Flanders Corporation

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Flanders Corporation

2399 26th Avenue North
St. Petersburg, Florida 33734
U.S.A.
Telephone: (727)822-4411
Toll Free: (800) 800-2210
Fax: (727) 823-5510
Web site: http://www.flanderscorp.com

Public Company
Incorporated: 1950 as Flanders Filters, Inc.
Employees: 2,166
Sales: $182.78 million (2003)
Stock Exchanges: NASDAQ
Ticker Symbol: FLDR
NAIC: 333412 Industrial and Commercial Fan and Blower Manufacturing; 551112 Offices of Other Holding Companies

Flanders Corporation designs and manufactures air filters that are used in residences, commercial office buildings, and by a broad range of industries with a need for maintaining specialized manufacturing environments. Aside from its residential and commercial heating, ventilation, and air-conditioning systems, Flanders supplies high-performance air filtration systems to industries associated with semiconductor manufacturing, pharmaceutical production, and nuclear power and materials processing. The company also designs and manufactures most of its own production equipment, as well as the glass-based air filter media for most of its products. Flanders' customers include Wal-Mart Stores, Abbott Laboratories, Motorola, Merck, Upjohn, and Home Depot.

Origins

Flanders was founded as Flanders Filters, Inc. in 1950. The company was started by A.R. Allan, Jr., who formed the enterprise in Riverhead, New York, the home of Flanders for the first two decades of its existence. Allan created the company to manufacture technologically advanced filters that were used for specific industrial applications. Flanders' first filters were sold to operators of atomic power reactors and nuclear fuel manufacturing facilities. In the ventilating systems of such plants, Flanders' filters served as safety devices that played a critical role in radioactive containment, removing small irradiated particles that otherwise would be released into the atmosphere. From its founding to the late 1950s, Flanders relied almost exclusively on supplying filters to atomic power reactors and nuclear fuel manufacturing plants, establishing itself as one of the first companies to compete in the market for highly specialized filters.

Given the limited demand for the type of filters Flanders made during its first decade, the company's growth potential was restricted. The design and production of filters for nuclear power facilities, however, did position the company on the vanguard of technological advancements in filter development. As new demands for sophisticated filters emerged, the potential for Flanders' growth increased. Such was the case during the 1960s, when researchers discovered that the manufacturing process used by film developers could be made significantly more efficient by incorporating high efficiency particulate air (HEPA) filters and lower-efficiency filters into production facilities. Flanders responded to the discovery by expanding its filtration product line to cater to the new demand, marking a turning point in the company's development.

The diversification into designing and manufacturing HEPA and lower-efficiency filters added significantly to Flanders' growth potential. The lower-efficiency filters, which eventually became known as ASHRAE-grade filters, increased efficiency standards for manufacturers involved in numerous other industries, giving Flanders its first exposure to widespread market demand. The company's production output increased substantially, driving its revenues upward and stretching its manufacturing capacity to the limit. The growth sparked by the foray into HEPA and ASHRAE-grade filters also led to an important decision made by the company's management; the decision to vertically integrate the company's operations as it grew. As part of the production process for its filtration products, Flanders used paper media consisting of a nonwoven matrix of glass microfibers. By the mid-1960s, the company was producing its own media, giving it a level of self-sufficiency that distinguished it from nearly all its competitors.

Flanders experienced its first sense of mass-market appeal for its products during the 1960s. The discovery of the benefits of using high-performance filters in the film developing industry led participants in other industries to consider incorporating sophisticated ventilating systems in their facilities. Flanders, using its skills in developing filtration products designed for radiation containment to diversify into answering the needs of film developers, was poised to reap the benefits of the widespread interest in high-performance filters. The company's business grew encouragingly, creating a bustle of activity at the Riverhead manufacturing plant. Before the end of the decade, the company was pressed to meet supply with demand, forcing management to consider the expansion of the Riverhead facility or the erection of a new, larger facility. Management, which by this point included Thomas T. Allan, who joined Flanders in 1964, decided to build a new facility, a decision that also led to the company's abandonment of Riverhead as its headquarters. Beginning in 1968, Flanders began to move its entire operation from Riverhead to Washington, North Carolina. The move took almost two years, ending in 1969 when the company settled into its new, 65-acre site in Washington.

By the time the move to Washington was completed, Flanders had its second generation of management in place. Thomas Allan, who would steward the company for the next two decades, built upon the foundation established during the 1960s. By the mid-1970s, the growth of Flanders' filter business required Allan and his team to confront the company's need for additional manufacturing capacity. The Washington plant was expanded in 1978, its tenth year in operation, and expanded again in 1984, further testifying to the increasing strength of the company's business. The efforts to vertically integrate Flanders' operations recorded progress as well, resulting in the establishment of a second paper mill abutted by additional warehouse space and a new sheet metal work area.

Flanders in the 1990s

Flanders' success during its first four decades of business established its reputation as a respected manufacturer of high-performance filters. The company's manufacturing activities were almost exclusively restricted to HEPA and ASHRAE-grade filters, however, confining the company within a niche of the filter industry. By the beginning of the 1990s, the company had yet to record more than $20 million in annual sales. Flanders' stature, both physically and financially, did not begin to increase substantially until the company broke free from its niche and diversified into other areas of the filter industry. This turning point in the company's history occurred 45 years after its inception, ushering in a new era of accelerated growth.

