Sundstrand Corporation History

Address:

4949 Harrison Avenue
P.O. Box 7003
Rockford, Illinois 61125-7003
U.S.A.

Telephone: (815) 226-6000
Fax: (815) 226-5399

Public Company
Incorporated: June 1926 as Sundstrand Machine Tool Company
Employees: 12,800
Sales: $1.52 billion (1996)
Stock Exchanges: New York Chicago Pacific
SICs: 3728 Aircraft Parts & Equipment Not Elsewhere Classified; 3724 Aircraft Engines & Engine Parts; 3812 Search & Navigation Equipment; 3764 Space Propulsion Units & Parts

Company Perspectives:

Our new business and manufacturing process strategies will be focused through decentralized organizations. We are using discrete business units and enterprises to implement highly customized improvements in work flow, cycle time reduction, and responsiveness to our customers. Our basic style is built around the principles of simplicity, focus, and trust. We are building our future upon core human values and entrepreneurial behavior. In the end, we will gain lasting competitive advantages from a fast, flexible, committed team-based working environment.

Company History:

Known as a premier supplier of parts for the aircraft industry since the 1940s, Sundstrand Corporation is also a leading manufacturer of industrial gear drives, pumps, and compressors. In recent years the company has worked successfully to strengthen its industrial business, lessening its dependence on military and commercial aerospace.

Company Origins

The earliest predecessor to the modern Sundstrand Corporation is the Rockford Tool Company, established in 1905 in the predominately Swedish town of Rockford, Illinois. The company was founded by an inventor and machinist named Levin Faust, who had invented a small metal chuck for carving furniture. Faust invited two young tool makers, Elmer Lutzhoff and Swan Anderson, to become partners in the venture by investing $500 each.

Although the carving chuck sold well, it failed to provide enough profit to support the company, so the three partners expanded, designing a belt sander which proved much more successful. That year Faust also designed a buffing device that later became the company's most popular product. With sales increasing, the partners decided they needed additional capital for expansion and for funding new products, and they convinced Hugo Olson, an insurance cashier and bookkeeper, to invest $1,000 and become a full partner in the enterprise, serving as its financial advisor.

In 1909 the Rockford Tool Company gained a neighbor in its facilities, the Rockford Milling Machine Company. This company, owned by Oscar Sundstrand and his brother-in-law Edwin Cedarleaf, was also rapidly expanding and retained Hugo Olson as its financial advisor. In 1910 the Rockford Milling Machine Company relocated to a larger building where there was more room for the growing business, and the following year, on Olson's advice, the Rockford Tool Company moved to a building across the street.

In 1914 David Sundstrand, Oscar's brother and an employee at the Rockford Milling Machine Company, developed a ten-key adding machine. Its sales become so brisk that Sundstrand formed a subsidiary, Sundstrand Adding Machine Company, to accommodate the business. Eventually, the Sundstrands constructed a new four-story building for the adding machine venture a block north of its own facility.

The Rockford Milling Machine Company and the Rockford Tool Company continued on separate but related paths for nearly ten years when, in 1926, Olson suggested that the two companies merge. They were, after all, in related fields of manufacturing, and might otherwise have become competitors. All agreed, and in June 1926, the new firm was incorporated as the Sundstrand Machine Tool Company.

In 1927 Hugo Olson was elected president of the company. A few months later, Sundstrand sold its adding machine building and brought all the company's operations under one roof. However, since the company was not adequately structured to effectively market the increasingly popular adding machines, Sundstrand eventually sold the rights to the product line to Underwood-Elliot-Fisher, a manufacturer of typewriters and other office equipment. While Sundstrand continued to manufacture the adding machines for another six years, David Sundstrand left the company to work for Underwood. During this time, in order to raise capital for new investment in plant equipment and engineering talent, the directors of the Sundstrand Machine Tool Company decided to take the company public.

