged to operations, principally legal and consulting, for the three
months ended September 30, 2003 and 2002 were $74,000 and $153,000,
respectively. These costs were generally incurred in pursuit of various claims
for reimbursement/recovery.

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SPARTON CORPORATION AND SUBSIDIARIES  MANAGEMENTS DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS


The following is managements discussion and analysis of certain significant
events affecting the Companys earnings and financial condition during the
periods included in the accompanying financial statements. The Companys
operations are in one line of business, electronic contract manufacturing
services (EMS). This includes the design, development and/or manufacture of
electronic parts and assemblies for both government and commercial customers
worldwide. Governmental sales are mainly sonobuoys. Commercial customers are
in general industrial markets, as well as the regulated aerospace and medical
markets.

The Private Securities Litigation Reform Act of 1995 reflects Congress
determination that the disclosures of forward-looking information is desirable
for investors and encourages such disclosure by providing a safe harbor for
forward-looking statements by corporate management. The following discussion
about the Companys results of operations and financial condition contains
forward-looking statements that involve risk and uncertainty. The Company
notes that a variety of factors could cause the actual results and experience
to differ materially from anticipated results or other expectations expressed
in the Companys forward-looking statements. The risks and uncertainties that
may affect the operations, performance, growth forecasts and results of the
Companys business include, but are not limited to, timing and fluctuations in
U.S. and/or world economies, customer demand for products, competition in the
overall EMS business, availability of production labor and management services
under terms acceptable to the Company, Congressional budget outlays for
sonobuoy development and production, Congressional legislation, changes in the
interpretation of environmental laws and the uncertainties of environmental
remediation. An additional risk factor is the availability and cost of
materials. The Company has encountered availability and extended lead time
issues on some electronic components in the past, which have resulted in higher
prices and late deliveries. Finally, the timing of sonobuoy sales is dependent
upon access to, and successful passage of, product tests performed by the U.S.
Navy. Reduced governmental budgets have made access to the test range less
predictable and frequent than in the past. Management cautions readers not to
place undue reliance on forward-looking statements, which are subject to
influence by the enumerated risk factors as well as unanticipated future
events.

RESULTS OF OPERATIONS

Sales for the three-month period ended September 30, 2003, totaled $36,425,000,
comparable with fiscal 2003. Overall, sales were below the Companys
expectations, but do reflect the continued depressed economic environment. A
modest decline in government EMS sales to $10,300,000 was offset by an increase
in other markets. Sales included $9,025,000, $12,087,000 and $5,013,000 of
industrial, aerospace and medical/scientific instrumentation sales,
respectively. Sales in these areas in fiscal 2003 were $10,456,000,
$10,449,000, and $5,034,000, respectively. Government sales declined slightly
from last year, in part due to very limited access to the test range. In
addition, the Company has encountered technical difficulties in the production
of one of its current sonobuoy contracts which has resulted in minimal margin
and further depressed sales. Also, two additional sonobuoy contracts
encountered difficulties. Increased cost to complete estimates on these two
sonobuoys further reduced operating margin by $518,000. Sonobuoy sales are
subject to the passage of testing. During the first quarter of 2004, the
testing facility was unavailable until mid-September. In late September eight
lots were tested. Two sonobuoy lots passed and four failed testing, but were
later accepted. However, two other lots, with sales totaling $2.3 million,
failed and require rework. These lots will be shipped and the associated sales
recognized in future periods.

An operating loss of $3,399,000 versus an operating profit of $5,587,000 was
reported for the three months ended September 30, 2003, and 2002, respectively.
The current period results include several start-up contracts which had
negative or minimal gross margins. While improvements have been made on these
contracts, sales of $5,533,000 resulted in a gross margin of only $115,000. In
addition, a redesign effort on an existing product line resulted in a charge to
operations of $496,000. This effort is projected to be completed by December
2003. Given the on-going reduced level of sales, the Company continues to
experience underutilized capacity. Selling and administrative expenses as a
percentage of sales increased slightly from last year, 10.3% in 2003 and 9.6%
in 2002. Most of this increase was due to higher bid and proposal and
development activities, primarily related to government contracts, which
further reduced

10



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current earnings. Included in 2003 operating income was a
$5,500,000 ($3,630,000 net of tax) recovery of certain remediation costs. It reflects Spartons settlement with the DOE and others
regarding reimbursement of costs incurred at the Companys Sparton Technology
Coors Road facility. Also included were charges related to the
New Mexico environmental remediation effort, principally litigation, of $74,000
in 2003 and $153,000 in 2002.

