Ingersoll-Rand Company Ltd.
Sales: $8.9 billion (2002)
Stock Exchanges: New York
Ticker Symbol: IR
NAIC: 333415 Air-Conditioning and Warm Air Heating Equipment and Commercial and Industrial Refrigeration Equipment Manufacturing; 333911 Pump and Pumping Equipment Manufacturing; 332991 Ball and Roller Bearing Manufacturing; 333912 Air and Gas Compressor Manufacturing; 333411 Air Purification Equipment Manufacturing; 333412 Industrial and Commercial Fan and Blower Manufacturing; 333120 Construction Machinery Manufacturing
Ingersoll-Rand Company Ltd. (IR) operates as a diversified machinery and industrial equipment concern catering to four markets—Climate Control, Industrial Solutions, Infrastructure, and Security and Safety. Through its 130 facilities across the globe, IR manufactures Schlage locks and security products, Thermo King transport temperature control equipment, Huss-mann refrigeration equipment, Bobcat compact equipment, Club Car golf car and utility vehicles, PowerWorks micro-turbines, and its namesake industrial and construction equipment. U.S. operations account for the majority of company revenues—the remainder of company sales stem from business in Europe, the Asia Pacific region, Latin America, and Canada.
Ingersoll-Rand grew out of the efforts of four late 19th-century inventors. Simon Ingersoll, a farmer and inventor, patented a rock drill in 1871, then sold the rights to his patent; Henry Clark Sergeant improved upon Ingersoll’s drill and persuaded businessman José F. de Navarro to invest in the idea; William Lawrence Saunders developed many diversified forms of the rock drill; and Addison Crittenden Rand also improved rock drills. Rand also was successful in persuading mining companies to substitute the new technology for the traditional hammer and chisel.
In 1870 inventor Simon Ingersoll, who worked at truck farming to support his family, accepted a contractor’s commission to develop a drill that would work on rock. Ingersoll worked on the invention in a New York machine shop owned by entrepreneur José F. de Navarro. Ingersoll received a patent on the rock drill in 1871, but the new tool did not stand up to New York’s rocky streets.
Henry Clark Sergeant, one of the partners in the machine shop, made an important change in the drill design. He separated the front head from the cylinder, since a drill in two pieces could better resist breakage. Sergeant then persuaded de Navarro to buy Ingersoll’s patent, and de Navarro organized the Ingersoll Rock Drill Company in 1874, with Sergeant as its first president. Ingersoll, who was forced to sell most of his patents and work halfheartedly at farming to feed his family, died nearly destitute in 1894.
Henry Clark Sergeant, however, was able to turn ideas into profitable businesses. Sergeant had been inventing since he was a teenager, and had secured his first patent when he was 20. In 1868, at the age of 34, he had arrived in New York City where he started a machine shop that specialized in developing the ideas of other inventors. As the business grew, he took a partner and moved into de Navarro’s shop. After de Navarro formed the Ingersoll Rock Drill Company, Sergeant worked for several years to improve Ingersoll’s drill by using compressed air rather than steam to operate it.
In 1885 Sergeant developed a completely different rock drill and formed the Sergeant Drill Company to manufacture it. In 1888 he merged the two companies, becoming president of the Ingersoll-Sergeant Rock Drill Company. After several years he became a director and devoted himself to inventing.
At the same time Ingersoll was patenting his rock drill in 1871, Addison Crittenden Rand moved to New York City from Massachusetts. Rand’s brother, Alfred T. Rand, had been instrumental in founding the Laflin & Rand Powder Company, a mining firm. Addison Rand had formed the Rand Drill Company to develop a rock drill and air-compressing machinery for his brother’s company. Rand’s firm developed the Little Giant tappet drill and the Rand Slugger drill and marketed them effectively, convincing mining companies to switch from hammer and chisel to rock drills with air compressors.
Rand was known for his paternalistic approach to business. He carefully selected his employees and trained them for skilled positions. Rand avoided unions, and was personally affronted when employees at his Tarrytown, New York, plant struck in 1886. The plant was shut down for a year before Rand would agree to a settlement.
The Formation of IR: 1905
In 1905 Michael P. Grace—a brother of William R. Grace, who founded W.R. Grace & Company—brought Ingersoll-Sergeant Drill Company and the Rand Drill Company together. The two companies had specialized in slightly different segments of the drill market—Ingersoll-Sergeant specialized in construction work while Rand focused on underground mining—and their interests were complementary. The new company was incorporated as the Ingersoll-Rand Company (IR) in June 1905 and billed itself as “the largest builder of air power machinery in the world.” The Grace family owned the largest single block of stock, and a Grace has served on the IR board ever since.