Expansion and then Depression in the 1930s

During the early 1930s, Olson saw to it that Sundstrand would follow a course of expansion through diversification. The first step in this direction was to improve the manufacturing processes of the company's products. While many of Sundstrand's tools and other implements had been carefully made by hand, this method proved increasingly inadequate for the exact tolerances that were required for precision machine tools. In 1932 Sundstrand machinists began to experiment with hydraulic tools that enabled workers to hold pieces of metal more securely so they could be more accurately fashioned into tools. By 1934, all the company's hand-crank machinery had been replaced with hydraulic devices. Also that year, Sundstrand introduced a line of hydraulic pumps for residential oil-burning furnaces. Soon thereafter, the company introduced a complete line of hydraulic pumps, fluid motors, and hydraulic transmission systems.

As a result of the Great Depression, product orders at Sundstrand dwindled, and the company was forced to drastically scale back production and lay off workers. As investment values crashed, Olson announced in Sundstrand's 1932 annual report that "directors deemed it advisable to change the stated value per share from $17.90 to $5.00 per share." However, on the strength of its tools and hydraulics businesses, and its place as a supplier to primary industries, Sundstrand steadily recovered from the Depression. By 1933, the company was restored to profitability and well on the way to satisfying its financial obligations. On February 8, 1936, Olson announced that the company "has no bank loans, unfunded debt, and no past due liabilities."

That year, Sundstrand acquired the American Broach and Machine Company, a tool manufacturer based in Ann Arbor, Michigan. Between 1937 and 1939, Sundstrand introduced several new machine tools, including a successful hydraulic "Rigidmill" and automatic lathe. Furthermore, in 1939, with most of American industry on the road to recovery, demand for feed pumps, fuel units, and controls was high. Sundstrand's fuel unit sales alone quadrupled between 1938 and 1939. By 1940, sales were up to $6.4 million.

Strong growth continued into the early 1940s as the United States began to take a more aggressive stand on international conflicts, particularly Japan's invasion of China. Many industries began to gear up, hoping to supply Britain in its war with Germany, and after Japan's surprise attack on Pearl Harbor, the United States itself was thrust into the conflict. Demand for a full range of machinery skyrocketed.

During World War II, Sundstrand operated two shifts to meet the demand for machine tools and other products, and women were employed in the company's factories for the first time. Under the direction of a government war supply board, Sundstrand turned out aircraft engine and propeller parts, turbine blades, pistons, shell casings, and rifle barrels.

In 1943 Olson told shareholders, "During the year just closed, all our efforts were devoted to the production of equipment for war requirements and this will continue to be our policy until victory has been achieved." In an effort to increase the efficiency of that production, Sundstrand redoubled efforts to improve its machinery and manufacturing processes.

A major product of this research and development effort was the application of hydraulics to aviation engineering. In the final year of the war, and for the remainder of the 1940s, Sundstrand developed several important new products, including a variable displacement hydraulic transmission for aircraft engines. This Constant Speed Drive (CSD) was first applied on the Air Force's ten-engine B-36 bomber, to convert the aircraft's variable engine speed to a constant rate of rotation for driving electric generators. The company's newfound success in aircraft products necessitated a new Sundstrand aviation division. This was a highly profitable line, as aviation and nuclear weaponry became the nation's premier instruments of defense against the threat of Soviet attack. In 1949 Hugo Olson died and his son, Bruce F. Olson, assumed the presidency of Sundstrand.

Postwar Growth

The 1950s were a decade of expansion for Sundstrand. In 1950, with continued strength in machine tools, pumps and aviation products, Sundstrand marked sales of $16.4 million. As Sundstrand's product line gained an international clientele, Bruce Olson moved to establish the Sundstrand International Corporation, headquartered in France, in 1952. That same year the company established an oil pump manufacturing facility in Sweden. In 1954 the company established a separate hydraulics division, with its own manufacturing facility in Rockford. Two years later, Sundstrand opened a plant in Denver, employing 400 people in the manufacture of CSDs for both military and commercial jet aircraft markets. Furthermore, in 1957, Sundstrand built a consolidated machine tool manufacturing facility in Belvidere, Illinois. That year, with sales topping $77.5 million, the Sundstrand Machine Tool Company was listed on the New York Stock Exchange. Two years later, shareholders voted in favor of a proposal to change the name of the company to the Sundstrand Corporation.

