Sparton Corporation

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Sparton Corporation

2400 E. Ganson St.
Jackson, Michigan 49202
U.S.A.
(517) 787-8600
Fax: 517 787-1822

Public Company
Incorporated: 1916 as Sparks-Withington Company
Employees: 1,500
Sales: $102.82 million (1996)
Stock Exchanges: New York
SICs: 3812 Search and Navigation Equipment; 3679 Electronic Components, Not Elsewhere Classified; 3714 Motor Vehicle Parts and Accessories; 3465 Automotive Stampings

Sparton Corporation has a century long history of manufacturing technologically advanced equipment for the transportation, electronics, communication, and defense industries. Founded at the turn of the century, Sparton has participated in many of the technological milestones of the 20th century, including the introduction of the automobile, fully electric radios, refrigeration, and television. Although since the 1960s Sparton was known primarily as a defense contractor, cuts in defense spending in the 1990s saw the company redirecting its target markets towards the commercial electronics industry.

Turn-of-the-Century Origins

The Sparton Corporation was founded as the Withington Company in 1900 in Jackson, Michigan, by Philip and Winthrop Withington. William Sparks became the third partner in the business a few years later and the company name was changed to the Sparks-Withington Company. Sparks-Withington began as a small manufacturer of steel parts for agricultural implements but as the automobile revolution began to sweep through Michigan in the early part of the century, Sparks-Withington added steel automotive stampings like hub caps and brake drums to their product line. By 1909, the company was manufacturing car radiator cooling fan assemblies, which quickly became a major part of the company’s production output, reaching 275,000 units by 1917. It was during this period that Sparks-Withington began to make use of the trade name “Sparton,” a contraction of the company name and an evocation of the disciplined Spartans of Ancient Greece. The company’s first major product innovation came in 1911 when the all-electric car horn was developed by Sparks-Withington engineers. The Hudson Automobile Company soon adopted the Sparton electric horn as standard equipment for its automobiles, replacing the optional bulb horns that had characterized the early era of the automobile. The electric horn has remained a staple product for Sparton since its introduction.

Radio and Television Production in the 1930s and 1940s

The Sparks-Withington Company was officially incorporated in Ohio in 1916 and then reincorporated in 1919 when shares in the company began to be sold on the New York Stock Exchange. After a brief period of military production during World War I, Sparks-Withington used its growing expertise in the electronics field to bring out a line of battery powered radios, followed in 1926 by production of the country’s first all-electric radio, promoted as “Radio’s Richest Voice.” While many American companies suffered during the Great Depression, Sparks-Withington expanded. In 1930, the company formed a wholly-owned Canadian subsidiary, Sparton of Canada, Ltd., to introduce the Sparton radio line in Canada. In the same year, the company acquired the Cardon-Phonocraft Company of Jackson, Michigan, and integrated their radio tubes and combination radio-phonograph products into the Sparton line. Sparks-Withington further expanded their radio accessory business with the purchase of Home Products Corp. of Michigan. In 1932, the company entered a new market with the introduction of the Sparton electric refrigerator. The intense competition in this industry was largely responsible for the company’s 1938 net loss of $60,000, however, and the company dropped the product line by the end of the decade.

By the beginning of the 1940s, Sparks-Withington was operating five factories in Jackson, Michigan, in addition to their Canadian subsidiary’s facility in London, Ontario. Annual sales topped $5 million. Like most American manufacturers, Sparks-Withington switched to military production during World War II, manufacturing bomb hoists, communications equipment, magazine clips, and a wide variety of other military products for the war effort. With a return to peace, Sparks-Withington set out once again to expand its range of products. In 1945, the company acquired the Illinois-based Steger Furniture Manufacturing Co. to manufacture cabinets for the radio and radio-phonographs that had become the mainstay of the Sparton product line.

Before the war Sparks-Withington engineers had experimented with the development of television receivers, and had even field tested an early model, but disagreements in implementing industry-wide standards for television compounded with the outbreak of World War II to delay the widespread introduction of television to the American public until 1948. With its electronic expertise and established brand recognition in Sparton brand radios, the company was in a good position to enter this new and potentially lucrative market. Under the Sparton trade name, Sparks-Withington began full scale production of black and white television receivers in 1948 and then introduced a color model some five years later. In 1954 the company further expanded into the communications industry by founding WWTV, a local television station in Cadillac, Michigan.

