UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q


þ		QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended~~March 31,~~ September 30, 2005


o		TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period ~~from______________to ______________~~
fromto

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.þ Yes o No

Indicate by ~~checkmark~~check mark whether the registrant is an accelerated filer (as defined byin Exchange Act Rule ~~12b-2 of the Exchange Act)~~12b-2).
Yeso ~~Yes~~ Noþ

Indicate by check mark whether the registrant is a shell company (as defined in Exchange Act Rule 12b-2). Yeso No
þ

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practical date.



				Shares Outstanding at
				October 31, 2005
	Class of Common Stock			(Unadjusted for October 25, 2005, Stock dividend)
	$1.25 Par Value			8,906,789

PART I

Item 1. Financial Statements

SPARTON CORPORATION AND SUBSIDIARIES

Condensed Consolidated Balance Sheets (Unaudited)
~~March 31, 2005 and June 30,2004~~


		March 31			June 30			At September 30, 2005			At June 30, 2005


Assets	Assets						Assets
Current assets:
Cash and cash equivalents		$	10,687,328		$	10,820,461		$	7,363,567		$	9,368,120
Investment securities			20,703,129			18,641,792			22,638,980			20,659,621
Accounts receivable			20,547,356			21,267,459			22,721,767			26,004,945
Environmental settlement receivable									—			5,455,000
Income taxes recoverable			—			559,706			685,706			—
Inventories and costs on contracts in progress			36,486,265			37,210,259			36,018,276			36,847,385
Prepaid expenses			2,860,286			2,859,016
Deferred taxes									2,683,862			2,640,561
Prepaid expenses and other current assets									490,048			631,132

Total current assets			91,284,364			91,358,693			92,602,206			101,606,764

Pension asset			5,088,622			5,448,968			4,848,392			4,968,507
Other assets			5,741,811			5,570,773			6,507,696			6,454,526
Property, plant and equipment, net			15,923,578			12,041,062			16,131,081			16,430,989


Total assets		$	118,038,375		$	114,419,496		$	120,089,375		$	129,460,786



Liabilities and Shareowners’ Equity	Liabilities and Shareowners’ Equity						Liabilities and Shareowners’ Equity
Current liabilities:
Accounts payable		$	9,939,297			10,052,854		$	8,755,604		$	12,694,057
Salaries and wages			3,442,830			3,387,490			3,496,199			4,435,089
Accrued health benefits			1,034,421			1,044,810			1,065,084			1,041,850
Other accrued liabilities			4,539,530			4,526,234			5,450,697			5,518,920
Income taxes payable			583,294			—			—			2,414,294

Total current liabilities			19,539,372			19,011,388			18,767,584			26,104,210

Environmental remediation — noncurrent portion			6,334,842			6,542,009			6,115,424			6,184,590

Shareowners’ equity:
Preferred stock, no par value; 200,000 shares authorized, none outstanding			—			—			—			—
Common stock, $1.25 par value; 15,000,000 shares authorized, 8,821,464 and 8,351,538 shares outstanding at March 31, 2005 and June 30, 2004, respectively			11,026,830			10,439,423
Common stock, $1.25 par value; 15,000,000 shares authorized, 9,340,627 and 8,830,428 shares outstanding at September 30 and June 30, 2005									11,675,784			11,038,035
Capital in excess of par value			10,521,129			7,134,149			14,607,786			10,558,757
Accumulated other comprehensive income (loss)			(65,579	)		62,368
Accumulated other comprehensive loss									(144,833	)		(44,198	)
Retained earnings			70,681,781			71,230,159			69,067,630			75,619,392

Total shareowners’ equity			92,164,161			88,866,099			95,206,367			97,171,986


Total liabilities and shareowners’ equity		$	118,038,375		$	114,419,496		$	120,089,375		$	129,460,786

⁽¹⁾ ~~All share and per share information have been adjusted to reflect the impact of the 5% stock dividend declared in November 2004.~~

SPARTON CORPORATION AND SUBSIDIARIES

Condensed Consolidated Statements of Cash Flows (Unaudited)
~~For the Nine-Month Periods ended March 31,2005 and 2004~~


	2005			2004			Three Months Ended September 30,
							2005			2004

Cash flows provided (used) by Operating Activities:

Cash flows provided by Operating Activities:
Net income (loss)	$	3,174,546		$	(3,540,722	)	$	(1,298,946	)	$	2,413,598
Add (deduct) noncash items affecting operations:
Depreciation, amortization and accretion		1,241,533			1,271,644			484,270			388,557
Deferred income taxes								14,000			—
Change in pension asset		360,346			545,338			120,115			132,017
Stock-based compensation expense								65,229			—
Loss on sale of property, plant & equipment		42,342			266			11,156			—
Loss on sale of investment securities		34,510			51,284			2,151			5,244
Equity (income) loss on investment		10,000			(16,000	)		(17,000	)		20,000
Other, primarily changes in customer and vendor claims								(26,694	)		—
Add (deduct) changes in operating assets and liabilities:
Accounts receivable		720,103			8,995,471			3,283,178			1,775,005
Environmental settlement receivable								5,455,000			—
Income taxes recoverable		559,706			(1,195,706	)		(685,706	)		559,706
Inventories and prepaid expenses		823,956			(6,671,942	)		970,193			678,450
Accounts payable, salaries and wages, accrued liabilities and income taxes		320,818			96,345			(7,405,793	)		(674,165	)

Net cash provided (used) by operating activities		7,287,860			(464,022	)
Net cash provided by operating activities								971,153			5,298,412

Cash flows provided (used) by Investing Activities:
Cash flows used by Investing Activities:
Purchases of investment securities		(8,870,255	)		(1,508,720	)		(2,855,879	)		(2,260,706	)
Proceeds from sale of investment securities		6,500,722			7,352,848			538,167			2,094,884
Proceeds from maturity of investment securities								178,047			200,000
Purchases of property, plant and equipment, net		(5,166,303	)		(5,410,649	)		(195,298	)		(1,062,991	)
Other, principally noncurrent other assets		(136,618	)		56,049			(9,476	)		(81,888	)

Net cash provided (used) by investing activities		(7,672,454	)		489,528
Net cash used by investing activities								(2,344,439	)		(1,110,701	)

Cash flows provided (used) by Financing Activities:
Proceeds from exercise of stock options		254,399			23,451			258,142			6,145
Stock dividends — cash in lieu of fractional shares		(2,938	)		(3,687	)
Cash dividends								(889,409	)		—

Net cash provided by financing activities		251,461			19,764

Net cash provided (used) by financing activities								(631,267	)		6,145

Increase (decrease) in cash and cash equivalents		(133,133	)		45,270			(2,004,553	)		4,193,856
Cash and cash equivalents at beginning of period		10,820,461			10,562,222			9,368,120			10,820,461

Cash and cash equivalents at end of period	$	10,687,328		$	10,607,492		$	7,363,567		$	15,014,317


Supplemental disclosures of cash paid during the period:
Income taxes — net	$	115,000		$	247,000		$	2,509,000		$	—

SPARTON CORPORATION AND SUBSIDIARIES

Condensed Consolidated Statements of Shareowners’ Equity (Unaudited)

Three Months Ended September 30, 2005
Accumulated other
Capital comprehensive
Common Stock in excess income (loss) Retained
Shares Amount of par value net of tax earnings Total

Balance at June 30, 2005 8,830,428 $ 11,038,035 $ 10,558,757 $ (44,198 ) $ 75,619,392 $ 97,171,986

Cash dividend ($0.10 per share) (889,409 ) (889,409 )
Stock options exercised 65,407 81,759 176,383 258,142
Stock-based compensation expense 65,229 65,229
Stock dividend (5% declared October 25, 2005) 444,792 555,990 3,807,417 (4,363,407 ) —

Comprehensive income (loss), net of tax:
Net loss (1,298,946 ) (1,298,946 )
Net unrealized loss on investment securities owned (116,055 ) (116,055 )
Reclassification adjustment for net loss realized and reported in net loss 1,420 1,420
Net unrealized gain on equity investment 14,000 14,000

Total comprehensive loss (1,399,581 )

Balance at September 30, 2005 9,340,627 $ 11,675,784 $ 14,607,786 $ (144,833 ) $ 69,067,630 $ 95,206,367

Three Months Ended September 30, 2004
Accumulated other
Capital comprehensive
Common Stock in excess income (loss) Retained
Shares Amount of par value net of tax earnings Total

Balance at June 30, 2004 8,351,538 $ 10,439,423 $ 7,134,149 $ 62,368 $ 71,230,159 $ 88,866,099

Stock options exercised 814 1,017 5,128 6,145

Comprehensive income, net of tax:
Net income 2,413,598 2,413,598
Net unrealized gain on investment securities owned 42,699 42,699
Reclassification adjustment for net loss realized and reported in net income 3,461 3,461
Net unrealized gain on equity investment 20,000 20,000

Total comprehensive income 2,479,758

Balance at September 30, 2004 8,352,352 $ 10,440,440 $ 7,139,277 $ 128,528 $ 73,643,757 $ 91,352,002

See accompanying notes.