Interest and Investment Income increased $113,000 to $231,000 in 2003, due to
increased available funds for investment. Other Expense-Net in 2003 was
$59,000 versus Other Income-Net of $14,000 in 2002. Other Expense-Net in 2003
includes $60,000 of adjustments for Spartons previously owned automotive
segment.

The Company reported a loss of $2,180,000 ($0.27 per share) for the three
months ended September 30, 2003, versus net income of $3,578,000 ($0.47 per
share) for the corresponding period last year.

LIQUIDITY AND CAPITAL
RESOURCES

For the three-month period ended September 30, 2003, Cash and Cash Equivalents
increased $2,807,000 to $13,369,000. Overall, Cash and Investments increased
by $3,082,000 from June 30, 2003. Operating activities provided $3,494,000 in
net cash flows. The primary source of cash was a decrease in accounts
receivable, reflective of receipt of payment for the large volume of sales
recognized in June 2003. The primary use of cash was an increase in
inventories. A portion of this increase in inventories is reflective of
delayed customer delivery schedules. An additional inventory increase reflects
material for new customer contracts. Cash provided by operating activities in
2002 was less than net income because the $5.8 million related to the
environmental settlement with the DOE and others had not been received as of
September 30, 2002. Cash flows used by investing activities totaled $702,000,
principally for the purchase of investment securities. Cash flow provided by
financing activities totaled $15,000 from stock options exercised.

The Companys market risk exposure to foreign currency exchange and interest
rates are not considered to be material, principally due to their short term
nature and minimal receivables and payables designated in foreign currency.

At September 30, 2003, and June 30, 2002, the aggregate government EMS backlog
was approximately $45 million and $51 million, respectively. A majority of the
September 30, 2003, backlog is expected to be realized in the next 8-10 months.
Commercial EMS orders are not included in the backlog. The Company does not
believe the amount of commercial activity covered by firm purchase orders is a
meaningful measure of future sales, as such orders may be rescheduled or
cancelled without significant penalty.

The Company has had no short-term debt since December 1996, and currently has
an unused informal line of credit totaling $20 million from one bank.

Sparton is continuing to pursue a joint venture operation in Vietnam with
Texatronics, our Alliance Partner in Richardson, Texas. Meetings have been
held with architects and contractors to investigate the type and design of the
building. The actual joint venture continues in a discussion phase. If an
agreement is finalized, the new joint venture will carry the name Spartronics.
The Company is also exploring the possible purchase of a new facility in the
Albuquerque, New Mexico area to replace an existing facility, as well as
identifying and evaluating potential acquisition candidates in both the defense
and medical markets.

No cash dividends were declared in either period presented. At September 30,
2003, the Company had $89,117,000 in recorded shareowners equity ($11.21 per
share), $75,758,000 in working capital, and a 5.25:1.00 working capital ratio.

OTHER

LITIGATION

One of Spartons facilities, located in Albuquerque, New Mexico, has been the
subject of ongoing investigations conducted with the Environmental Protection
Agency (EPA) under the Resource Conservation and Recovery Act (RCRA). The
investigation began in the early 1980s and involved a review of onsite and
offsite environmental impacts.

11



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##### Table of Contents



At September 30, 2003, Sparton has an accrual of $7,397,000 as its estimate of
the future undiscounted minimum financial liability with respect to this
matter. The Companys cost estimate is based upon existing technology and
excludes legal and related consulting costs, which are expensed as incurred.
The Companys estimate includes equipment and operating costs for onsite and
offsite operations and is based on existing methodology. Uncertainties
associated with environmental remediation contingencies are pervasive and often
result in wide ranges of reasonably possible outcomes. Estimates developed in
the early stages of remediation can vary significantly. Normally a finite
estimate of cost does not become fixed and determinable at a specific point in
time. Rather, the costs associated with environmental remediation become
estimable over a continuum of events and activities that help to frame and
define a liability. It is possible that cash flows and results of operations
could be affected by the impact of the ultimate resolution of this contingency.

In 1995, Sparton Corporation and Sparton Technology, Inc. (STI) filed a
Complaint in the Circuit Court of Cook County, Illinois, against Lumbermens
Mutual Casualty Company and American Manufacturers Mutual Insurance Company
demanding reimbursement of expenses incurred in connection with its remediation
efforts at the Coors Road facility based on various primary and excess
comprehensive general liability policies in effect between 1959 and 1975. In
1999, the Complaint was amended to add various other excess insurers, including
certain London market insurers and Firemans Fund Insurance Company. The case
remains in pretrial activity.