Entry into Defense Technology in the 1950s

Through the first 50 years of Sparks-Withington’s operations, management of the firm had remained firmly in control of the Sparks and Withington families. However, in 1950, a proxy fight led by shareholder John J. Smith culminated in the takeover of the board of directors by a new group of investors. Smith was elected president and within two years the founding families had resigned their leadership positions with the company. In keeping with the change in management and in recognition of the strength of the 30 year old trade name, in 1956 the Sparks-Withington company name was officially changed to the Sparton Corporation.

By the early 1950s, radio and television sets accounted for two-thirds of Sparton sales, which had reached almost $24 million by the opening of the decade. In spite of strong sales, intense competition in the electronics industry increasingly reduced profit margins until, in 1954, Sparton was faced with a $300,000 net loss. During this same period Sparton had been slowly building up its automotive and electronic divisions through acquisitions and new product development. Most notably, Sparton engineers began a program to use the company’s expertise in radio technology to develop a sonobuoy system for the American navy. Sonobuoys—small, air-dropped listening devices used to detect and locate submarines—would prove to be one of the company’s most lucrative product lines through the following three decades. By 1956, it had become clear that the defense industry could provide better growth and higher profit margins than the highly competitive radio and television industries. Sparton made the dramatic and risky decision to discontinue all American production of the radios, televisions, and stereos, which had been the company’s largest product categories, in order to concentrate on the growing military electronics business.

After posting an initial loss in the first year after the decision to drop TV and radio production, Sparton rebounded to record profit levels by the end of the decade. In addition to the expansion of the company’s military electronics division, a number of acquisitions brought Sparton into new markets. The purchase of Allied Steel and Conveyors of Detroit, Michigan, saw the company’s entry into the materials handling industry and the acquisition of the Flori and Houston Pipe Companies spelled a brief foray into steel pipe manufacturing. During the late 1950s and 1960s, Sparton also experimented with a Railway Equipment Division as well as a Controls Systems Division but both operations were discontinued after a few years of operation. Sparton’s long history in the automotive industry was consolidated in 1959 with the founding of the Sparton Manufacturing Company, which operated out of a new plant in Flora, Illinois. Sparton Manufacturing primarily produced automotive and marine horns and buzzers. By 1960 the 6,600 horns manufactured each day at the plant provided all of the horns for Studebaker cars, 65 percent of Chrysler’s, and 75 percent of American Motors’.

Company Perspectives:

Sparton Corporation is dedicated to: the conduct of our business at the highest ethical level; the manufacture of superior quality products in the most efficient manner possible at the lowest possible cost; loyally serving each customer to the utmost of our ability by making continuing contributions that support his progress; constantly improving our company’s technological base to better serve our customers; the creation of new ideas, new products and new processes in order to remain the low cost producer in our chosen marketplaces; making our company grow faster than the economy; the maximization of shareowner value; providing a work environment that is safe, modern and clean and one where our employees can achieve their highest potential.

Growth and Diversification in the 1960s and 1970s

During the 1960s and 1970s Sparton’s Military Electronics Division became the company’s largest income producer, generating over 60 percent of the company’s approximately $40 million in sales by the end of the 1960s. The division’s primary product continued to be the submarine seeking sonobuoys that had launched the company’s entry into the defense industry. Sonobuoy components were manufactured at a number of facilities across the country, including plants in Grand Junction, Colorado, DeLeon Springs, Florida, and Brownstown, Indiana. Sparton’s original manufacturing plant in Jackson, Michigan, was converted into a state-of-the-art engineering research and design facility, providing complete support services for all satellite plants. In addition to the company’s Military Electronics Division, Sparton Southwest, Inc., a division based in Albuquerque, New Mexico, was founded in 1961 to produce weapon control equipment and precision instruments for the aerospace industry. Sparton of Canada, which had continued its production of radio and televisions into the mid-1960s, now also converted to military electronics manufacturing.

In 1970, Sparton was faced with a hostile takeover bid from Servotronics, Inc., a maker of airplane parts. Partly in an attempt to raise the number of shares controlled by Sparton management and thereby elude the takeover, Sparton acquired Lake Odessa Machine Products, an auto parts firm privately owned by Sparton president John J. Smith and his family. After a lengthy legal battle, Servotronics and Sparton reached a settlement and the takeover was abandoned. The Lake Odessa acquisition strengthened Sparton’s presence in the automotive equipment industry by adding wire parts and assemblies to Sparton’s line of horns and electronic components. The Sparton Manufacturing Company, the company’s automotive products division, also expanded its facilities and product lines through the 1960s and 1970s. New plants were built in Grayville, Illinois, and Blytheville, Arkansas, and the administrative and engineering offices in Flora, Illinois, were more than doubled.