William Lawrence Saunders became the first president of the company. Saunders, an engineer, had developed a compressed-air drilling apparatus for subaqueous use while in his 20s. The widely used invention made development of Russia’s Baku oil fields possible. Saunders had inspected an underwater rock drilling and blasting project himself, diving down to it so he could design a subaqueous drill appropriate for the job. He was active in engineering societies, and established an award given by the American Institute of Mining and Metallurgical Engineers to recognize achievements in mining methods. He also established Compressed Air, the company’s industrial trade journal, in 1896 and served as its editor. In addition, Saunders was a two-time mayor of North Plainfield, New Jersey.
As president of Ingersoll-Rand, Saunders expanded upon the company’s original line of rock drills and air compressors. He promoted development of diverse types of these machines. He also led IR into related areas of the tool business. IR expanded into pneumatic tools in 1907 by acquiring the Imperial Pneumatic Tool Company of Athens, Pennsylvania. In 1909 the company bought the A.S. Cameron Steam Pump Works and entered the industrial pump business. In 1913 he added centrifugal pumps to IR’s product list. Under Saunders IR also acquired the J. George Leyner Engineering Works Company. This firm had developed a small, hammer-type drill that could be operated by one man. IR began to produce the jackhammer in 1913, and it quickly became a popular item.
Advances Under the Leadership of Doubleday: 1913–55
Saunders moved to the board of directors in 1913 and was replaced as president by George Doubleday. Doubleday was determined to make Ingersoll-Rand the leader in its product areas—drills, air compressors, jackhammers, pneumatic tools, and industrial pumps. Doubleday led IR for 42 years.
Doubleday carefully adhered to the principles that Saunders had used to guide the company, using IR’s four major plants in Phillipsburg, New Jersey; Easton and Athens, Pennsylvania; and Painted Post, New York, to handle increasing business. In these locations, IR was the major employer. Community life centered on the firm: many workers lived in company-owned houses, and community and school events were held in company buildings. Doubleday hired boys off the farm and trained them to become skilled machinists through a seven-year apprenticeship. These artisans accepted the company’s credo of pride in personal work, and only a handful of quality-control specialists were needed. Doubleday charged a premium price for the high-quality machinery this system produced.
Little is known about the company itself under Doubleday or about Doubleday’s personal life—he refused even to release a photograph of himself to the press—and he provided a bare minimum of information about IR. Under Doubleday the company never released a quarterly report and its annual report was a single folded sheet of paper containing only the figures the New York Stock Exchange required.
Advances were made in the firm’s products during the Doubleday years, however. In 1933 IR introduced a new portable-compressor line, which was improved during the 1950s with the introduction of the revolutionary sliding-vane rotary portable unit. IR began to compete in the “big drill” field in 1947, when it introduced the Quarrymaster, which was used in quarrying, open-pit mining, and excavation. A self-propelled jumbo drill, the Drillmaster, was introduced in 1953, followed by the Downhole drill in 1955. Doubleday also purchased General Electric’s centrifugal-compressor business in 1933, to become the leader in that sector of the business. In 1948 the company designed the first natural gas transmission centrifugal compressors.
We are dedicated to driving shareholder value by achieving dramatic growth by focusing on innovative solutions for our customers, operational excellence by pursuing continuous improvement in all of our operations, and dual citizenship by bringing together the talents, energy, and enthusiasm of all IR people.
When Doubleday retired in 1955 Ingersoll-Rand was indeed on sound financial footing. The company had more than $100 million in cash and no debt. With an operating profit margin of 37 percent and a net profit margin of 19 percent, it had paid a dividend every year since 1910, and return on stockholders’ equity was 23 percent.
Doubleday had reached those impressive numbers, however, by abandoning the marketing orientation that he had originally brought to the job. By the end of his tenure he was 89 years old, and had become too conservative. The company’s capital was the result of Doubleday’s unwillingness to upgrade the company’s plants to keep manufacturing costs low, to promote research and development to retain IR’s technological edge, or to maintain sufficient foreign parts inventory to keep equipment running overseas. He also eschewed diversification outside of IR’s basic product lines.
Doubleday died in 1955, and an interim management team followed his policies for another four years. Robert H. Johnson was named chairman of the company in 1959. At 58, Johnson had spent 35 years with the company he had joined as a salesman.