One of the principal architects of Flanders' strategic diversification program was Robert R. Amerson. Amerson joined Flanders in 1987 as the company's chief financial officer. The following year, he was appointed chief executive officer and president of the company. The decision to substantially expand Flanders' product line was made in the mid-1990s, long after Amerson had established himself in his leadership position. The move toward diversification was triggered in December 1995, when Flanders was acquired by a company named Elite Acquisitions, Inc. At the time of the acquisition, Elite, which was formed in 1986, operated as a publicly traded corporate shell without any significant assets. In January 1996, Elite formed a new subsidiary named Flanders Corporation (Flanders Filters, Inc. became an Elite subsidiary one month earlier) and merged with the subsidiary, leaving Flanders Corporation as the parent company for Flanders Filters, Inc.

The corporate maneuverings signaled the beginning of Amerson's campaign to diversify, a campaign to be conducted primarily by acquiring other companies involved in the filter industry. In May 1996, Flanders completed its first major acquisition, purchasing a Bath, North Carolina-based company named CSC, which operated as a charcoal filter manufacturer. CSC's activated charcoal filters were used in the containment of potentially dangerous biologically engineered microorganisms. One month after acquiring CSC for $4.5 million, Flanders spent $2.2 million for a Stafford, Texas-based company named AirSeal that produced mid-range custom filter housings for heating, ventilation, and air-conditioning (HVAC) systems. In September 1996, Flanders completed the largest acquisition in its history, paying $25.2 million for Precisionaire. A manufacturer of filter products for commercial and residential HVAC systems, Precisionaire operated manufacturing facilities in Bartow, Florida; Terrell, Texas; and Auburn, Pennsylvania.

The acquisitions completed in 1996 broadened Flanders' market exposure, driving its sales upward. Annual revenues during the early 1990s hovered around $20 million, rising to $38 million in 1995, the year before Flanders embarked on its acquisition spree. In 1996, the company's sales soared to $73 million. Flanders' net income for the year totaled $3.5 million, or more than ten times the amount posted four years earlier. Physically, the company had recorded robust growth as well, with the acquisitions of 1996 giving Flanders five separate manufacturing plants. By the end of the year, the company operated seven production facilities ranging in size from 40,000 square feet to more than 200,000 square feet.

Company Perspectives:

Flanders Corporation, headquartered in St. Petersburg, Florida, designs, manufactures and markets precision high-performance filtration products. Flanders is a vertically integrated company, with nine filter assembly plants, two metal working facilities, and a paper mill among its thirteen operating sites. The Company's air filtration products are critical to many high-technology industries, including semiconductors, ultra-pure material handling, biotechnology, pharmaceutical production, synthetics manufacturing, and the containment of airborne radioactive particulates in nuclear facilities.

Flanders' acquisition campaign continued after 1996, as the company sought to increase its product line and to strengthen its existing businesses. At the end of 1997, after completing several small acquisitions during the year, the company secured a $30 million credit line with SunTrust Banks to finance further acquisitions. The money was to be used to purchase as many as five companies in 1998. One of the biggest acquisitions completed in 1998 was the purchase of San Diego-based Eco-Air Products, Inc., an air filter manufacturer, in June. The transaction, valued at nearly $20 million, was hailed by Amerson. "Eco-Air is a regional powerhouse on the West Coast, our weakest domestic sales territory," he explained in a June 30, 1998 interview with Business Wire. "In addition, their four additional manufacturing facilities, including a large plant in Mexico, give us complete coverage of the United States."

Growth Slowing in the Early 21st Century

As Flanders entered the 21st century, the effect of the company's mission to diversify through acquisitions was apparent in its stature, both physically and financially. The less than $40-million-in-sales company that existed before the decision to diversify was made in late 1995 grew to a company with nearly $200 million in sales by 2000. Physically, the commitment to acquire had created a company of genuine national scope, with ten separate manufacturing facilities in operation, stretching from Bartow, Florida, to San Diego, California.

During the first years of the new decade, Flanders focused its development efforts on creating air filtration systems designed to maintain clean air in residential and commercial settings. The growth of this market niche, which after the terrorist attacks of September 11, 2001, was fueled by concerns about anthrax and other microbes, was expected to accelerate the expansion of the global air filter market. According to the McIlvaine Company, a leading industry analyst, the worldwide market for air filters was expected to grow from $3.5 billion in 2000 to $5 billion by 2005. Flanders' executives also were looking for growth from other segments of the air filter market, including the increasing use of higher-performance filters in commercial and residential spaces.

Against the backdrop of expected industrywide growth, Flanders recorded static sales during the early years of the 21st century. After generating $194 million in sales in 2000, the company's sales volume decreased for three successive years, slipping from $189 million in 2001 to $184 million in 2002 and $182 million in 2003. The anemic sales growth stood in sharp contrast to the robust gains recorded during the late 1990s, giving Amerson and his team some cause for concern. As the company prepared for the future, it hoped to reverse the trend of waning sales growth and return to the dynamic progress achieved during the late 1990s.

Principal Subsidiaries

Flanders Filters, Inc.; Flanders Precisionaire Inc.

Key Dates:

1950:: Flanders Filters, Inc. is founded in Riverhead, New York.
1968:: Flanders moves to larger manufacturing facilities in Washington, North Carolina.
1995:: Flanders is acquired by Elite Acquisitions, Inc., triggering accelerated expansion; Elite merges with Flanders the following year.
1996:: Flanders' acquisition spree begins with the purchase of three filter companies.
1998:: Flanders acquires Eco-Air Products, Inc.