Rexnord Corporation

1892–1994

A wholly owned subsidiary of BTR PLC, an international holding company based in London, England, since 1994, the Rexnord Corporation is a major supplier of power transmission and conveying components to industries worldwide. Headquartered in Milwaukee, Wisconsin, the company operates from 23 manufacturing locations worldwide, 16 of them in the United States. Its products include power transmission components for the aerospace industry; bearings for many different industries; brakes, clutches, and electronic components; conveying equipment, including bucket elevators, industrial elevators, and apron conveyors; couplings; drive products; engineered chain and roller chain; and more.

Originally Incorporated in 1892

The company was first incorporated in Wisconsin on February 20, 1892, as the Chain Belt Company, to manufacture a chain belt that would replace the leather belting then used to drive agricultural equipment. The company was established in Milwaukee by inventor C.W. LeValley and two foundry operators, F.W. Sivyer and W.A. Draves. After proving that chain belts worked well on farm machinery, the concept was applied to conveying equipment and construction machinery. During the 1890s the company manufactured chain-driven material handling conveyors and bucket elevators for Milwaukee breweries. The company also worked with customers to develop chain drives for new applications.

By 1894 the company had started developing international markets, with the export of chain to Europe and the opening of a sales office in England. The company paid its first dividend that year and would never miss a dividend payment as long as it was a publicly owned company.

The company reached its first significant milestone in 1913, when annual sales reached $1 million. At that time the company's products were organized into three major divisions: chain products for power transmission; a line of chain-driven construction machinery; and chain-powered bulk conveying equipment. In 1914 it introduced the Rex brand-name, which was first used on a chain-driven concrete mixer. It soon became a widely recognized trademark.

Sales continued their upward trend throughout the 1920s and 1930s. In 1941, sales passed the $10 million mark for the first time. Research and development was credited with the growth in sales, as the company focused on developing new products, new methods, and new markets. It was the beginning of Rexnord's tradition of manufacturing technologically advanced products of the highest quality.

Growth and a Name Change in the 1960s

At the beginning of 1964 the company changed its name to Rex Chainbelt, Inc. Sales for the year reached the $100 million mark for the first time. A highly developed marketing and distribution system was in place. A growing commitment to international development had resulted in increased sourcing capabilities around the world. The company's product development efforts focused on several promising growth areas.

Under the company's new management sales went from $100 million to $1 billion in a 25-year period. William C. Messinger joined the company in 1963 as president and in 1967 became chairman of the board, with Robert V. Krikorian as president. Under their leadership, Rexnord would grow from a small capital goods manufacturer into a highly diversified corporation serving worldwide markets with sales surpassing $1 billion by 1980.

It was in the late 1960s that management set the company on a new course, to minimize the business cycles that capital goods companies were subject to. Prior to this time, sales followed a cyclical pattern, with two or three good years followed by a down year. The company's new strategy called for a broader line of products, especially those that were consumed in use or required proprietary replacement parts. Management felt that demand for these products would continue, even when capital spending had to be curtailed. The goal, therefore, was to build a portfolio of businesses with offsetting economic cycles as well as to achieve geographical diversity by operating on an international basis.

When Messinger retired in 1980 at the age of 65, more than half of Rexnord's sales came from components and replacement parts. Two countercyclical business segments, process machinery and environmental control equipment, accounted for approximately one-third of total sales, and international sales accounted for 28 percent of the company's total revenues.

The company reached its first significant milestone in 1913, when annual sales reached $1 million.

1967–1984

Acquisitions in the 1970s

In 1970 the company made the significant acquisition of the Nordberg Manufacturing Company. The acquisition of Nordberg broadened the company's markets and put it strongly into minerals mining and aggregate (crushed stone) equipment. Affected by changing price levels for minerals and by worldwide demand for crushed stone, these markets were considered countercyclical to the domestic economy, as were sales of environmental control equipment.

At the beginning of 1973 the company adopted a new name, Rexnord, Inc., and undertook a new corporate identification program. A brochure, "Serving the Needs of the People," was issued as the second part of the company's two-part annual report in 1974. At this time the company had five major business segments: power transmission components, mineral and rock crushing and processing machinery, environmental control equipment, material handling equipment, and construction machinery. Its international operations consisted of subsidiaries in West Germany, Belgium, and Australia, that produced construction machinery, power transmission components, and pollution control equipment. Operations also included Racine Hidraulica S.A. in Brazil, which manufactured hydraulic components and systems. Altogether, Rexnord operated 29 plants in 14 countries during 1973.