Changes Leading to Diversification: 1960s–70s
Johnson cut the company’s premium prices to remain competitive. He also spent $25 million to increase parts inventories abroad, and thereby doubled sales overseas in five years; invested in research to promote a return to technological leadership; and increased spending for plant and equipment from an approximate average of $2 million a year to $15 million in 1965. Johnson put the company’s excess cash—more than 65 percent of IR’s total assets in 1966—to work through a policy of careful acquisitions. He invested, for example, in Lawrence Manufacturing Company, which specialized in producing mechanical moles for urban underground utility tunneling.
Johnson’s successor as CEO, 52-year-old William L. Wearly, gave those policies new momentum. Wearly, who took the top position in 1967, was the first leader at IR who had not grown up with the company, another sign that it was leaving its conservative past behind. Wearly came to IR as a consultant in 1962 after leaving the presidency at Joy Manufacturing. With Wearly came a new generation of managers: President D. Wayne Hallstein was 49, while the four newest vice-presidents were under 44. The youth of the new management team was no accident; Johnson had decided that managers who were over 55 had been too thoroughly indoctrinated in the Doubleday method of doing business and bypassed them completely.
Wearly reaped the advantages of Johnson’s investment in plant and equipment, which allowed Ingersoll-Rand to increase sales—especially abroad—because of increased manufacturing capacity. Wearly also increased capacity through overseas acquisitions in England, Italy, Canada, South Africa, and Australia.
Wearly then took IR into new, diversified areas to help offset the cyclical nature of the capital goods market. The acquisition of The Torrington Company in 1968, which brought needle and roller bearings, knitting needles, metal-forming machines, universal joints, and roller clutches to the company catalog, was especially important. So was Wearly’s 1974 acquisition of the Schlage Lock Company, which produced locks, door hardware, and home and business security devices. Both acquisitions became consistent moneymakers for IR.
Wearly had clearly moved away from the company’s tradition of operating paternalistic plants in small towns. By the early 1960s IR operated 36 plants in the United States and 17 abroad. One of them, its Roanoke, Virginia, plant, became the first factory in the country to use computerized direct numerical control of a production line. The plant used a computer to run machine tools and to automatically move parts from one tool to another on conveyer belts without human assistance. The new Roanoke facility took over much of the capacity of the old Athens, Pennsylvania, plant, which had been crippled by strikes and rising labor costs. In 1959 the company had threatened to leave Athens if the union did not make significant concessions on work methods, and IR had won the new five-year contract it wanted. A decade later those union concessions were not forthcoming, and the Athens plant was substantially bypassed—by a mechanized system instead of by other workers.
Overcoming Problems: 1970s–80s
Wearly’s policies seemed destined to pay off in the early 1970s, when factors such as the search for new energy sources, Mideastern oil money, growing East-West trade, and Third World industrialization led to increased demand for almost all Ingersoll-Rand products. Five years later, the boom turned into a bust. Capital spending had slowed after the energy crisis of 1973. Coal and railroad strikes hurt the company because it was still a major supplier of coal-mining machinery. Wearly said that President Jimmy Carter’s human rights emphasis hurt business in the Soviet Union and Brazil. All of these factors left IR with too much capacity and too much inventory.
Wearly retired in 1980 and Thomas Holmes, a 30-year employee, took over as CEO. Holmes convinced Clyde Folley, a member of Price Waterhouse’s governing board who had worked on the IR account, to become chief financial officer. The two executives faced the global recession and resulting fall in earnings and sales, especially of oil drilling and construction equipment. Overall in 1983 IR lost $112 million, the first loss it had suffered since the 1930s.
- Michael P. Grace acquires both Ingersoll-Sergeant and the Rand Drill Co.; the two companies merge together to form Ingersoll-Rand Co.
- The company acquires General Electric’s centrifugal-compressor business.
- IR purchases Schlage Lock Company.
- A partnership is formed with Dresser Industries.
- IR purchases Clark Equipment Co.
- Newman Tonks Group plc and Thermal King are added to IR’s holdings.
- Hussmann International Inc. is acquired.
- IR sells its Engineered Solutions business to The Timken Company.
As a result, the company closed 30 production plants and cut staff by one-third. The company’s tight cash supply was spent only in the areas where returns were highest—bearings, locks, and tools—rather than on the traditional focus areas of the company—engineered equipment, coal mining equipment, and air compressors. Holmes and Folley tied management compensation to return on assets instead of sales to promote more efficient asset use, and centralized inventory controls.
