As pleased as I am with how quickly we’ve seen positive net income, we still have to be cautious and continue to monitor our progress. We all have to continue to be diligent in ensuring the changes made are sustainable.

During the third quarter of last year, as part of our fiscal 2010 planning process, we began to adjust the way we view our business from one reporting line into three distinct business units: Medical Device (SMS), Defense & Security Systems (DSS), and Electronic Manufacturing Services (EMS.)

Once we began to dissect and understand the financial condition, market space and value proposition of each business unit, the uniqueness of each became apparent. Similarly, opportunities for further operational improvements as well as strategic growth potential came into focus for the individual businesses. To that end, we are better able to drive accountability of the business units to those ultimately responsible.

We also have begun to reposition the Company from being defined as a “contract manufacturer” to one that is a full service developer, designer, and manufacturer of complex and sophisticated electromechanical devices in market spaces where gross margins are far more robust than the traditional, commodity-based EMS environment.

The SMS business unit is located in Strongsville, Ohio. As part of the turnaround strategy, we consolidated SMS operations from De Leon Springs, Florida, into Strongsville this past summer. The medical device space is large, and we are primarily in the In Vitro Diagnostic market, developing, designing, manufacturing, distributing, and servicing highly complex and sophisticated instrumentation and analysis equipment. We intend to leverage our capabilities and continue to grow our In Vitro Diagnostic business presence and expand our presence in the Therapeutic Device market space in the coming years.

Our EMS business unit is a contract manufacturer of circuit card assemblies and electronic based box build products primarily for the commercial and military aerospace market. This business unit had been the anchor that was pulling down the rest of the Company over the last few years. By segmenting financials, it became apparent that we needed to fix, close, or sell the EMS business. Even though the gross margins associated with this business unit are commodity based, there is a viable vertical integration opportunity to produce circuit cards for products in the SMS and DSS business units. This opportunity, coupled with the review and disengagement of certain unfavorable customer contracts, is why management decided to consolidate and fix this business unit. We went from five to two facilities; made an investment in a new prototyping line to shorten development and product introduction lead times; and, are investigating alternate markets outside of aerospace. We are optimistic that there are opportunities to grow this business as well.

Located in De Leon Springs, Florida, DSS has been a Sparton mainstay for over 50 years. The main products are sonobuoys, which are anti-submarine warfare devices. As the only U.S.-owned producer and only one of two major manufacturers worldwide, Sparton has been providing this product to the United States government and other free world countries for many years. The DSS team has a number of spin-off technologies it is investigating and additional engineering work with the military to help drive the future.

Now that we are close to completing the turnaround strategy, the next step in our Company’s evolution is to define a vision and long term strategy (one of the key imperatives of fiscal year 2010). There is a lot of work already being done by each business unit’s leadership team on developing a long term, profitable growth strategy. We are excited by the prospects for growth and see many great things happening for Sparton Corporation. Welcome to a new era!

Sincerely,

Cary B. Wood
President & CEO, Sparton Corporation

As pleased as I am with how quickly we’ve seen positive net income, we still have to be cautious and continue to monitor our progress. We all have to continue to be diligent in ensuring the changes made are sustainable.

During the third quarter of last year, as part of our fiscal 2010 planning process, we began to adjust the way we view our business from one reporting line into three distinct business units: Medical Device (SMS), Defense & Security Systems (DSS), and Electronic Manufacturing Services (EMS.)

Once we began to dissect and understand the financial condition, market space and value proposition of each business unit, the uniqueness of each became apparent. Similarly, opportunities for further operational improvements as well as strategic growth potential came into focus for the individual businesses. To that end, we are better able to drive accountability of the business units to those ultimately responsible.

We also have begun to reposition the Company from being defined as a “contract manufacturer” to one that is a full service developer, designer, and manufacturer of complex and sophisticated electromechanical devices in market spaces where gross margins are far more robust than the traditional, commodity-based EMS environment.

The SMS business unit is located in Strongsville, Ohio. As part of the turnaround strategy, we consolidated SMS operations from De Leon Springs, Florida, into Strongsville this past summer. The medical device space is large, and we are primarily in the In Vitro Diagnostic market, developing, designing, manufacturing, distributing, and servicing highly complex and sophisticated instrumentation and analysis equipment. We intend to leverage our capabilities and continue to grow our In Vitro Diagnostic business presence and expand our presence in the Therapeutic Device market space in the coming years.

Our EMS business unit is a contract manufacturer of circuit card assemblies and electronic based box build products primarily for the commercial and military aerospace market. This business unit had been the anchor that was pulling down the rest of the Company over the last few years. By segmenting financials, it became apparent that we needed to fix, close, or sell the EMS business. Even though the gross margins associated with this business unit are commodity based, there is a viable vertical integration opportunity to produce circuit cards for products in the SMS and DSS business units. This opportunity, coupled with the review and disengagement of certain unfavorable customer contracts, is why management decided to consolidate and fix this business unit. We went from five to two facilities; made an investment in a new prototyping line to shorten development and product introduction lead times; and, are investigating alternate markets outside of aerospace. We are optimistic that there are opportunities to grow this business as well.

Located in De Leon Springs, Florida, DSS has been a Sparton mainstay for over 50 years. The main products are sonobuoys, which are anti-submarine warfare devices. As the only U.S.-owned producer and only one of two major manufacturers worldwide, Sparton has been providing this product to the United States government and other free world countries for many years. The DSS team has a number of spin-off technologies it is investigating and additional engineering work with the military to help drive the future.

Now that we are close to completing the turnaround strategy, the next step in our Company’s evolution is to define a vision and long term strategy (one of the key imperatives of fiscal year 2010). There is a lot of work already being done by each business unit’s leadership team on developing a long term, profitable growth strategy. We are excited by the prospects for growth and see many great things happening for Sparton Corporation. Welcome to a new era!

Sincerely,

Cary B. Wood
President & CEO, Sparton Corporation