During the early 1960s, a team from the company's Hydraulics division experimented with applications of CSD technology on off-highway equipment. To commercialize these applications, the company merged this team with another from its Aviation division to form a fourth operating unit, Hydro-Transmission. In 1965 Sundstrand built a separate facility in LaSalle, Illinois, especially for this division, and began supplying hydrostatic transmission components to the automotive industry. This operation was subsequently expanded to include yet another facility, located in Ames, Iowa.

In 1967 Sundstrand began an aggressive internal and external product and market diversification campaign. Internally, the company created a fifth division--Sundstrand Fluid Handling, established in 1970&mdashø adapt certain Aviation Division products for use in other industries. The division's first product was a jet engine water injection pump, altered to pump other liquids. This new pump, called Sundyne, found many applications, particularly in the petrochemical industry. The company also established centers to produce new axial gear differentials, integrated drive generators, data recorders, cartridge pneumatic starters, and milling machinery.

Externally, Sundstrand acquired United Control, a manufacturer of instruments, aviation entertainment, and avionic and flight data management systems, renaming the company Sundstrand Data Control, Inc. Sundstrand also took over Rudy Manufacturing, a producer of copper tubing, feeders, and coils for heating and cooling systems, renaming it Sundstrand Heat Transfer, Inc. Sundstrand later purchased The Falk Corporation, a leading supplier of enclosed gear drives and couplings.

Reorganization in the 1970s

The 1970s marked a turning point for Sundstrand. After the diversification and acquisition binge of the late 1960s, the company spent much of the next decade consolidating its growth. Rather than increasing sales volume, Sundstrand concentrated instead on raising earnings, shoring up its balance sheet, and maximizing market penetration. Along these lines, Sundstrand divested itself of three non-strategic divisions, selling off its machine tool operation in 1977 and its Sundstrand Compressors unit and fuel oil pump business in 1979.

Also in 1979, Bruce Olson retired, ending a 52-year run in which father and son had built Sundstrand from a small workshop into a $926 million enterprise. Olson was succeeded as chairman by James William Ethington, who served for one year before being replaced by Evans W. Erikson.

With the massive rearmament program initiated by President Jimmy Carter and subsequent increases in the military budget under President Reagan, Sundstrand saw tremendous growth in its defense-related businesses. This enabled the company to establish several more production sites, including facilities in Auburn, Alabama, Singapore, and Moses Lake and Redmond, Washington.

Sundstrand also took the opportunity to acquire four companies principally involved in the defense aviation industry: the Task Corporation, Wulfsberg Electronics, Signatron, and the Sullair Corporation. These companies helped to broaden Sundstrand's position as a full-line military contractor and proved to be astute investments, as government military programs ballooned and project funding exploded. Awash in military contracts, Sundstrand also sought new opportunities to drum up more civilian business, and in 1985 it purchased the Turbomach Division of San Diego-based Solar Turbines, Inc. The acquisition of Turbomach, a manufacturer of gas turbine auxiliary power units, enabled Sundstrand to better compete in the commercial aircraft ground support market.

In 1987 Sundstrand formed a joint venture with Sauer Getriebe AG, combining the hydraulic power systems operations of both companies. While the venture operated 12 manufacturing facilities worldwide, it failed to meet Sundstrand's goals, leading the company to dissolve its interest in the business in 1989.

Legal Problems in the 1980s

In 1988 Sundstrand entered a very dark period in its history. That year, a U.S. defense department auditor named Michael McConnell uncovered evidence of a massive effort by Sundstrand management to defraud the government in its procurement practices. Despite being repeatedly thwarted in his attempts to gain information on the company's government contracts, McConnell succeeded in bringing charges against the company. He charged that executives routinely ordered managers to bid low on government contracts to win those contracts, and then shift cost overruns to other existing projects through a complex accounting procedure.