Sparton made a significant move toward further diversification in 1972 with the purchase of Michigan Oil Company and the simultaneous acquisition of over 100,000 acres of oil leases in the Michigan oil basin from McClure Oil. Michigan Oil was an oil and gas exploration company with operations in Michigan, Louisiana, North Dakota, and offshore Australia. Sparton management felt that investing in oil and gas exploration would allow the company to convert money earned through its manufacturing activities into capital values. In the long run, however, the company’s Michigan Oil subsidiary was unable to generate a profit. The consistent annual drain on Sparton’s bottom line caused by the costs of maintaining exploration eventually forced the company to seek a buyer for Michigan Oil and, after 18 consecutive years of losses, the subsidiary was ultimately sold in 1990.

Decline of the Defense Industry in the 1980s and 1990s

The 1980s saw further growth in Sparton’s automotive divisions as a number of acquisitions and plant expansions increased manufacturing capacity and further diversified product lines. In 1986 Sparton purchased Kent Products, Inc. and White Cloud Products, Inc., automotive stampings manufacturers previously owned by Sparton chairman John J. Smith and his brother Lawson Smith. Sparton automotive divisions were subsequently consolidated to form three operating units; Sparton Engineered Products-Flora Group, Sparton Engineered Products, Inc.-Lake Odessa Group, and Sparton Engineered Products, Inc.-KPI Group. After achieving record sales of $118 million in 1981, Sparton faltered in the mid-1980s due to cost overruns in the company’s military electronics division. A number of new design specifications for the Navy’s sonobuoy program ended up costing far more than anticipated in Sparton’s contract bid and, in spite of $158 million in sales, the company recorded a net loss of over $3 million in 1985. Through the 1980s, Sparton Southwest, renamed Sparton Technology, Inc. in 1983, began to concentrate its engineering efforts on commercial/industrial electronics. New monitoring and communications systems developed by the division generated sales that would prove significant as the company entered the 1990s.

The 1990s were a time of transition for the 90-year-old firm. The fall of the Soviet Union inevitably led to massive cuts in American defense spending and Sparton was forced to reposition itself away from the defense industry and towards the commercial marketplace. From 1992 to 1994 Sparton’s government related sales declined $115 million and the company was unable to compensate for this loss with increases in its other areas of expertise. Sparton Electronics, long the center of Sparton’s defense industry with its sonobuoy product line, implemented a transition plan that would convert the division from a defense contractor to a commercial engineering and manufacturing firm. The newly designed division was to offer customers in the electronic industry full service contract manufacturing support including design services and technical resources, as well as manufacturing and marketing services. Although by 1996 this new group of services represented more than one half of total revenues for Spartan Electronics, costs incurred in the development of this business led to operating losses for the division for most of the early 1990s. The Sparton Technology division was to survive the loss of defense-related business by building on its base of proprietary communications and monitoring products. With its already established line of industrial electronics, STI was in a better position to adjust to cuts in defense spending than other Sparton divisions and by the mid-1990s both revenues and profits for the New Mexico-based unit were steadily rising.

While pressures from cuts in defense spending were seriously undermining Sparton’s electronic units, the restructuring of the American automobile industry was eating away at profit margins in the company’s automotive divisions. Although all three of Sparton’s automotive groups (KPI, Flora, and Lake Odessa) had significant increases in sales during the first half of the 1990s, price restrictions on the part of the big three automakers cut profits to increasingly slim margins. Sparton was forced to increase debt in order to finance the expansion needed to accommodate higher sales. In 1996, the company made the critical decision to get out of the automotive supply business rather than invest in the massive growth needed to remain profitable in the increasingly competitive environment. In October of that year, Sparton Engineered Products Inc.-KPI Group, which had previously been merged with the Lake Odessa Group, was sold to Dura Automotive Systems for $80.5 million. Sparton’s remaining automotive unit, Sparton Engineered Products-Flora Group, was also put on the market in 1996.

The combined difficulties in Sparton’s electronics and automotive units led to three consecutive unprofitable years for Sparton in 1994, 1995 and 1996, with annual net losses of about $5 million. The shedding of the company’s automotive divisions also reduced revenues to only $103 million. Ultimately, it was hoped that the additional capital generated by the sale would enable Sparton to invest more heavily in its growing electronic contract manufacturing business and return the nearly century old firm to profitability.