SPARTON CORPORATION & SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements (Unaudited)

1. SUMMARY OF SIGNIFICANT 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 subsidiaries have been prepared in accordance with accounting principles generally accepted in the United States of America 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 of America for complete financial statements. All significant intercompany transactions and accounts have been eliminated. The Condensed Consolidated Balance Sheet at ~~March 31,~~September 30, 2005, and the related Condensed Consolidated Statements of Operations, ~~and~~ Cash Flows and Shareowners’ Equity for the ~~nine-month periods~~three months ended ~~March 31,~~September 30, 2005 and 2004, are unaudited, but include all adjustments (consisting of normal recurring accruals), which the Company considers necessary for a fair presentation of such financial statements. Certain reclassifications of prior period amounts have been made to conform to the current presentation. Operating results for the ~~nine-month period~~three months ended ~~March 31,~~September 30, 2005, are not necessarily indicative of the results that may be expected for the fiscal year ended June 30, ~~2005.~~
2006.

The balance sheet at June 30, ~~2004,~~2005, 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 of America for complete financial statements. ~~For further information, refer to~~It is suggested that these condensed financial statements be read in conjunction with the Consolidated Financial Statements and footnotes thereto included in the Company’s Annual Report on Form 10-K for the year ended June 30, ~~2004.~~
2005.

Operations -- The Company provides design and electronic manufacturing services, which include a complete range of engineering, pre-manufacturing and post-manufacturing services. Capabilities range from product design and development through ~~after-market~~aftermarket support. All facilities ~~with the exception of Vietnam which is currently under-going the evaluation process,~~ are ~~certified~~registered to ISO 9001, with ~~many~~most having additional certifications. 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. Markets served are in the medical/scientific instrumentation, aerospace, and ~~industrial/~~other industries, with a focus on regulated markets. The Company also develops and manufactures sonobuoys, anti-submarine warfare (ASW) devices, used by the U.S. Navy and other free-world countries. Many of the physical and technical attributes in the production of sonobuoys are the same as those required in the production of the Company’s other electrical and electromechanical products and assemblies.

Use of estimates -- Accounting principles generally accepted in the United States of America 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.

Investment securities -Investments in debt securities that are not cash equivalents or 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, as more fully discussed in Note 5.

Market risk exposure -- The Company manufactures its products in the United States and Canada, and most recently in Vietnam. 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 and Vietnamese financial statements into U.S. dollars are included in current earnings. ~~The Company’s Vietnamese translation gains and losses are carried in accumulated other comprehensive income (loss) within the shareowners’ equity section of the Company’s balance sheet.~~ 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 domestic and foreign markets in which the Company operates. However, minimal third party receivables and payables are denominated in foreign currency and the related market risk exposure is considered to be immaterial. Historically, foreign currency gains and losses related to intercompany ~~activity~~ac-

tivity and balances have not been significant. However, ~~recently~~ due to the ~~strengthening~~recent strengthened Canadian dollar, the impact of transaction and translation gains has increased. ~~While a reversal of these recent gains is not anticipated, if~~If the exchange rate were to ~~decline~~materially change, the Company’s financial position could be significantly affected.
6

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.

New accounting standards -- In ~~December 2004,~~May 2005, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards (SFAS) No. 154, “Accounting Changes and Errors Corrections, a replacement of APB No. 20 and FASB Statement No. 3” (SFAS No. 154). SFAS No. 154 requires retrospective application to prior periods’ financial statements of a voluntary change in accounting principle unless it is impracticable. APB Opinion No. 20 “Accounting Changes,” previously required that most voluntary changes in accounting principle be recognized by including in net income of the period of the change the cumulative effect of changing to the new accounting principle. This Statement is effective for the Company as of July 1, 2006. The Company does not expect the adoption of SFAS No. 154 will have a significant impact on its results of operations or financial position.

In December 2004, the FASB issued SFAS No. 123(R), “Share-Based Payment”, which replaces SFAS No. 123, “Accounting for Stock-Based Compensation”, and supersedes ~~APB~~Accounting Principles Board Opinion No. 25, “Accounting for Stock Issued to Employees” (APB No. 25). The Statement requires that the cost resulting from all share-based payment transactions be recognized in the financial statements. The Statement also establishes fair value as the measurement objective in accounting for share-based payment arrangements and requires all entities to apply a fair-value-based measurement method in accounting for share-based payment transactions with employees, except for equity instruments held by employee share ownership plans. The Statement iswas effective for the Company beginning July 1, 2005, and ~~is required to be adopted using a~~the “modified prospective” ~~method.~~method was required upon adoption. Under the modified prospective method, the Statement applies to new awards and to awards modified, repurchased or cancelled after the effective date. Additionally, compensation cost for the unvested portion of awards as of the effective date is required to be recognized as the awards vest after the effective date. ~~The~~As of July 1, 2005, the Company ~~does not expect~~implemented SFAS No.123(R), with stock-based compensation expense now reflected in the ~~requirements~~Company’s income statement. See the “Stock options” note below for additional information regarding the adoption of ~~this Statement will have a significant impact on its results of operations or financial position.~~
~~In November 2004, the FASB issued~~ SFAS No. ~~151, “Inventory Costs” (SFAS No. 151), which amends the guidance in Accounting Research Bulletin No. 43, Chapter 4, “Inventory Pricing”~~123(R). The Statement requires that the accounting for abnormal amounts of idle facility expense, freight handling costs, and wasted material (spoilage) be recognized as current-period charges. In addition, the Statement requires that the allocation of fixed production overhead to the costs of conversion be based on the normal capacity of the production facilities. The Statement is effective for the Company for inventory costs incurred beginning July 1, 2005. The Company does not expect the requirements of this Statement will have any impact on its results of operations or financial position.

In December 2004, the FASB issued SFAS No. 153, “Exchange of Nonmonetary Assets, an amendment of APB Opinion No. 29” (SFAS No. 153), which addresses the measurement of exchanges of nonmonetary assets. The Statement eliminates the exception for nonmonetary exchanges of similar productive assets and replaces it with a general exception for exchange of nonmonetary assets that do not have commercial substance. It also specifies that a nonmonetary exchange has commercial substance if the future cash flows of the entity are expected to change significantly as a result of the exchange. The Statement iswas effective for the Company beginning July 1, ~~2005. The Company does~~2005, and did not ~~expect the requirements of the Statement will~~ have ~~a significant~~an impact on ~~its~~the results of operations or financial position.
~~During fiscal~~

In November 2004, the Company purchased a manufacturing facility in Albuquerque, New Mexico, that replaced an existing plant in Rio Rancho, New Mexico, which was subsequently sold. Because these transactions were reported separately, at fair market value, there would have been no change to how these transactions were recorded for financial reporting purposes hadFASB issued SFAS No. ~~153 been~~151, “Inventory Costs” (SFAS No. 151), which amends the guidance in ~~effect during fiscal 2004.~~Accounting Research Bulletin No. 43, Chapter 4, “Inventory Pricing”. The ~~tax treatment~~Statement requires that the accounting for abnormal amounts of idle facility expense, freight handling costs, and wasted material (spoilage) be recognized as current-period charges. In addition, the Statement requires that the allocation of fixed production overhead to the costs of conversion be based on the normal capacity of the production facilities. The Statement was effective for the ~~sale~~Company for inventory costs incurred beginning July 1, 2005, and ~~purchase~~did not have an impact on the results of ~~these facilities was as a like-kind exchange.~~
operations or financial position.

Recently, there have been official discussions and clarifications of certain provisions of FASB Statement No. 13, “Accounting for Leases”. The Company does not have ~~any~~ capital leases. All leases are operating leases, mainly for the lease of machinery and equipment, with monthly payments over a fixed term in equal, non-escalating amounts. ~~The Company does~~These discussions and clarifications did not ~~expect these clarifications to~~ have any impact on ~~its~~the Company’s results of operations or financial position.