Holmes, Folley, and Theodore Black then initiated joint ventures with competitors. One of the most important of these ventures was Dresser-Rand, a 50-50 partnership formed in 1986 with Dresser Industries, another major mining- and oil-equipment company. Almost immediately successful, Dresser-Rand turned a profit in only its second year of operation. In 1987 IR formed another joint venture in mining with B.R. Simmons. Folley said the joint ventures allowed the company to cut staff and losses while competing more effectively with Japanese and West German companies. Pooling talent also helped the firms stay current technologically.
IR had once again weathered recession by the time Holmes stepped down in 1988. His successor, Theodore Black, was able to focus on significant positive aspects of the company.
IR continued to emphasize new product development, introducing improved home air compressors, new papermaking technology, and a new type of camshaft in 1988. IR also continued to make appropriate acquisitions, including a Swedish company that designed waterjet cutting systems, a Canadian manufacturer of paving equipment, and a German maker of special-purpose hydraulic rock drills, in 1988. In 1990, the company purchased The Aro Corporation, one of its larger acquisitions of the period. IR continued to utilize state-of-the-art computerized production and design techniques. New techniques that utilize manufacturing cells to produce a product from start to finish with much less labor than a production line were able to produce more, higher-quality goods.
Another recession during the early 1990s barely registered on IR’s balance sheet; 1991 profits fell 19 percent to $150.6 million, while the company’s competitors posted losses—$404 million for Caterpillar Inc. and $36 million for The Timken Company. Part of the credit for IR’s success was attributed to its geographical diversity. In the early 1980s only 30 percent of the company’s sales were attributable to products manufactured outside the United States, but through a variety of acquisitions thereafter that percentage had increased to 70 percent by 1992. The Dresser-Rand partnership also was paying off huge dividends on the home front. The joint venture’s sales exceeded $1.2 billion by 1991 and more than one-quarter (or $40 million) of IR’s 1991 profits were generated from Dresser-Rand.
Dresser Industries and Ingersoll-Rand recognized another possible area of cooperation in 1991 within their then-competitive industrial pump manufacturing operations. The companies agreed in May of that year to combine their pump divisions into one organization that could better compete against competitors in Japan and Germany. The new firm would have annual sales of $800 million and 8,000 employees worldwide, and would dominate the pump manufacturing industry in the United States. The U.S. Justice Department initially opposed the joint venture under the Sherman Antitrust Act. Dresser and IR countered by contending that the Justice Department had to take the impact of foreign competition into account. After lengthy negotiations, in August 1992 the Justice Department agreed to let the merger go through provided that the two companies divest about $10 million of their pump operations to mitigate its impact on domestic competition. The newly formed company was called Ingersoll-Dresser Pump Company and Ingersoll-Rand owned 51 percent of it.
Key Acquisitions: 1990s and Beyond
In September 1993, Black retired as chairman and CEO and was replaced by James E. Perrella, a 16-year veteran of the firm. Perrella continued to invest heavily in research and development, shelling out a record $154.6 million in 1994 alone, as well as to make strategic and significant acquisitions. Several smaller acquisitions in 1993 and 1994 served to increase IR’s presence in the European market and brought additional complementary businesses into the company fold. These moves included the 1994 acquisitions of the France-based Montabert S.A., a manufacturer of hydraulic rock-breaking and drilling equipment, for $18.4 million and the Ecoair air compressor operation from MAN Gutehoffnungshütte AG for $10.6 million. In 1994 IR also invested $17.6 million in a joint venture with MAN to manufacture airends, an important component in certain industrial air compressors.
One of IR’s most important acquisitions of this period came the following year when it purchased Clark Equipment Company, the South Bend, Indiana, manufacturer of small and medium-sized construction machines. Perrella was seeking a major acquisition—a firm that was first or second in its market with sales of $500 million to $1.5 billion—and Clark became a prime candidate. A Clark acquisition was seen as a particularly complementary one, given Clark’s focus on construction and IR’s construction-related lines, which comprised only about 18 percent of company sales prior to the takeover. Clark became an even more attractive target in early March 1995 when it sold its half-interest in VME Group N.V., an earthmoving equipment manufacturer, to its partner, Volvo AB, for $573 million.