In September 2002, STI filed an action in the U.S. District Court for the
Eastern District of Michigan to recover certain unreimbursed costs incurred as
a result of a manufacturing relationship with two entities, Util-Link, LLC
(Util-Link) of Delaware and National Rural Telecommunications Cooperative
(NRTC) of the District of Columbia. On or about October 21, 2002, the
defendants filed a counterclaim seeking money damages, alleging that STI
breached its duties in the manufacture of products for the defendants. The
defendant Util-Link has asked for damages in the amount of $25,000,000 for lost
profits. The defendant NRTC has asked for damages in the amount $20,000,000
for the loss of its investment in and loans to Util-Link. Sparton believes
that the damages sought by NRTC are included in Util-Links claim for damages
and as such, are duplicative. Sparton also believes the counterclaim to be
without merit and intends to vigorously defend against it. This case is in the
initial stages of discovery.

At this time, the Company is unable to predict the amount of recovery, if any,
that may result from the pursuit of these two before-mentioned claims.




Item 3. QUALITATIVE AND QUANTITATIVE DISCLOSURES ABOUT MARKET RISK

MARKET RISK EXPOSURE

The Company manufactures its products in the United States and Canada. Sales
of the Companys products are made in the U.S. and Canada, as well as other
foreign markets. The Company is potentially subject to foreign currency
exchange rate risk relating to intercompany activity and balances and to
receipts from customers and payments to suppliers in foreign currencies. Also,
adjustments related to the translation of the Companys Canadian financial
statements into U.S. dollars are included in current earnings. As a result,
the Companys financial results could be affected by factors such as changes in
foreign currency exchange rates or weak economic conditions in the foreign
markets in which the Company operates. However, minimal third party
receivables and payables are denominated in foreign currency and, historically,
foreign currency gains and losses have not been significant. The Company does
not consider the market risk exposure relating to currency exchange to be
material.

The Company has financial instruments that are subject to interest rate risk,
principally short-term investments. Historically, the Company has not
experienced material gains or losses due to such interest rate changes. Based
on the current holdings of short-term investments, the interest rate risk is
not considered to be material.




Item 4. CONTROLS AND PROCEDURES

The Company maintains internal controls over financial reporting intended to
provide reasonable assurance, at appropriate cost, that all material
transactions are executed in accordance with Company authorization and are
properly recorded and reported in the financial statements, and that assets are
adequately safeguarded. The Company also maintains a
12Table of Contentssystem of disclosure
controls and procedures to ensure that information required to be disclosed in
Company reports, filed or submitted under the Securities Exchange Act of 1934,
is properly reported in the Companys periodic and other reports.As of September 30, 2003, an evaluation was updated by the Companys
management, including the CEO and CFO, on the effectiveness of the design and
operation of the Companys disclosure controls and procedures. Based on that
evaluation, the Companys management, including the CEO and CFO, concluded that
the Companys disclosure controls and procedures continue to be effective as of
September 30, 2003. There have been no significant changes in the Companys
internal controls over financial reporting that occurred during the last fiscal
quarter that have materially affected, or are reasonably likely to materially
affect, the Companys internal control over financial reporting.
PART IIOTHER INFORMATION