Periodic benefit cost -- The Company follows the disclosure requirements of SFAS No. 132(R). For the three months ~~and nine months~~ ended ~~March 31,~~September 30, 2005 and 2004, ~~$96,000~~$120,000 and ~~$481,000 and $360,000 and $545,000~~$132,000 of expense has been recorded, respectively. Total net periodic benefit cost for fiscal 2005 will be $480,000, compared to total net periodic benefit cost reported for fiscal 2004 of $727,000. For the three months and nine months ended March 31, 2005 and 2004, respectively, net periodic benefit cost includes the effect of changes resulting from the actuarial valuations performed as of the periods’ closing. Fiscal 2005 and 2004 anticipated and actual annual reported expense amount to $480,000 and $727,000, respectively. The decrease from prior year is primarily due to improved interest rates, and return on and valuation of plan assets. The components of net periodic pension expense for each of the periods presented were as follows:


	Three Months Ended						Nine Months Ended						Three Months Ended September 30,
	2005			2004			2005			2004			2005			2004

Service cost	$	110,000		$	358,000		$	412,000		$	406,000		$	137,000		$	151,000
Interest cost		154,000			446,000			498,000			505,000			166,000			182,000
Expected return on plan assets		(228,000	)		(566,000	)		(734,000	)		(642,000	)		(245,000	)		(269,000	)
Amortization of prior service cost		24,000			64,000			72,000			73,000			24,000			27,000
Amortization of net loss		36,000			179,000			112,000			203,000			38,000			41,000

Net periodic benefit cost	$	96,000		$	481,000		$	360,000		$	545,000		$	120,000		$	132,000

Stock options -~~- Pending the effective date~~ As of July 1, 2005, SFAS No. 123(R), became effective for the Company. The Company ~~continues to follow~~had previously followed APB No. 25 and related Interpretations in accounting for its employee stock options. Under APB No. 25, no compensation expense iswas 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~~Under SFAS No. ~~123~~123(R), compensation expense is now recognized. Stock-based compensation cost is measured at the grant date, based on the fair value of the award and is recognized over the employee’s requisite service period. Compensation expense is calculated using the Black-Scholes option pricing model and is recorded in the Company’s financial statements. The Black-Scholes calculations performed for the first quarter fiscal 2006 stock-based compensation expense utilized the methodology and assumptions consistent with those used in prior periods under APB No. 25, which were disclosed in the Company’s previously filed Annual Report on Form 10-K for the year ended June 30, 2005. Stock-based compensation expense recorded in the first quarter of fiscal 2006 was $65,000, and increased the net loss by $44,000 and basic and diluted loss per share by less than $0.01.

As of September 30, 2005, $887,000 of total unrecognized compensation costs related to non-vested awards is expected to be recognized in declining amounts over the following four years. The following sets forth a reconciliation of net income and earning per share information for the three months ended September 30, 2004, as ~~amended by SFAS No. 148.~~
if the Company had recognized compensation expense based on the fair value at the grant date for awards under the plan.


	Three Months Ended September 30, 2004
Net income, as reported		$2,414,000
Deduct:
Total stock-based compensation expense determined under the fair value method for all awards, net of tax effects		(41,000)

Pro forma net income		$2,373,000

Pro forma basic and diluted earnings per share		$0.25

The Company has an incentive stock option plan under which ~~760,000~~914,827 common shares, 760,000 original shares adjusted by 154,827 shares for the declaration of stock dividends, were reserved for option grants to key employees and directors at the fair market value of the stock at the date of the grant. As of ~~March 31,~~September 30, 2005, there were ~~533,442~~640,327 shares outstanding under option, with prices ranging from ~~$3.24~~$3.50 to ~~$8.90,~~$9.00, a weighted average remaining contractual life of ~~2.2~~3.84 years, and a weighted average exercise price of ~~$5.89.~~ $6.67.

The following table summarizes additional information about stock options outstanding and exercisable at ~~March 31,~~September 30, 2005:


	Options Outstanding			Options Exercisable
Options Outstanding						Options Outstanding							Options Exercisable
Range of		Wtd. Avg. Remaining	Wtd. Avg.		Wtd. Avg.				Wtd. Avg. Remaining		Wtd. Avg.				Wtd. Avg.
Exercise Prices	Number Outstanding	Contractual Life (years)	Exercise Price	Number Exercisable	Exercise Price		Number Outstanding		Contractual Life (years)		Exercise Price		Number Exercisable		Exercisable Price
$3.24 to $6.06	384,489	$1.44	$5.34	317,126	$5.19
$6.26 to $8.90	148,953	$4.21	$7.33	63,051	$7.30

$3.50 to $5.96								330,327		1.07	$	5.38		330,327	$	5.38
$6.85 to $9.00								310,000		6.79	$	8.03		98,389	$	6.96

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 approximate major classifications of inventory:

3. EARNINGS (LOSS) PER SHARE -- On ~~November 9, 2004,~~October 25, 2005, Sparton’s Board of Directors approved a 5% common stock dividend. Eligible shareowners of record ~~on November 23, 2004, received~~as of December 21, 2005, will receive the stock dividend ~~on December 15, 2004. To record~~to be distributed January 13, 2006. Cash will be paid in lieu of fractional shares. For purposes of recording the stock dividend anthe full 5% stock dividend was assumed on total shares outstanding; no assumption was made with respect to fractional shares nor the related cash distribution. An amount equal to the fair market value of the common ~~stock~~shares to be issued was transferred from retained earnings ~~($3,723,000)~~ to common stock ~~($522,000)~~ and capital in excess of par value ~~($3,198,000), with~~to record the ~~balance ($3,000) paid~~estimated stock dividend. This transfer has been reflected in ~~cash in lieu of fractional shares of stock. Accordingly, all share~~the condensed consolidated financial statements at September 30, 2005. Shares outstanding and earnings per share ~~information~~ for ~~fiscal~~the three months ended September 30, 2005, ~~and 2004 has~~have therefore been adjusted ~~to reflect the impact of all stock dividends declared for the periods shown.~~
8
accordingly.

Due to the Company’s fiscal 2006 reported net loss, ~~for the nine months ended March 31, 2004, 146,163~~141,338 outstanding stock option share equivalents were excluded from the computation of diluted earnings per share during the three months ended September 30, 2005, because their inclusion would have been anti-dilutive. ~~Basic~~For the three months ended September 30, 2005 and 2004, respectively, basic and diluted earnings per share were computed based on the following:


	Three Months Ended				Nine Months Ended					Three Months Ended September 30,
	2005		2004		2005		2004			2005			2004

Basic — weighted average shares outstanding		8,792,440		8,763,076		8,778,657		8,762,106			8,847,761			8,769,588
Estimated weighted additional shares to be issued for the 5% common stock dividend declared October 25, 2005											442,388			438,479

											9,290,149			9,208,067
Effect of dilutive stock options		126,058		132,623		121,114		—			—			120,750

Weighted average diluted shares outstanding		8,918,498		8,895,699		8,899,771		8,762,106			9,290,149			9,328,817

Basic and diluted earnings (loss) per share — after stock dividend											$(0.14	)		$0.26

Basic earnings (loss) per share — after stock dividend	$	0.04	$	0.02	$	0.36	$	(0.40	)

Diluted earnings (loss) per share — after stock dividend	$	0.03	$	0.02	$	0.36	$	(0.40	)

At ~~March 31, 2005~~September 30 and June 30, ~~2004,~~2005, shareowners’ equity includes accumulated other comprehensive ~~income (loss)~~losses of ~~$(66,000)~~$145,000 and ~~$62,000,~~$44,000, respectively, net of tax. The components of these amounts are as follows:

The Company owns a 14% interest in Cybernet Systems Corporation (Cybernet), 12% on a fully diluted basis. This investment, with a carrying value of ~~$1,727,000~~$1,701,000 and ~~$1,677,000~~$1,656,000 at ~~March 31, 2005~~September 30 and June 30, ~~2004,~~2005, respectively, represents the Company’s
9

equity interest in Cybernet’s net assets plus $770,000 of goodwill (no longer being amortized in accordance with SFAS No. 142, “Goodwill and Other Intangible Assets”). The investment in Cybernet is accounted for under the equity method, and is included in other assets on the condensed consolidated balance sheet. The Company believes that the equity method is appropriate given Sparton’s level of involvement in Cybernet. Prior to June 2002, Sparton accounted for its Cybernet investment using the cost method, which reflected a more passive involvement with Cybernet’s operations. Sparton’s current President and CEO is one of three Cybernet Board members, and as part of that position is actively involved in Cybernet’s oversight and operations. In addition, he has a strategic management relationship with the owners, who are also the other two board members, resulting in his additional involvement in pursuing areas of common interest for both Cybernet and Sparton. The Company’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 the Company’s balance sheet.