Before the acquisition was completed, however, IR had to fend off Clark’s management, which did not wish to relinquish control. After Clark’s board rejected the first offer, IR made a hostile bid of $1.3 billion late in March. Clark then brought suit against IR, claiming that the takeover would violate antitrust laws; IR countered by taking steps to oust Clark’s board at the annual meeting to be held in early May. In early April, Clark reluctantly accepted an increased offer of $1.5 billion, which many analysts viewed as fair. Through the acquisition, IR gained such Clark operations as Blaw-Knox, the world’s leading manufacturer of asphalt road paving equipment; Melroe, the world leader in skid-steer loaders; and Club Car, the second largest golf car manufacturer in the world.
Perrella’s tactics bode well for the company’s finances. In 1995 sales reached a record $5.7 billion, an increase of 27 percent over the previous year. Operating income also grew at a significant clip. Several major acquisitions followed the Clark purchase. During 1997 IR bought Newman Tonks Group plc, an architectural hardware producer based in the United Kingdom. The firm also made a $2.56 billion cash purchase of Thermo King, a division of Westinghouse Electric Corp. that operated as the largest transport temperature control manufacturer in the United States.
By 1999, IR sales were nearing the $8 billion mark, a sign that the firm’s acquisition strategy was indeed paying off. Perrella retired that year, leaving Herbert Henkel to take the helm. In a September 1999 Forbes article the new CEO remarked, “We have a good foundation. Now we have to build a skyscraper.” Like his predecessor, Henkel made growth a key priority.
As such, IR continued to add to its product arsenal while making a few significant divestments. During 2000, the company sold its Ingersoll-Dresser pump business for $775 million and also rid itself of Corona Clipper, a hand tool manufacturer. In 2003, the company’s engineered solutions arm was sold to The Timken Company for $840 million.
In June 2000 Hussmann International Inc.—a leading refrigeration manufacturer—became part of the IR family in a $1.7 billion deal. The firm also purchased lock manufacturer Kryptonite Corp., Netherlands-based Grenco Transportkoeling B.V., National Refrigeration Services Inc., Taylor Industries Inc., and several infrastructure-related firms.
During the early years of the new millennium IR made several internal changes. The company began an aggressive cost-cutting program in 2000 that included the closure of 20 manufacturing plants. The firm also reincorporated in Bermuda in a move that gave IR several tax advantages. At the same time, the company was hit by a slowdown in global economies, which began to take a toll on earnings. Nevertheless, IR appeared to be well positioned to withstand international economic downturns. With a diverse line of products and a solid business strategy in place, IR management felt it would progress well into the future.
Aro International Corporation; Clark Equipment Company; Bobcat Corporation; Blaw-Knox Construction Equipment Corporation; Thermo King Enterprises Company; Club Car Inc.; Hussmann International, Inc.; IDP Acquisition, LLC; Ingersoll-Rand International Holding Corporation; Ingersoll-Rand International, Inc.; Ingersoll-Rand Transportation Services Company; Schlage Lock Company; Newman Tonks Holdings, Inc.; Steelcraft Holding Company; Taylor Industries, Inc.; Thermo King Corporation; The Torrington Company.
Caterpillar Inc.; Emerson Electric Company; York International Corporation.
Byrne, Harlan S., “Ingersoll-Rand: Leaner and Poised to Build Stronger Profits,” Barron’s, June 8, 1992, pp. 39–40.
Deutsch, Claudia H., “Ingersoll-Rand to Buy Westinghouse’s Thermo King Unit,” New York Times, September 16, 1997, p. D6.
“Ingersoll-Rand Acquires Kryptonite Corp.,” Doors and Hardware, November 2001, p. 75.
“Ingersoll-Rand Seeks $1 Billion in Acquisitions,” Industrial Distribution, March 2000, p. 32.
“Ingersoll-Rand to Acquire Hussmann,” Appliance, July 2000, p. 16.
Johnson, James P., New Jersey: A History of Ingenuity and Industry, Northridge, Calif.: Windsor Publications, 1987.
Klebnikov, Paul, “A Traumatic Experience: Ingersoll-Rand Prospers Today Because It Stumbled So Badly a Few Years Ago,” Forbes, January 18, 1993, pp. 83–84.
Koether, George, The Building of Men, Machines, and a Company, Woodcliff Lake, N.J.: Ingersoll, 1971.
Lipin, Steven, “Clark Accepts Ingersoll Bid of $1.5 Billion for Takeover,” Wall Street Journal, April 10, 1995, pp. A3, A5.
Nelson, Brett, “Ingersoll-Rand Gets a Makeover,” Forbes, September 6, 1999, p. 70.
—Ginger G. Rodriguez
—updates: David E. Salamie and Christina M. Stansell