Item 1. LEGAL PROCEEDINGSOne of Spartons former manufacturing facilities, located in Albuquerque, New
Mexico (Coors Road), has been involved with ongoing environmental remediation
since the early 1980s.In December 1999, the Company increased its accrual for the cost of addressing
environmental impacts associated with its Coors Road facility by $10,000,000
pre-tax. This increase was in response to a Consent Decree settling lawsuits,
as well as a related administrative enforcement action, and covered costs
expected to be incurred over the next thirty years.At September 30, 2003, Sparton has a remaining accrual of $7,397,000 as its
estimate of the minimum future undiscounted financial liability with respect
to this matter, of which $643,000 is classified as a current liability and
included on the balance sheet in accrued liabilities. The Companys minimum
cost estimate is based upon existing technology and excludes legal and related
consulting costs, which are expensed as incurred. The Companys estimate
includes equipment and operating costs for onsite and offsite pump and treat
containment systems, a soil vapor extraction program and continued onsite and
offsite monitoring.Factors which cause uncertainties for the Company include, but are not limited
to, the effectiveness of the current work plans in achieving targeted results
and proposals of regulatory agencies for desired methods and outcomes. It is
possible that cash flows and results of operations could be significantly
affected by the impact of changes associated with the ultimate resolution of
this contingency. Uncertainties associated with environmental remediation
contingencies are pervasive and often result in wide ranges of reasonably
possible outcomes. Estimates developed in the early stages of remediation can
vary significantly. Normally a finite estimate of cost does not become fixed
and determinable at a specific point in time. Rather, the costs associated
with environmental remediation become estimable over a continuum of events and
activities that help to frame and define a liability. It is possible that cash
flows and results of operations could be materially affected by the impact of
the ultimate resolution of this contingency.During the first quarter of fiscal 2003, Sparton reached an agreement with the
United States Department of Energy (DOE) and others to recover certain
remediation costs. Under the settlement terms, Sparton received $4,850,000
from the DOE and others in fiscal 2003, plus an additional $1,000,000, which
was received during the first quarter of fiscal 2004. In addition, the DOE has
agreed to reimburse Sparton for 37.5% of certain future environmental expenses
in excess of $8,400,000 incurred at the site. The settlement concluded a very
lengthy negotiation process and two court actions, one in the Federal Court of
Claims and one in the Federal District Court in Albuquerque, New Mexico. With
the settlement, Sparton received cash and gained some degree of risk
protection, with the DOE agreeing to reimburse future costs incurred above the
established level. The financial impact of the settlement was recorded in the
first quarter of fiscal 2003 with $5,500,000 recorded as operating income.In 1995, Sparton Corporation and Sparton Technology, Inc. (STI) filed a
Complaint in the Circuit Court of Cook County, Illinois, against Lumbermens
Mutual Casualty Company and American Manufacturers Mutual Insurance Company
demanding reimbursement of expenses incurred in connection with its remediation
efforts at the Coors Road facility13Table of Contentsbased on various primary and excess
comprehensive general liability policies in effect between 1959 and 1975. In
1999, the Complaint was amended to add various other excess insurers, including
certain London market insurers and Firemans Fund Insurance Company. The case
remains in pretrial activity.In September 2002, Sparton Technology, Inc. (STI) filed an action in the U.S.
District Court for the Eastern District of Michigan to recover certain
unreimbursed costs incurred as a result of a manufacturing relationship with
two entities, Util-Link, LLC (Util-Link) of Delaware and National Rural
Telecommunications Cooperative (NRTC) of the District of Columbia. On or about
October 21, 2002, the defendants filed a counterclaim seeking money damages,
alleging that STI breached its duties in the manufacture of products for the
defendants. The defendant Util-Link has asked for damages in the amount of
$25,000,000 for lost profits. The defendant NRTC has asked for damages in the
amount $20,000,000 for the loss of its investment in and loans to Util-Link.
Sparton believes that the damages sought by NRTC are included in Util-Links
claim for damages and as such, are duplicative. Sparton also believes the
counterclaim to be without merit and intends to vigorously defend against it.
This case is in the initial stages of discovery.At this time, the Company is unable to predict the amount of recovery, if any,
that may result from the pursuit of these two before-mentioned claims.
Item 6. EXHIBITS AND REPORTS ON FORM 8-K

|    |  |                                                                |  |                                                                                                                                                                           
|--- |  | -------------------------------------------------------------- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(a) |  | Exhibits                                                      
|   
|   
|   
|   
|    |  | 3 & 4                                                          |  | Amended Articles of Incorporation of the Registrant were filed on
Form 10-Q for the three-month period ended September 30, 2002, and are incorporated herein by reference.
|   
|   
|   
|   
|    |  |                                                                |  | Amended By-laws of the Registrant were filed on Form 10-Q for the
three-month period ended December 31, 2000, and are incorporated herein by reference.                   
|   
|   
|   
|   
|    |  |                                                                |  | Amended Code of Regulation of the Registrant were filed with Form 10-Q for
the three-month period ended September 30, 1982, 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 certification pursuant to 18 U.S.C. Section
1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.                           
|   
|   
|   
|   
|    |  | 32.2                                                           |  | 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.                           
|   
|   
|   
|   
|(b) |  | Reports on Form 8-K filed in the first quarter of fiscal 2004:



| |  |  | On July 29, 2003, the Company filed on Form 8-K, Item 5. Other Events;
the Company issued a press release announcing it is in the exploratory
stages of developing a plan to expand its manufacturing operations in
Southeast Asia.     
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | On August 29, 2003, the Company filed on Form 8-K, Item 12. Results of
Operation and Financial Condition; the Company issued a press release
announcing the financial results of the fourth quarter and fiscal year
ended June 30, 2003.

14



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##### Table of Contents






SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.

|                       |  |                                                                   
|---------------------- |  | ------------------------------------------------------------------
|                       |  | SPARTON CORPORATION
Registrant                                    
|                      
|Date: November 5, 2003 |  | /s/ DAVID W. HOCKENBROCHT
David W. Hockenbrocht, CEO and President
|                      
|Date: November 5, 2003 |  | /s/ RICHARD L. LANGLEY
Richard L. Langley, Chief Financial Officer

15