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Continued: Engineering firm evolved from defense to health care just in time

  • Article by: DICK YOUNGBLOOD , Star Tribune
  • Last update: August 26, 2010 - 7:51 PM

It took Sanders Marvin just two months to plug the flow of red ink that had been leaking out of his family's Minneapolis business for five years after his father, Chuck Marvin, was incapacitated by a heart attack.

The restructuring that Marvin, 40, initiated after he took over at Mid-Continent Engineering in 2006 helped keep the company afloat when the ensuing recession chopped its sales to the lowest level in nearly 25 years and produced a $1 million swing from profit to loss.

And now, with the economy limping toward recovery, the changes Marvin imposed have positioned the business for significant growth in 2011 and beyond. Indeed, its recovery is well underway, with 2010 revenue on track to grow about 16 percent.

Not bad for a gent who, before his father's illness, was happily running a successful wine-import business and living the good life amid the chic restaurants and nightclubs in Manhattan's East End.

Mid-Continent is a precision manufacturer that supplies assemblies for medical imaging equipment, subsystems for the aerospace industry and ship-board computer systems for the U.S. Navy, among a variety of defense-related projects.

We're talking such things as pivoting arms for MRI equipment, the bases on which CT scanners and digital X-rays are built and assemblies for laser-guided munitions.

It's a business that grossed $18 million in 2008 before tumbling to sales of $12.3 million last year. Marvin said sales in 2010 are expected to top $14 million, with projects already committed for next year promising to hoist the 2011 gross to more than $18.5 million.

The turnaround that Marvin engineered beginning in mid-2006 started with layoffs that took an overstaffed payroll from 145 to 90 jobs. That number dropped to 65 in the midst of last year's recession, but has since bounced back to 80, and climbing.

But that wasn't the only trimming Marvin did. More important, he also "fired" about 20 clients that represented unprofitable or low-margin business. Included on the hit list: Boeing, once an $8 million-a-year client that had sliced its orders to $1.5 million a year and had become an unprofitable customer largely because of its myriad administrative requirements.

In the ensuing two years, the client reductions carved more than $2 million out of Mid-Continent's gross. But they also widened profit margins and secured the company's future as a high-end manufacturer, free of the low-margin "widgets," as Marvin calls them, that had cluttered the revenue stream.

"We abandoned the $100 parts that anyone can make to concentrate on the $1,000-and-up assemblies that only a handful of companies can do," Marvin said.

In the process, he also began shifting the company's focus from the defense and aerospace markets, with their longer product-development cycles and sometimes iffy funding. With his eye on the demographics showing an aging nation, Marvin began courting the health care industry and its more-rapid product development turnarounds.

The result: In 2006, 75 percent of Mid-Continent's revenue came from the defense and aerospace sectors. Today, more than 75 percent of sales are generated by health care companies, much of it by giant GE Healthcare and its suppliers.

All of which couldn't prevent major slippage in 2009, caused not only by recession, but also by the uncertainty in the health care industry over proposed reform legislation and the debate over the value of mammograms.

"There was a lot of bad news in a six-week period early last year," Marvin said. "Project after project was put on hold. The mammogram controversy alone cut our revenue nearly $2 million." Oh yes, and a $1.2 million order for seat frames for Northwest Airlines was canceled after the merger with Delta Air Lines.

There was a silver lining, however: As profits returned after the restructuring, Marvin paid off about $1 million in debt, leaving the company "with a lot of cash in the bank and no short-term debt" as the 2009 troubles began, Marvin said.

His optimistic outlook for 2011 is anchored by four new contracts totaling $4.2 million, the result of a growing partnership with GE Healthcare and other medical clients that has enlarged Mid-Continent's role from comparatively simple manufacturing process engineering to include design engineering as well.

That work is underway, with production under the new contracts scheduled to begin in December. In the process, Mid-Continent is bringing offshore business back to the United States.

One of the new contracts involves a key assembly for an upgraded GE ultrasound machine that had been supplied by a Norwegian company. And the design for a piece of GE X-ray equipment had been shopped in China and India before it was awarded to Mid-Continent.

"Our customers are investing in us, and we're investing in them," Marvin said. "It's the key to our future."

Dick Youngblood • 612-673-4439 • yblood@startribune.com

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