Sales continued to grow at a ten to 20 percent annual rate throughout the 1970s, reaching $1.01 billion in 1979. Profitability also continued to rise. During this time, the company pursued a carefully planned strategy of product and market diversification to offset weakness in one by strength in another. International growth was planned and timed to avoid becoming overly dependent on the economy of any one nation. Rexnord also concentrated on products that were either consumed in use or required Rexnord replacement parts. Such a product mix provided a continuity of earnings, even when industry conditions might restrain capital expenditures. The company audited all of its product lines on a regular basis. During the 1972--77 period, for example, it sold or discontinued product lines with annual sales of $51 million, but that had losses of $2.7 million.

New Management and Challenges in the 1980s

During 1979 management changes were put into effect in anticipation of Messinger turning 65 in January 1980 and retiring. Krikorian, president since 1967, was elected vice-chairman and CEO in 1979; then he succeeded Messinger as chairman of the board in 1980. Donald Taylor was elected president; he had joined Rexnord in the Nordberg merger of 1970. The next year Rexnord honored Messinger by naming its Milwaukee research center after him.

By 1980 Rexnord's five business segments were grouped into two major product groups, components and machinery. The components product group, consisting of power transmission components and specialty fasteners, accounted for 59 percent of Rexnord's sales and more than 72 percent of operating income in 1980. They were the company's most profitable businesses and had received the bulk of capital expenditures in recent years. The machinery product group included process machinery, which emphasized products having a strong replacement parts business, environmental control equipment, and construction machinery.

Rexnord began the 1980s with more than 17,000 employees in 51 U.S. and Canadian plants and in 22 overseas facilities. Like many other businesses, it experienced difficulties in the post-inflationary recessionary early 1980s. In spite of high interest rates and a generally weak economy, Rexnord achieved its 20th consecutive year of sales growth in 1981 when sales reached $1.13 billion, up from $1.084 billion in 1980. However, real unit volume declined two percent. The company's strengths were its replacement parts business, which provide more than half of its 1981 volume, and international markets, which accounted for nearly one-third of sales.

During 1981 the company divested several product lines, including its European construction machinery operations and its subsidiary Rockford Aerospace Products, located in California. In 1982 it sold two significant businesses for approximately $70 million: the Construction Machinery Division and the Fluid Power Division. It also closed its process machinery foundry in Milwaukee. With a worldwide recession and high long-term interest rates, 1982 was a difficult year for operations, with the company emphasizing cost reduction programs, significant restructuring, and continued investment in research and development. Capital goods spending had been in decline for the past year and a half, and Rexnord reported reduced earnings and its first sales decline in 20 years, down 17 percent. It now had three major business segments: power transmission components, specialty fasteners, and process equipment (which now included the company's water, wastewater, and related sludge conditioning and treatment equipment and systems). During the year it acquired Contech, Inc., for $16 million in cash. With sales of more than $29 million, the 16-year-old company manufactured and marketed a wide line of adhesives, sealants, caulkings, and specialty chemicals used in building construction, maintenance, and renovation.

Sales again declined in 1983 to $804.5 million, compared to $936.6 million in 1982, while net income dropped to $3.93 million, compared to $7.15 million in 1982. Orders for industrial machinery products remained at low levels and overall sales were 14 percent below 1982 levels.

With four acquisitions in 1984, sales increased to $921 million. Acquired for $68.8 million, Clausing Corporation was the largest acquisition of the year. Clausing manufactured component products in plastics engineering, which added to Rexnord's portfolio of component products for use in a broad cross-section of industrial markets. Clausing's products served the automotive and electronics markets and could be used to develop new markets. Its industrial process control products supported Rexnord's strategy of strengthening and expanding its electronics-related businesses. Clausing also brought to Rexnord a profitable Industrial Distribution Group, which handled several lines of high-quality metal-working machine tools and accessories imported from European countries.