Sundstrand officials initially denied all knowledge of the scheme but later pleaded guilty to the charges. The company was forced to pay back $115 million and was suspended from bidding on subsequent government contracts until remedial measures were in place. Several Sundstrand executives left the company or were reassigned to other jobs. Chairman Evans Erikson, who was not implicated, stepped down in 1988 and was succeeded by Don R. O'Hare.

In further fallout from the lawsuit, a group of shareholders sued officers and directors for misrepresentation of proxy materials. The suit, which caused considerable damage to the company's relationship with its shareholders, was later settled out of court.

The 1990s and Beyond

In January 1990, Sundstrand acquired the French company Maco-Meudon, a supplier of pneumatic contractor tools to Sullair, and a year later, the company purchased the Milton Roy Company, a manufacturer of metering pumps and analytical instruments. While 1991 revenues increased four percent, to $1.67 billion, earnings dropped five percent, to $108.8 million. CEO Harry Stonecipher--who replaced O'Hare as chairman in 1991--introduced centralized financial controls and began to streamline operations. He trimmed the payroll by 22 percent, to less than 13,000 employees, sold off peripheral businesses, and strengthened Sundstrand's core businesses through acquisitions.

These included the Electrical Systems Division of Westinghouse, a producer of electrical power systems for aircraft. Purchased for $125 million, the unit generated $100 million in annual revenue, and was expected to increase sales at Sundstrand's electric power division by 20 percent. With cuts in defense spending rapidly shrinking Sundstrand's military sales, from 22 percent of total revenues in 1991 to 15 percent in 1992, Stonecipher looked to the commercial airline industry and sales from Sunstrand's industrial division to make up the difference. The industrial division, which manufactured pumps, gears, and compressors, accounted for approximately 40 percent of Sundstrand's revenues.

Stonecipher continued his efforts to sharpen Sundstrand's focus, manage the decrease in military spending, and control production costs. In November 1993 the company announced the sale of Sundstrand Data Control to AlliedSignal, for $195 million; the following year, Sundstrand purchased two small pump manufacturing companies, HMD Group Ltd and Kontro Company. In September 1994 the highly regarded Stonecipher resigned suddenly to head McDonnell Douglas. Don O'Hare, who came out of retirement to guide the company while searching for a successor, stated, "I clearly anticipate that Sundstrand's successful track record will not be interrupted while we identify a new chief executive officer for the next decade." Nevertheless, Sundstrand's stock jumped on speculation that the company was a takeover target.

In February 1995 Sundstrand announced a major restructuring that would include the closing of its plant in Lima, Ohio, the divestiture of two peripheral product lines, and staff reductions in its aerospace engineering team. The company reported an $18 million loss for the quarter due to costs related to the restructuring; at the same time, however, Sundstrand was able to report that industrial sales had jumped 20 percent in the quarter to finally outpace aerospace sales. On the news, the company's stock price reached an all-time high. Later that year Sundstrand sold its subsidiary Spectronics Instruments, Inc., for $19 million, and named Robert H. Jenkins president and CEO. O'Hare stayed on as chairman. For 1995, the company reported net earnings of $123 million on sales of $1.47 billion. The following year, sales reached $1.52 billion.

Jenkins predicted that 1997 sales would increase between ten and 15 percent, but that acquisitions would dilute earnings for the year. "These initiatives should begin to provide benefits as early as 1998, with even greater benefits by the year 2000," he said. Sundstrand planned to increase its capital spending for 1997 by $60 million, to $125 million, primarily in order to provide machinery and equipment for the company's commercial aerospace business, which was growing more quickly than anticipated. Sundstrand's commercial aerospace sales were projected to grow by 50 percent for the year. In April 1997 O'Hare retired, after 46 years of service. He was succeeded as chairman by Robert Jenkins.

Principal Subsidiaries: Sundstrand Aerospace; Milton Roy Company; The Falk Corporation; Sullair Corporation; Sundstrand Fluid Handling.

Sundstrand Corporation History

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