The contractual maturities of debt securities, and total equity securities as of ~~March 31,~~September 30, 2005, were as follows:


	Years												Years
	Within 1		1 to 5		5 to 10		Over 10		Total		Within 1			1 to 5		5 to 10		Over 10		Total

Debt securities:
Corporate — primarily U.S.	$	1,182,682	$	3,805,238	$	158,298	$	270,390	$	5,416,608	$	806,000		$	3,207,000	$	—	$	277,000	$	4,290,000
U.S. government and federal agency		601,565		2,544,979		1,742,742		1,810,853		6,700,139		1,598,000			3,822,000		1,758,000		2,361,000		9,539,000
State and municipal		109,967		3,293,659		974,438		—		4,378,064		969,000			2,832,000		710,000		—		4,511,000
Bond fund												4,299,000			—		—		—		4,299,000

Total debt securities		1,894,214		9,643,876		2,875,478		2,081,243		16,494,811	$	7,672,000		$	9,861,000	$	2,468,000	$	2,638,000	$	22,639,000
Equity securities — primarily preferred stock		4,208,318		—		—		—		4,208,318

Total investment securities	$	6,102,532	$	9,643,876	$	2,875,478	$	2,081,243	$	20,703,129

Item 2. 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. Additional information regarding the Company can be accessed via Sparton’s website at www.sparton.com. Information provided at the website includes, among other items, the Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, Quarterly Earnings Releases, News Releases, and the Code of Business Conduct and Ethics, as well as the various committee ~~charters of the Board of Directors.~~charters. These items are also available, free of charge, by contacting the Company’s Shareowners’ Relations department. The Company’s operations are in one line of business, electronic contract manufacturing services (EMS). Sparton’s capabilities range from product design and development through aftermarket support, specializing in total business solutions for government, medical/scientific instrumentation, aerospace and ~~industrial/other~~industrial markets. These include the design, development and/or manufacture of electronic parts and assemblies for both government and commercial customers worldwide. Governmental sales are mainly sonobuoys.

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. This report on Form 10-Q contains forward-looking statements within the scope of the Securities Act of 1933 and the Securities Exchange Act of 1934. The words “expects,” “anticipates,” “believes,” “intends,” “plans,” and similar expressions, and the negatives of such expressions, are intended to identify forward-looking statements. In addition, any statements which refer to expectations, projections or other characterizations of future events or circumstances are forward-looking statements. The Company undertakes no obligation to publicly disclose any revisions to these forward-looking statements to reflect events or circumstances occurring subsequent to filing this Form 10-Q with the Securities and Exchange Commission (SEC). These forward-looking statements are subject to risks and uncertainties, including, without limitation, those discussed below. Accordingly, Sparton’s future results may differ materially from historical results or from those discussed or implied by these forward-looking statements. 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.

Sparton, as a high-mix, low to medium-volume supplier, provides rapid product turnaround for customers. High-mix ~~pertains to~~describes customers needing multiple product types with generally ~~lower~~low volume manufacturing runs. As a contract manufacturer with customers in a variety of markets, the Company has substantially less visibility to end user demand and, therefore, forecasting sales can be problematic. Customers may cancel their orders, change production quantities and/or reschedule production for a number of reasons. Depressed economic conditions may result in customers delaying delivery of product, or the placement of purchase orders for lower volumes than previously anticipated. Unplanned cancellations, reductions, or delays by customers negatively impact the Company’s results of operations. As many of the Company’s costs and operating expenses are relatively fixed within given ranges of production, a reduction in customer demand can disproportionately affect the Company’s gross margins and operating income. The majority of the Company’s sales have historically come from a limited number of customers. Significant reductions in sales to, or a loss of, one of these customers could materially impact business if the Company were not able to replace those lost sales with new business.

Other risks and uncertainties that may affect operations, performance, growth forecasts and business results include, but are not limited to, timing and fluctuations in U.S. and/or world economies, 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, foreign currency exchange rate risk, uncertainties associated with the costs and benefits of new facilities, including the new plant in Vietnam, and the closing of others, uncertainties associated with the outcome of litigation, changes in the interpretation of environmental laws and the uncertainties of environmental ~~remediation.~~remediation, and uncertainties related to defects discovered in certain of the Company’s aerospace circuit boards. A further risk factor is the availability and cost of ~~materials.~~ materials, including potential escalating utility and other related costs due to the recent damage caused by hurricanes Katrina and Rita.

The Company has encountered availability and extended lead time issues on some electronic components in the past when market demand has been ~~strong,~~strong; this resulted in higher prices and late deliveries. Additionally, the timing of sonobuoy sales to the U.S. Navy is dependent upon access to the test range 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 less frequent than in the past. Finally, the Sarbanes-Oxley Act of 2002 has required changes in, and formalization of, some of the Company’s corporate governance and compliance practices. The SEC and New York Stock Exchange have also passed new rules and regulations requiring additional compliance activities. Compliance with these rules has increased administrative costs, and it is expected that certain of these costs will continue indefinitely. 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.

The following discussion should be read in conjunction with the Condensed Consolidated Financial Statements and Notes thereto.

1112

Sales for the ~~three-month period~~three months ended ~~March 31,~~September 30, 2005, totaled ~~$41,561,000,~~$37,306,000, a decrease of ~~$2,005,000 (4.6%~~$7,882,000 (17%) from the same quarter last year. Government sales ~~were lower than expected~~decreased by $1,556,000 due to timing differences related to the ~~rescheduling~~testing and shipment of engineering redesign work, sonobuoy drop test failures, and manufacturing transitioning between sonobuoy contracts. Government sales are anticipated to improve through the remainder of the fiscal year as some of these issues are now resolved. Industrial sales improved mainly due to increased sales to existing customers. It is uncertain if this increased demand will continue for the balance of this fiscal year. Aerospace sales were also above the prior year sales due to increased sales to an existing customer in the commercial aerospace market. A large component of this increased demandsonobuoys. This decrease was due to higher sales of products related to aircraft collision avoidance systems mandated for installation in all commercial aircraft. This increased demand is not anticipated to continue. Medical/Scientific Instrumentation was down from the prior year due to overall lower demand from existing customers in this market and new program delays. While the Company has added several new customers, and/or products in the medical device area, the volume of new business has not been as high as previously anticipated.
~~The following table presents income statement data as a percentage of net sales for the three-month periods ended March 31, 2005 and 2004:~~

2005 2004

Net sales 100.0 % 100.0 %
Costs of goods sold 92.0 91.8

Gross profit 8.0 8.2

Selling and administrative expenses 7.6 7.7
Other operating expenses 0.4 0.2

Operating income (loss) (0.0 ) 0.3

Other income — net 0.5 0.2

Income before income taxes 0.5 0.5
Provision (credit) for income taxes (0.2 ) 0.1

Net income 0.7 % 0.4 %

An operating loss of $2,000 was reported for the three months ended March 31, 2005, compared to operating income of $133,000 for the three months ended March 31, 2004. Gross profit percentage for the three months ended March 31, 2005, was 8.0%, down from 8.2% for the same period last year. The depressed margin is reflective of a less favorable product mix and increased costs related to several program start-ups. Selling and administrative expenses are consistent with the prior year.
Interest and investment income increased $74,000 to $231,000 in fiscal 2005. This increase was mainly due to increased funds available for investment and improved interest rates. Other expense-net in fiscal 2005 was $30,000, versus $65,000 in fiscal 2004. Translation adjustments, along with gains and losses from foreign currency transactions, are included in other income and, in the aggregate, amounted to a loss of $12,000 and $10,000 during the three months ended March 31, 2005 and 2004, respectively. During the third quarter, the Company’s annual effective tax rate was estimated to be 28%, rather than the previously anticipated 32%. The Company’s recorded adjustment to the currently estimated rate resulted in a credit to third quarter income tax expense of $168,000. This, combined with normal third quarter income tax expense of $54,000, resulted in a net income tax credit of $114,000 for the third quarter. Variables affecting the effective tax rate include, but are not limited to, extraterritorial tax credits, Canadian tax loss carryforwards, effect of translation income and loss, and utilization of contribution carryforwards. This estimated tax rate, while based on the Company’s knowledge and expectations at this point in time, may change based on actual fourth quarter activity and results of operations.
12

Due to the factors described above, the Company reported net income of $308,000 ($0.04 per share, basic, and $0.03 per share, diluted) for the three months ended March 31, 2005, versus $156,000 ($0.02 per share, basic and diluted) for the corresponding period last year.