1981–1990

During the year Rexnord created a Process Controls Division and was building a major instrumentation and controls business in the process control and industrial automation markets. Two of its 1984 acquisitions, Tano Corporation and InstaRead Corporation, further expanded Rexnord's instrumentation and control capabilities in the industrial automation area. Tano was an industry leader in the design and manufacture of computer-based electronic systems for marine, oil and gas and energy management applications. Tano manufactured moving beam laser bar code scanners, with applications on the shop floor and in warehouse inventory control. These scanners complemented Rexnord's own omnidirectional bar code scanner, called Lasertrak.

1985 was a year of moderate growth in sales, earnings, and dividends for Rexnord. The company further expanded its instrumentation and control capabilities in the industrial automation area when it purchased Electronic Modules Corporation (EMC) for $46 million in cash and 42 million shares of Rexnord common stock in April 1985. With 1984 sales of $68 million, EMC designed and manufactured industrial and factory process controls. With EMC as its flagship, Rexnord created a new subsidiary, Rexnord Automation, that included its former Process Controls Division.

Since June 1981, Rexnord had divested 15 businesses with annual sales of $220 million, for $145 million. The company announced in 1985 that its major divestitures had been completed, although it said that there may be more in the future. In 1985 Robert Krikorian retired as chairman. Donald Taylor, formerly vice-chairman and CEO, became chairman and CEO. John P. Calhoun became president and chief operating officer.

Acquisition by Banner Industries in 1987

With the company in the process of repositioning itself, 14 percent of Rexnord's stock was acquired by Banner Industries of Cleveland, Ohio, in 1986. When Rexnord announced in December 1986 that it was planning a massive restructuring, including selling most of its capital goods businesses and moving toward higher technology products, Jeffrey J. Steiner, chairman of Banner Industries and Rexnord's largest stockholder, opposed it.

In March 1987 Banner completed its acquisition of Rexnord. In connection with the acquisition, Banner entered into a $550 million credit agreement with a group of financial institutions. Proceeds from the sale of certain Rexnord assets were to be used to reduce $420 million in term loans that were part of the $550 million credit agreement. As of June 30, 1987, approximately $105.8 million of Rexnord's net assets were held for sale.

By the end of 1987 Banner had sold one subsidiary of Rexnord, Mathews Conveyor of Kentucky, while employees of the Louisiana-based Rexnord Instrument Products purchased the division from Rexnord. Texas-based Rexnord Automation was also put up for sale, after the company decided it didn't have the resources to compete in the automation sector. Additional assets were sold by February 1988 to finance the acquisition.

After offering $500 million earlier in 1988, Banner Industries acquired PT Components, Inc., of Indianapolis, Indiana, an auto brake systems manufacturer, for an undisclosed amount in August 1988. Interestingly, PT Components had a history longer than and somewhat parallel to that of Rexnord. It was originally founded in the 1870s as Ewart Manufacturing Company in Indianapolis, Indiana, by W.D. Ewart, a co-worker of Rexnord's founder, C.W. LeValley. Ewart had beaten inventor LeValley in the race to patent detachable link belts, but LeValley discovered a way to develop a link belt product that didn't infringe on Ewart's patent and established his own company. The two companies were competitors in this field. Ewart Manufacturing later became the Link Belt Company and eventually PT Components.

Banner then organized Rex-PT Inc. as a combination of the Mechanical Power Division of Rexnord, Inc., and PT Components, Inc. Rex-PT would be a supplier of industrial couplings, conveying chain, and other industrial chains, bearings, reducers, clutches, brakes, and drives. It was expected to have annual sales of about $540 million. According to Banner's 1989 annual report, Rexnord (renamed from Rex-PT) was now the world's largest mechanical power company.

In September 1988 Banner Industries sold its 60 percent majority ownership in Rex-PT Holdings, Inc., to a group of investors, and kept a 40 percent interest. Rex-PT Holdings was the parent of Rex-PT, Inc., which was renamed Rexnord Corporation by the end of 1989. The sale of its majority interest resulted in an after-tax gain in excess of $45 million for Banner. Net proceeds were $360 million, including an increase of $260 million in cash and debt reduction of $100 million.

In June 1989 Banner Industries acquired the outstanding common stock of Fairchild Industries, Inc., for $18 per share. The transaction was valued at approximately $400 million and included the assumption of certain liabilities. Effective November 15, 1990, Banner Industries changed its name to The Fairchild Corporation.

1990–1994

At this time, Rexnord became one of Fairchild's operating subsidiaries. In 1991 Rexnord's fastener operations were merged with the fastener operations of Fairchild Industries. While Rexnord had mainly served the industrial and military markets, Fairchild primarily served the commercial aviation industry.

By 1991 Rexnord was focused as a leading manufacturer of mechanical power transmission components. Its products were sold to such major industries as food and beverage processing, aerospace, construction, energy, and agriculture. Major product lines included chains, conveying equipment, bearings and seals, couplings, clutches, brakes, and drives. Some 55 percent of sales were for replacement parts. The international market continued to be a significant component of Rexnord's overall business, with 28 percent of sales coming from overseas customers in fiscal 1991. Outlook was good for growth in Europe, the Far East, and South America. Rexnord's 1991 sales were $552 million, compared to $567 million in 1990. During 1991, the Fairchild Corporation owned a 42 percent interest in Rexnord Corp. In 1992, it was a 45 percent stake.

In 1992 Fairchild's recapitalization program transformed Rexnord into a publicly traded company listed on the New York Stock Exchange. Prior to the recapitalization, Rexnord Corporation was merged into its immediate parent, Rex-PT Holdings, Inc, in June 1992. The Fairchild Corporation continued to own a controlling interest, through subsidiaries, of about 45 percent of the outstanding common stock. In July 1992 Rexnord made an initial public offering (IPO) of more than nine million shares of common stock at $17 per share to raise money to redeem notes and preferred stock and to pay the costs of recapitalization. It also issued $172.5 million worth of unsecured ten-year corporate bonds (senior notes at 10

percent interest) for similar purposes. Immediately prior to the IPO, Rexnord was merged into Rex-PT Holdings, Inc., which was the surviving corporation. Rex-PT Holdings subsequently changed its name to Rexnord Corporation.

As a result, the company was much less leveraged and had improved financial flexibility with more liquidity. The company was committed to a continuing program of cost reduction as well as plant consolidation. At the time of its IPO Rexnord's business consisted mainly of manufacturing and supplying mechanical power transmission components and related products. Principal products included engineered, conveying, flat top, and roller chains; various types of anti-friction bearings, speed reducers, shaft couplings and seals; and idlers, sprockets, and electric motor brakes and clutches. Major markets included food and beverage processing, pharmaceutical, commercial aerospace, chemical, petrochemical, coal oil field, transportation, sanitation, construction, machinery, cement, forest products, farm machinery, and industrial equipment industries.

In 1993 Rexnord achieved an operating profit of $82.7 million, up 21 percent from 1992 levels. Sales increased by 3.4 percent over the previous year. Recessionary conditions in Europe and in the commercial aerospace markets served by Rexnord were offset by aggressive cost reductions to preserve profit margins until full economic recovery. Rexnord's market value increased to approximately $140 million, some $80 million higher than the value carried on Fairchild's books. The investment was seen as a valuable, though undervalued, asset that would help Fairchild's ongoing recapitalization and debt reduction plans.

Sale to BTR PLC in 1994

In December 1993 the pending acquisition of Rexnord by BTR PLC, an international holding company based in London, England, was announced. BTR offered to purchase all of Rexnord's outstanding shares at $22.50 a share, with the total purchase price estimated to be approximately $420 million. Rexnord's stock value rose, and the company expected a bond upgrade from Moody's Investors and Standard & Poor's credit rating services. By the end of December Fairchild had sold its stock interest in Rexnord Corporation at a premium price, resulting in a pre-tax gain of $129.1 million. Fairchild received $181.9 million in cash. On December 23, 1993, the sale of Fairchild's 43.9 percent interest in Rexnord to BTR Dunlop Holdings, Inc., an American subsidiary of BTR PLC, was completed. Approximately eight million shares were sold at $22.50 per share. In January 1994 the proposed merger with BTR Dunlop Holdings, Inc., a subsidiary of BTR PLC, was approved at a special shareholders meeting. By this time, BTR Dunlop had acquired 52.8 percent of Rexnord's outstanding common stock. The merger took place between a wholly owned subsidiary of BTR Dunlop and Rexnord, with Rexnord being the surviving corporation. With BTR PLC as its ultimate parent company, Rexnord Corporation has continued as a premier supplier of power transmission and conveying components to many different industries worldwide.