Nine Months Ended March 31
2005 2004
% % %
Sales of Total Sales of Total Change

Government $ 24,510,000 20.2 % $ 30,746,000 27.2 % (20.3 )%
Industrial/Other 35,042,000 28.9 29,089,000 25.7 20.5
Aerospace 51,729,000 42.7 39,899,000 35.2 29.6
Medical/Scientific Instrumentation 9,995,000 8.2 13,497,000 11.9 (25.9 )

Totals $ 121,276,000 100.0 % $ 113,231,000 100.0 % 7.1

~~Sales for the nine-month period ended March 31, 2005, totaled $121,276,000, an increase of $8,045,000 (7.1%) from the same period last year. Government sales decreased, and included~~ $4.7 million of a delayed sonobuoy ~~sale originally anticipated to ship~~sales included in ~~fiscal 2004. Government sales were lower than anticipated due to production interruptions at~~ the ~~Company’s Florida facilities, as several tropical storms disrupted operations in~~results for the first quarter of fiscal 2005. ~~In addition, rescheduling~~Industrial sales, which include gaming sales, improved. This improvement is reflective of ~~engineering redesign work, failed sonobuoy drop tests, and lack of access~~continued strong sales to ~~the U.S. Navy’s test site further depressed sales. Government sales are anticipated to improve~~existing customers. Sales in the final quarter of this fiscal year. Industrial market sales increased from the same period last year. This increase was attributed to increased demand from two existing customers, it is uncertain if this demand will continue for the balance of this fiscal year. Sales to the aerospace markets continue to grow, increasing 29.6% over the prior year. In general, this reflects stronger demand in the commercial aerospace market ~~primarily increased demand for products related~~decreased 34% from prior year, due principally to ~~aircraft~~strong sales of collision avoidance systems ~~mandated~~in fiscal 2005. The level of sales for ~~installation in all commercial aircraft. Approximately $6.9 million of the aerospace increase was attributable~~these products had not been expected to increased orders from one customer, to which the Company supplies product to six manufacturing facilities. The increased demand for the collision avoidance products is not anticipated to continue throughout the final quarter. Medical/Scientific Instrumentationcontinue. Medical sales declined slightly from the prior ~~year. This decrease resulted from overall lower demand from existing customers~~year, primarily due to delayed program start-ups. Growth in this ~~market~~ area ~~and new program delays. While the Company has added several new customers, and/or products in the medical device area, the volume of new business has~~is not ~~been~~occurring as ~~high~~quickly as ~~previously~~originally anticipated.

The programs, which are anticipated to be completed and shipped during the remainder of this fiscal year, have a backlog of $6 million. Additional changes in estimates are not anticipated at this time. Included in the ~~current year’s gross profit was a settlement in the second~~first quarter of fiscal ~~2005 with a customer, which resulted in~~2006 are the results from the Company’s ~~recovery of $500,000 of prior period start-up expenses. The prior year’s depressed margin reflects the inclusion of costs on~~new Vietnam facility, the start-up ~~phase~~ of ~~several major programs, as well as final charges incurred at~~which adversely impacted gross profit by $325,000. The results of our Vietnamese operation are expected to improve during the ~~completion of one sonobuoy contract that had experienced technical problems.~~fiscal year, breaking even for fiscal 2006. In addition, the prior year’s profit benefited by the inclusion of the delayed government sales of $4.7 million previously discussed. These sales carried a higher than usual margin, ~~included a redesign effort on an existing product line,~~contributing $1.7 million in the first quarter of fiscal 2005, which ~~resulted~~sales in the first quarter of fiscal 2006 were unable to match. The current year’s depressed gross profit also includes several medical programs, which are in a ~~charge~~loss position due to ~~operations~~their current status in the start-up phase. Two of ~~$519,000.~~these programs had negative margins which, as of September 30, 2005, totaled $330,000. The ~~lowered~~issues related to these losses are being addressed. Finally, discussions and resolution with a current customer regarding the recovery of past costs, which were previously deferred, were not completed and as a result, $354,000 was charged to expense during the first quarter of fiscal 2006. The Company is continuing its efforts to fully recover these costs.

The majority of the increased selling and administrative expenses, ~~are primarily~~as a percentage of sales, was due to the ~~result~~significant decrease in sales during the first quarter of ~~decreased bid and proposal and research and development expenses for~~ fiscal ~~2005, which were approximately $1.7 million below~~2006, compared to the same ~~nine month~~ period last ~~year. These cost reductions are not indicative~~year, without a related decrease in these expenses. Selling and administrative expenses in fiscal 2006 also include approximately $226,000 of ~~reduced bid and proposal activity,~~litigation expenses related to the current trial against NRTC, which is ~~currently at an all time high, but primarily~~further discussed in Part II, Item 1 — “Other Information- Legal Proceedings” of this report. In addition, beginning in fiscal 2006 the ~~result~~Company is required to expense the vested portion of ~~a one time sonobuoy engineering project~~the fair value of stock options. Stock-based compensation expense recorded in the first quarter of fiscal 2006, which ~~has been completed.~~
is included in selling and administrative expense, totaled $65,000. The remainder of the increase in selling and administrative expenses relates to minor increases in various categories, such as wages, employee benefits, insurance, and other items.

Interest and investment income increased ~~$143,000 to $653,000 in fiscal 2005. This increase was~~slightly from prior year, mainly due to ~~increased funds available for investment and improving investment~~higher interest rates. Other income-net in fiscal ~~2005~~2006 was ~~$647,000,~~$109,000, versus ~~an expense of $374,000~~$358,000 in fiscal ~~2004.~~2005. Translation adjustments, along with gains and losses from foreign currency transactions, are included in other income and, in the aggregate, amounted to a gain of ~~$644,000~~$111,000 and ~~$163,000~~$361,000 during the ~~nine~~three months ended ~~March 31,~~September 30, 2005 and 2004, respectively. ~~Other expense-net in the prior year included a charge of $538,000 for workers’ compensation insurance adjustments related to the Company’s previously owned automotive segment.~~

Due to the factors described above, the Company reported a net ~~income~~loss of ~~$3,175,000 ($0.36~~$1,299,000 (($0.14) per share, basic and diluted) for the ~~nine~~three months ended ~~March 31,~~September 30, 2005, versus ~~a loss~~net income of ~~$3,541,000~~$2,414,000 ($~~(0.40)~~0.26 per share, basic and diluted) for the corresponding period last year.

LIQUIDITY AND CAPITAL RESOURCES

The Company’s primary source of liquidity and capital resources has historically been from operations. Short-term credit facilities have been used in the past, but not in recent years. Certain government contracts provide for interim progress billings based on costs incurred. These progress billings reduce the amount of cash that would otherwise be required during the performance of these contracts. As the volume of U.S. defense-related contract work declines, so has the relative importance of progress billings as a liquidity resource. At the present time, the Company plans on using its investment securities to provide working capital and to strategically invest in additional property, plant and equipment to accommodate growth. Growth is expected to be achieved through internal expansion and/or acquisition or joint venture. In addition, the Company’s previously announced $4,000,000 stock repurchase program is expected to utilize a portion of the Company’s investments. As of September 30, 2005, no stock had as yet been repurchased.

For the ~~nine-month period~~three months ended ~~March 31,~~September 30, 2005, cash and cash equivalents decreased ~~$133,000~~$2,005,000 to ~~$10,687,000.~~$7,364,000. Operating activities provided ~~$7,288,000~~$971,000 in net cash flows. The primary source of cash in the first quarter of fiscal 2006 was the collection of $5.5 million in July 2005 from ~~operations, compared to~~ a ~~loss~~legal settlement with insurance carriers. In addition, cash flow in both fiscal ~~2004 resulting~~2006 and 2005 includes significant receipts from the collection of sales recognized in ~~a use~~the last quarters of ~~cash,~~the prior years, which is reflected as ~~well as the adjustment for depreciation. The primary source of cash in fiscal 2004 was~~ a decrease in accounts receivable. The primary use of cash in the first quarter of fiscal 2006 was a $7,406,000 decrease in accounts ~~receivable in both fiscal 2005~~payable and ~~2004 was reflective~~accrued liabilities, which previously included $2.4 million of the receipt of payments for the large volume of sales recognized in June 2004 and 2003. The change in cash flow related to inventory and prepaid expenses from the prior year is reflective of a large increase at June 30, 2004, of inventory due to delayed customer delivery schedules, as well as increased inventory for new customer contracts. Inventory levels at March 31, 2005, reflect a decrease in inventory, as these customers’ schedules were no longer delayed, as well as the start of several new customer contracts.
income taxes payable.

Cash flows used by investing activities ~~for~~during the ~~nine-month period~~three months ended ~~March 31,~~September 30, 2005, totaled ~~$7,672,000, primarily for purchases~~$2,344,000, the primary use of ~~property, plant and equipment,~~ which ~~is discussed below. The~~was the purchase of ~~and proceeds from the sale of,~~ investment ~~securities are generally reflective of activity within the various investment options. In fiscal 2004 proceeds from the sale of investments~~securities. Cash flows used by financing activities were ~~also used to fund purchases of property, plant and equipment.~~
$631,000, as discussed below.

Historically, the Company’s market risk exposure to foreign currency exchange and interest rates on third party receivables and payables has not been considered to be material, principally due to their ~~short term~~short-term nature and minimal receivables and payables designated in foreign currency. However, due to the recently strengthening Canadian dollar, the impact of transaction and translation gains on intercompany activity and balances has increased. ~~While a reversal of these recent gains is not anticipated, if~~If the exchange rate were to materially ~~decline~~change, the Company’s financial position could be significantly affected. The Company has had no short-term bank debt since December 1996, and currently has an unused informal line of credit totaling $20 million.

At ~~March 31, 2005~~September 30 and June 30, ~~2004,~~2005, the aggregate government funded EMS backlog was approximately ~~$52~~$43 million and ~~$41~~$42 million, respectively. ~~Current backlog includes the recent U.S. Navy sonobuoy contract awards, which totaled $21.7 million.~~ A majority of the ~~March 31,~~September 30, 2005, backlog is expected to be realized in the next 12-15 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.

Construction of the Company’s new plant in Vietnam ~~is substantially complete. Preliminary prototype~~has been completed. Prototype product ~~is currently being produced, with~~has been completed and regular production ~~beginning~~began in ~~May.~~May 2005. This new facility is anticipated to provide increased growth opportunities for the Company, in current as well as new markets. As the Company has not previously done business in this emerging market, there are many uncertainties and risks inherent in this venture. ~~It is estimated that~~To date, the Company’s total ~~Company~~ investment ~~will approximate $5-$7~~approximates $6 million, which includes land, ~~building,~~build-

ing, and initial operating ~~expenses. To date,~~expenses, with approximately ~~$2.0~~$3 million ~~has~~having been expended for the construction of the new facility, primarily in fiscal 2005. The new company operates under the name Spartronics. The Company is also continuing a program of identifying and evaluating potential acquisition candidates in both the defense and medical markets.
14

No dividends were paid in the first quarter of fiscal 2005. In fiscal 2006, a cash dividend totaling approximately $889,000, $0.10 per share, was paid to shareowners on October 5, 2005. The ~~Company has purchased a manufacturing facility in Albuquerque, New Mexico. This facility replaced an existing plant in Rio Rancho, New Mexico. The facility was purchased in December 2003~~funds for ~~approximately $4.5 million. The cost of additional remodeling and facility upgrades totaled approximately $2.0 million and~~the cash dividend were ~~incurred, primarily in 2005, as the Company transitioned between facilities. The Rio Rancho plant was sold in June 2004 for approximately $1.7 million ($1.6 million after expenses related~~transferred to the ~~sale), resulting~~Company’s stock transfer agent prior to September 30, 2005 and held in a $844,000 gain. The Company leased the Rio Rancho facility until the transition to the new facility was completed in December 2004. The new facility is expected to provide economic benefits to the Company, accommodating customer products with higher technical requirements, as well as providing additional and more efficient manufacturing space in the Southwest.

~~No cash dividends were declared in either period presented.~~deposit account on Sparton’s behalf. In ~~November 2004, the Company approved~~addition, a 5% stock ~~dividend.~~dividend was declared in October 2005, to be paid in January 2006. This dividend was ~~distributed December 15, 2004, to shareowners of record on November 23, 2004.~~ reflected in the condensed consolidated financial statements at September 30, 2005.

At ~~March 31,~~September 30, 2005, the Company had ~~$92,164,000~~$95,206,000 in shareowners’ equity ($~~10.45~~10.19 per share), ~~$71,745,000~~$73,835,000 in working capital, and a ~~4.67:~~4.93:1.00 working capital ratio. For the foreseeable future (12-18 months), the Company believes it has sufficient liquidity for its anticipated needs, unless a significant business acquisition is identified and completed for cash.

CONTRACTUAL OBLIGATIONS AND COMMITMENTS

Information regarding the Company’s environmental liability payments, operating lease payments, and other commitments is provided in Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operation,” of the Company’s Annual Report on Form 10-K for the fiscal year ended June 30, ~~2004.~~2005. There have been no material changes in contractual obligations since June 30, ~~2004.~~
2005.

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

Management’s discussion and analysis of financial condition and results of operations is based upon the Company’s condensed consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America. Significant accounting policies are summarized in Note 1 to the Consolidated Financial Statements included in our Annual Report on Form 10-K for the fiscal year ended June 30, ~~2004.~~2005. The preparation of these financial statements requires management to make estimates and assumptions that affect the amounts reported for assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. Estimates are regularly evaluated and are based on historical experience and on various other assumptions believed to be reasonable under the circumstances. Actual results could differ from these estimates. The Company believes that of its significant accounting policies, the following involve a higher degree of judgment and complexity.

Environmental Contingencies

One of Sparton’s former manufacturing facilities, located in Albuquerque, New Mexico (Coors Road), has been the subject of ongoing investigations and remediation efforts conducted with the Environmental Protection Agency (EPA) under the Resource Conservation and Recovery Act (RCRA). Sparton has accrued its estimate of the minimum future non-discounted financial liability. The estimate was developed using existing technology and excludes legal and related consulting costs. The minimum cost estimate includes equipment, operating and monitoring costs for both onsite and offsite remediation. Sparton recognizes legal and consulting services in the periods incurred and reviews its EPA accrual activity quarterly. Uncertainties associated with environmental remediation contingencies are pervasive and often result in wide ranges of reasonably possible outcomes. It is possible that cash flows and results of operations could be materially affected by the impact of changes in these estimates.

Government Contract Cost Estimates

Government production contracts are accounted for based on completed units accepted with respect to revenue recognition and their estimated average cost per unit regarding costs. Losses for the entire amount of a contract are recognized in the period when such losses are determinable. Significant judgment is exercised in determining estimated total contract costs including, but not limited to, cost experience to date, estimated length of time to contract completion, costs for materials, production labor and support services to be expended, and known issues on remaining units to be completed. Estimated costs developed in the early stages of contracts can change significantly as the contracts progress, and events and activities take place. Significant changes in estimates can also occur when new designs are initially placed into production. The Company formally reviews its costs incurred-to-date and estimated costs to complete on all significant contracts on a quarterly basis and revised estimated total contract costs are reflected in the financial statements. Depending upon the circumstances, it is possible that the Company’s financial position, results of operations, and cash flows could be materially affected by changes in estimated costs to complete on one or more significant contracts.

Commercial Inventory Valuation Allowances

Inventory valuation allowances for commercial customer inventories require a significant degree of judgment and are influenced by the Company’s experience to date with both customers and other markets, prevailing market conditions for raw materials, contractual terms and customers’ ability to satisfy these obligations, environmental or technological materials obsolescence, changes in demand for customer products, and other factors resulting in acquiring materials in excess of customer product demand. Contracts with some commercial customers may be based upon estimated quantities of product manufactured for shipment over estimated time periods. Raw material inventories are purchased to fulfill these customer requirements. Within these arrangements, customer demand for products frequently changes, sometimes creating excess and obsolete inventories.

The Company regularly reviews raw material inventories by customer for both excess and obsolete quantities, with adjustments made accordingly. Wherever possible, the Company attempts to recover its full cost of excess and obsolete inventories from customers or, in some cases, through other markets. When it is determined that the Company’s carrying cost of such excess and obsolete inventories cannot be recovered in full, a charge is taken against income and a valuation allowance is established for the difference between the carrying cost and the estimated realizable amount. Conversely, should the disposition of adjusted excess and obsolete inventories result in recoveries in excess of these reduced carrying values, the remaining portion of the valuation allowances are reversed and taken into income when such determinations are made. It is possible that the Company’s financial position, results of operations and cash flows could be materially affected by changes to inventory valuation allowances for commercial customer excess and obsolete inventories.

Allowance for Possible Losses on Receivables

The accounts receivable balance is recorded net of allowances for amounts not expected to be collected from customers. The allowance is estimated based on historical experience of write-offs, the level of past due amounts, information known about specific customers with respect to their ability to make payments, and future expectations of conditions that might impact the collectibility of accounts. Accounts receivable are generally due under normal trade terms for the industry. Credit is granted, and credit evaluations are periodically performed, based on a customers’ financial condition and other factors. Although the Company does not generally require collateral, cash in advance or letters of credit may be required from customers in certain circumstances, including some foreign customers. When management determines that it is probable that an account will not be collected, it is charged against the allowance for possible losses. The Company reviews the adequacy of its allowance monthly. The allowance for doubtful accounts was ~~$16,000~~$98,000 and ~~$46,000~~$6,000 at ~~March 31, 2005~~September 30 and June 30, ~~2004,~~2005, respectively. If the financial condition of customers were to deteriorate, resulting in an impairment of their ability to make payment, an additional allowance may be required. Given the Company’s significant balance of government receivables and letters of credit from foreign customers, collection risk is considered minimal. Historically, uncollectible accounts have been generally insignificant and the minimal allowance is deemed adequate.

Pension Obligations

The Company calculates the cost of providing pension benefits under the provisions of SFAS No. 87. The key assumptions required within the provisions of SFAS No. 87 are used in making these calculations. The most significant of these assumptions are the discount rate used to value the future obligations and the expected return on pension plan assets. The discount rate is consistent with market interest rates on high-quality, fixed income investments. The expected return on assets is based on long-term returns and assets held by the plan, which is influenced by historical averages. If actual interest rates and returns on plan assets materially differ from the assumptions, future adjustments to the financial statements would be required. While changes in these assumptions can have a significant effect on the pension benefit obligations reported in the Condensed Consolidated Balance Sheets and the unrecognized gain or loss accounts, the effect of changes in these assumptions is not expected to have the same relative effect on net periodic pension expense in the near term. While these assumptions may change in the future based on changes in long-term interest rates and market conditions, there are no known expected changes in these assumptions as of ~~March 31,~~September 30, 2005. As indicated above, to the extent the assumptions differ from actual results, there would be a future impact on the financial statements. The extent to which this will result in future expense is not determinable at this time as it will depend upon a number of variables, including trends in interest rates and the actual return on plan assets. For example, an increase in the return on the plan assets due to improved market conditions would reduce the unrecognized loss account and thus reduce future expense. While net periodic pension expense has increased during the past two years, noNo cash payments are expected to be required for the next several years due to the plan’s funded status.

OTHER

LITIGATION

One of Sparton’s former manufacturing 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.

At ~~March 31,~~September 30, 2005, Sparton has accrued ~~$6,962,000~~$6,733,000 as its estimate of the future undiscounted minimum financial liability ~~related~~with respect to this ~~site.~~matter. The Company’s cost estimate is based upon existing technology and excludes legal and related consulting costs, which are expensed as ~~incurred.~~incurred and is anticipated to cover the next 25 years. 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.

Some of the printed circuit boards supplied to the Company for its ~~Aerospace~~aerospace sales have been discovered to ~~have intermittent defects.~~be defective. The defect occurred during production at the board manufacturer’s facility, prior to shipment to Sparton for further processing. All of the lots involved have yet to be identified and Sparton, the board manufacturer, Electropac Co., Inc., and ~~the end~~our customer who received the defective boards are working to contain the defective boards. While investigations are underway, $2.4 million of related product and associated expenses have been classified in Sparton’s balance sheet within other long-term assets as of September 30, 2005. As of this date, ~~no claims have been~~Sparton has made ~~or litigation commenced~~a demand on the board manufacturer for reimbursement of all costs and expenses incurred, and the parties are engaged in discussions regarding ~~this matter.~~the resolution of Sparton’s claim. In addition, in August 2005, Sparton Electronics Florida, Inc. filed an action in U.S. District Court of Florida against Electropac Co., Inc. The likelihood that the claim will be resolved and the extent of Sparton’s exposure, if any, is unknown at this ~~time, thus nothing~~time. No loss contingency has been ~~accrued related~~established at September 30, 2005.

In September��2002, Sparton Technology, Inc. (STI) filed an action in the U.S. District Court for the Eastern District of Michigan to ~~this contingency at March 31, 2005.~~
~~Sparton is currently involved~~recover certain unreimbursed costs incurred as a result of a manufacturing relationship with two ~~legal actions,~~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 NRTC asked for damages in the amount $20,000,000 for the loss of its investment in and loans to Util-Link. In addition, the defendant Util-Link had previously asked for damages in the amount of $25,000,000 for lost profits, which it no longer appears to be pursuing. Sparton has reviewed the respective claims and believes that the damages sought by NRTC were included in Util-Link’s claim for damages and, as such, were duplicative. Sparton believes the counterclaim to be without merit and intends to vigorously defend against it. These claims are ~~disclosed~~now in ~~Part II — “Other Information, Item 1. Legal Proceedings” of this report.~~trial in Detroit, Michigan. At this time, the Company is unable to predict the outcome of ~~either of these claims.~~
this claim.

Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

The Company manufactures its products in the United States and Canada, and most recently in Vietnam. Sales are to 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 and Vietnamese financial statements into U.S. dollars are included in current earnings. ~~The Company’s Vietnamese translation gains and losses are carried in accumulated other comprehensive income (loss) within the shareowners’ equity section of the Company’s balance sheet.~~ 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 domestic and foreign markets in which the Company operates. However, minimal third party receivables and payables are denominated in foreign currency and the related market risk exposure is considered to be immaterial. Historically, foreign currency gains and losses related to intercompany activity and balances have not been significant. However, ~~recently~~ due to the ~~strengthening~~recent strengthened Canadian dollar, the impact of transaction and translation gains has increased. ~~While a reversal of these recent gains is not anticipated, if~~If the exchange rate were to materially ~~decline~~change, the Company’s financial position could be significantly affected.

Item 4. CONTROLS AND PROCEDURES

The Company maintains internal control over financial reporting intended to provide reasonable assurance that all material transactions are executed in accordance with Company authorization, are properly recorded and reported in the financial statements, and that assets are adequately safeguarded. The Company also maintains a system 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.
17

As of ~~March 31,~~September 30, 2005, 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 ~~March 31,~~September 30, 2005. There have been no changes in the Company’s internal ~~controls~~control over financial reporting 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 II

OTHER INFORMATION

Item 1. Legal Proceedings

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 ~~March 31,~~September 30, 2005, Sparton has accrued ~~$6,962,000~~$6,733,000 as its estimate of the minimum future undiscounted financial liability, of which ~~$627,000~~$618,000 is classified as a current liability and included 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, operating, and continued monitoring costs for onsite and offsite pump and treat containment ~~systems.~~
systems, as well as periodic reporting requirements.

Factors which cause uncertainties with respect to the Company’s estimate, 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.

In 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 cash and the DOE agreed to reimburse Sparton for 37.5% of certain future environmental expenses in excess of $8,400,000 incurred from the date of settlement.

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 June 2005, Sparton reached an agreement under which Sparton received $5,455,000 in ~~pretrial activity.~~
cash in July 2005. This agreement recovers a portion of past costs the Company incurred in its investigation and site remediation efforts, which began in 1983, and was recorded as income in June 2005.

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 NRTC asked for damages in the amount $20,000,000 for the loss of its investment in and loans to Util-Link. In addition, the defendant Util-Link had previously asked for damages in the amount of $25,000,000 for lost profits, which it no longer appears to be pursuing. Sparton has reviewed the respective claims and believes that the damages sought by NRTC

were included in Util-Link’s claim for damages and, as such, were duplicative. Sparton believes the counterclaim to be without merit and intends to vigorously defend against it. These claims are now in ~~the pretrial stage, with jury~~ trial ~~scheduled~~ in Detroit, ~~Michigan, in the September 2005 time-frame.~~
Michigan. At this time, the Company is unable to predict the outcome of ~~either~~this claim.

Some of ~~these two claims.~~
the printed circuit boards supplied to the Company for its aerospace sales have been discovered to be defective. The defect occurred during production at the board manufacturer’s facility, prior to shipment to Sparton for further processing. All of the lots involved have yet to be identified and Sparton, the board manufacturer, Electropac Co., Inc., and our customer who received the defective boards are working to contain the defective boards. While investigations are underway, $2.4 million of related product and associated expenses have been classified in Sparton’s balance sheet within other long-term assets as of September 30, 2005. As of this date, Sparton has made a demand on the board manufacturer for reimbursement of all costs and expenses incurred, and the parties are engaged in discussions regarding the resolution of Sparton’s claim. In addition, in August 2005, Sparton Electronics Florida, Inc. filed an action in U.S. District Court of Florida against Electropac Co., Inc. The likelihood that the claim will be resolved and the extent of Sparton’s exposure, if any, is unknown at this time. No loss contingency has been established at September 30, 2005.

1819

Item 4. Submission of Matters to a Vote of Security Holders

~~None.~~

At the October 26, 2005, Annual Meeting of Shareowners of Sparton Corporation, a total of 8,588,124 of the Company’s shares were present or represented by proxy at the meeting. This represented more than 96% of the Company’s shares outstanding. Total shares outstanding and eligible to vote were 8,894,099, of which 305,975 did not vote.

The individuals named below were re-elected as Directors to serve a three-year term expiring in 2008:


Name	Votes FOR	Votes WITHHELD

Richard J. Johns, MD	8,266,316		321,808
Richard L. Langley	8,029,787		558,337
William I. Noecker	7,451,239		1,136,885

Messrs. James N. DeBoer, David W. Hockenbrocht, James D. Fast, David P. Molfenter, W. Peter Slusser and Bradley O. Smith all continue as directors of the Company.

Item 6. Exhibits

		3.1		Amended Articles of Incorporation of the Registrant were filed on Form 10-Q for the three-month period ended September 30, 2004, and are incorporated herein by reference.

3.2	Amended Code of Regulation of the Registrant were filed on Form 10-Q for the three-month period ended September 30, 2004, and are incorporated herein by reference.

3.3	The amended By-Laws of the Registrant were filed on Form 10-Q for the nine-month period ended March 31, 2004, and are incorporated herein by reference.

	~~3.1~~		~~Amended Articles of Incorporation of the Registrant were filed on Form 10-Q for the three-month period ended September 30, 2004, and are incorporated herein by reference.~~

	~~3.2~~		~~Amended Code of Regulation of the Registrant were filed on Form 10-Q for the three-month period ended September 30, 2004, and are incorporated herein by reference.~~

	~~3.3~~		~~The amended By-Laws of the Registrant were filed on Form 10-Q for the nine-month period ended March 31, 2004, and are incorporated herein by reference.~~

	31.1		Chief Executive Officer certification under Section 302 of the Sarbanes-Oxley Act of 2002.

31.2	Chief Financial Officer certification under Section 302 of the Sarbanes-Oxley Act of 2002.

32.1	Chief Executive Officer and Chief Financial Officer certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

	~~31.2~~		~~Chief Financial Officer certification under Section 302 of the Sarbanes-Oxley Act of 2002.~~

	~~32.1~~		~~Chief Executive Officer and Chief Financial Officer certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.~~

~~SIGNATURES~~


			~~Shares Outstanding at~~Part I. Financial Information
~~Class of Common Stock~~	~~April 29, 2005~~
~~$1.25 Par Value~~		~~8,821,464~~


~~Item 1. Legal Proceedings~~			18

~~Item 4. Submission of Matters to a Vote of Security Holders~~ Part II. Other Information			19

Item ~~6. Exhibits~~1. Legal Proceedings			1918

~~Signatures~~ Item 4. Submission of Matters to a Vote of Security Holders			1920

Item 6. Exhibits			20

Signatures			20
EX-31.1 CERTIFICATION
EX-31.2 CERTIFICATION
EX-32.1 CERTIFICATION


													Three Months Ended September 30,
	Three-Month Periods						Nine-Month Periods						2005			2004
	2005			2004			2005			2004

Net sales	$	41,561,001		$	43,566,394		$	121,276,223		$	113,230,967		$	37,306,118		$	45,188,315
Costs of goods sold		38,238,550			39,985,009			108,010,683			107,775,123			35,611,558			38,721,599

Gross profit		3,322,451			3,581,385			13,265,540			5,455,844			1,694,560			6,466,716

Selling and administrative expenses		3,158,980			3,345,108			9,822,128			10,574,176			4,014,271			3,387,053

EPA related — net environmental remediation		123,315			103,012			282,348			239,959			(29,198	)		84,000

Loss on sale of property, plant and equipment		42,342			266			42,342			266			11,156			—


Operating income (loss)		(2,186	)		132,999			3,118,722			(5,358,557	)		(2,301,669	)		2,995,663

Other income (expense):
Interest and investment income		231,095			157,079			653,336			510,325			264,448			215,473
Equity income (loss) in investment		(5,000	)		4,000			(10,000	)		16,000			17,000			(20,000	)
Other — net		(29,602	)		(65,065	)		647,488			(374,490	)		109,275			358,462

		196,493			96,014			1,290,824			151,835			390,723			553,935


Income (loss) before income taxes		194,307			229,013			4,409,546			(5,206,722	)		(1,910,946	)		3,549,598
Provision (credit) for income taxes		(114,000	)		73,000			1,235,000			(1,666,000	)		(612,000	)		1,136,000


Net income (loss)	$	308,307		$	156,013		$	3,174,546		$	(3,540,722	)	$	(1,298,946	)	$	2,413,598


Basic earnings (loss) per share⁽¹⁾	$	0.04		$	0.02		$	0.36		$	(0.40	)
Basic and diluted earnings (loss) per share⁽¹⁾														$(0.14	)		$0.26

Diluted earnings (loss) per share⁽¹⁾	$	0.03		$	0.02		$	0.36		$	(0.40	)


	March 31, 2005		June 30, 2004		September 30, 2005		June 30, 2005

Raw materials	$	26,845,000	$	23,641,000		$24,391,000	$	23,463,000
Work in process and finished goods		9,641,000		13,569,000		11,627,000		13,384,000

	$	36,486,000	$	37,210,000		$36,018,000	$	36,847,000


														Three Months Ended September 30
	Three Months Ended March 31													2005						2004
	2005					2004
			%					%			%					%					%			%
	Sales		of Total			Sales		of Total			Change			Sales		of Total			Sales		of Total			Change


Government	$	10,143,000		24.4	%	$	14,061,000		32.3	%		(27.9	)%	$	9,366,000		25.1	%	$	10,922,000		24.2	%		(14.2	)%
Industrial/Other		11,641,000		28.0			11,169,000		25.6			4.2			12,534,000		33.6			11,883,000		26.3			5.5
Aerospace		16,741,000		40.3			13,885,000		31.9			20.6			12,398,000		33.2			18,677,000		41.3			(33.6	)
Medical/Scientific Instrumentation		3,036,000		7.3			4,451,000		10.2			(31.8	)		3,008,000		8.1			3,706,000		8.2			(18.8	)

Totals	$	41,561,000		100.0	%	$	43,566,000		100.0	%		(4.6	)	$	37,306,000		100.0	%	$	45,188,000		100.0	%		(17.4	)%


Item 1. Financial Statements

Condensed Consolidated Balance Sheets ~~March 31,~~ At September 30, 2005 and at June 30, ~~2004~~2005			3

Condensed Consolidated Statements of Operations ~~Three-Month and Nine-Month Periods~~ Three Months ended ~~March 31,~~September 30, 2005 and 2004			4

Condensed Consolidated Statements of Cash Flows ~~Nine-Month Periods~~ Three Months ended ~~March 31,~~September 30, 2005 and 2004			5

~~Notes to~~ Condensed Consolidated ~~Financial~~ Statements of Shareowners’ Equity Three Months ended September 30, 2005 and 2004			6

Notes to Condensed Consolidated Financial Statements			7

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations			1112

Item 3. Quantitative and Qualitative Disclosures About Market Risk			17

Item 4. Controls and Procedures			17


(1)		All share and per share information have been adjusted to reflect the impact of the 5% stock dividends declared in November 2004 and October 2005.


	Three Months Ended September 30, 2005
							Accumulated other
					Capital		comprehensive
	Common Stock				in excess		income (loss)			Retained
	Shares		Amount		of par value		net of tax			earnings			Total


Balance at June 30, 2005		8,830,428	$	11,038,035	$	10,558,757	$	(44,198	)	$	75,619,392		$	97,171,986

Cash dividend ($0.10 per share)											(889,409	)		(889,409	)
Stock options exercised		65,407		81,759		176,383								258,142
Stock-based compensation expense						65,229								65,229
Stock dividend (5% declared October 25, 2005)		444,792		555,990		3,807,417					(4,363,407	)		—

Comprehensive income (loss), net of tax:
Net loss											(1,298,946	)		(1,298,946	)
Net unrealized loss on investment securities owned								(116,055	)					(116,055	)
Reclassification adjustment for net loss realized and reported in net loss								1,420						1,420
Net unrealized gain on equity investment								14,000						14,000

Total comprehensive loss														(1,399,581	)

Balance at September 30, 2005		9,340,627	$	11,675,784	$	14,607,786	$	(144,833	)	$	69,067,630		$	95,206,367


	Nine Months Ended March 31
	2005					2004
			%					%			%
	Sales		of Total			Sales		of Total			Change


Government	$	24,510,000		20.2	%	$	30,746,000		27.2	%		(20.3	)%
Industrial/Other		35,042,000		28.9			29,089,000		25.7			20.5
Aerospace		51,729,000		42.7			39,899,000		35.2			29.6
Medical/Scientific Instrumentation		9,995,000		8.2			13,497,000		11.9			(25.9	)

Totals	$	121,276,000		100.0	%	$	113,231,000		100.0	%		7.1



~~Date: May 13, 2005~~	~~/s/ DAVID W. HOCKENBROCHT~~
	~~David W. Hockenbrocht, Chief Executive Officer~~



~~Date: May 13, 2005~~	~~/s/ RICHARD L. LANGLEY~~
	~~Richard L. Langley, Chief Financial Officer~~