Schlage Lock Company

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Schlage Lock Company

1915 Jamboree Drive, Suite 165
Colorado Springs, Colorado 80920-5377
U.S.A.
Telephone: (719) 264-5300
Fax: (719) 264-5382
Web site: http://www.schlagelock.com

Wholly Owned Subsidiary of Ingersoll-Rand Company Ltd.
Incorporated: 1920 as Schlage Manufacturing Company
Employees: 800
Sales: $151 million (2005)
NAIC: 332510 Hardware Manufacturing

Schlage Lock Company is a leader in developing security devices for residential and commercial markets. Schlage Lock operates as part of Ingersoll Rand Security Technologies, a division of Ingersoll-Rand Company Limited, a global innovator and solutions provider featuring a portfolio of worldwide businesses, including refrigeration equipment, locks and security systems, construction equipment, industrial equipment, heavy equipment, and golf carts.

ORIGINS

The Schlage Manufacturing Company was founded in 1920 by Walter Reinhold Schlage, a German-born engineer and inventor renowned for creating the bored cylindrical lock. As a young boy, his father recognized his mechanical aptitude and worked to have his son admitted to the Carl Zeiss Optical Works in Jena, Germany. While an apprentice there, Walter Schlage learned drafting, applied mechanics, and engineering.

After four years Schlage graduated with a special award of merit and then traveled to London where he found work as an instrument maker for Hileger, Ltd. Following a one-year stint in England, he emigrated to the United States where he became employed with the Western Electric Company at age 23. During his nonworking hours, Schlage began experimenting with lock mechanisms and electrical switching ideas. One of the light switching mechanisms in use involved a two push-button style, where one button was pushed to turn on the lights and another was pushed to turn off the lights. Schlage was developing his own idea, however, for controlling room lights using the doorknob, which would alleviate any fumbling in the dark for light switches located on the wall. In 1909, he received his first patent for an invention that enabled a light switch to be switched on and off by turning the doorknob. Schlage followed this success in 1910 with a patented lock that operated by pushing and pulling on the knob. Pursuing his interest in electricity and mechanics, he received patents in 1911 and 1913 for developing an indicating push-button for an electrical door bell.

Schlage then returned his attention to door locks, patenting in 1916 the Throw-Lock concept, a lock that could be unlocked by tilting the knob. His interest in developing a more practical door lock led him to focus on two primary features. First, he believed that the entire lock structure had to be constructed out of sheet metal to compete with other lock manufacturers of the day. Second, the lock should be designed for ease of installment by merely boring two cylindrical holes into the door, one a cross bore, and the other, an edge bore. This design would have the advantage of being both more cost-effective for builders to purchase and easier to install. On April 12, 1920, Schlage applied for his first cylindrical door lock patent, which described a lock made out of assembling the knob, spindle, and latch retractor into one unit within a circular housing. He received his patent on May 22, 1923.

In 1920, Schlage left Western Electric and formed and incorporated the Schlage Manufacturing Company in San Francisco, California, where he also recruited three businessmen, C.P. Griffin, J. Thomkins, and J.H. Morgan, as his board of directors. The first board meeting was held on August 28, 1920. The three businessmen were the first owners of the company's capital stock, each with ten shares with a par value of $1.00 per share.

EARLY 20TH CENTURY: REFINING DESIGNS AND ACCELERATING PRODUCTION

Ever refining his lock design, Schlage filed a second patent for the locking push-button door lock on October 5, 1920. The patent described a cylindrical lock design with a locking mechanism operated by pushing a button in the center of the doorknob to lock and turning the interior knob to unlock. He received his patent for the locking push-button door lock on April 8, 1924. With improvements in his push-button design, Walter Schlage abandoned his previously patented Throw-Lock idea in 1921. The push-button design was the basis for his ninth application for a patent relating to door locks and became the mainstay of the company's business for years to come.

In 1922, the first Schlage board of directors approved the push-button design and in 1923 the company went into full-scale production of the new cylindrical lock with a push-button in the center of the doorknob. The company grew quickly from six employees and several punch presses to 100 employees working two shifts producing almost 20,000 locks per month. In 1926, Schlage opened a new plant in San Francisco, and on December 20, 1927, he received another patent for a key-activated rotatable tumbler lock. The new design represented another step forward, as all previous Schlage locks were non-key operated.

Despite the opening of the new plant, the company, now known as the Schlage Lock Company, was overextended and operating at a deficit in 1926. Beset with financial difficulties, Schlage urgently appealed to Charles Kendrick, a local businessman and manufacturer, who agreed to make a substantial investment in the company. In 1927, Kendrick then became president of Schlage Lock Company, forming a prosperous alliance with the inventor Walter Schlage that served the company well in the years ahead. By 1929, Kendrick wiped out the deficit of more than $80,000, and netted $108,330 in 1928 against $81,157 in 1927 and a net loss of $85,585 in 1926. The company was seeing considerable success in marketing a new lock for households and offices, with a corresponding rise in profits.

In October 1929, the Schlage Lock Company's board of directors also voted to offer common stockholders the right to subscribe for new common treasury stock at $10 a share on a basis of one share for each ten shares held. The purpose of the stock sale was to raise new capital for purchase of machinery and other expenses with the aim of developing and manufacturing a new line of locks for office buildings, hotels, and other businesses. As a result of the stock offering, in December 1929, the company announced that it was signing contracts for new factory buildings, which were anticipated to increase plant capacity by a third. The company believed that it was an especially favorable time for expansion and that it would ensure the growing company's continued prosperity. Further, alluding to the 1929 stock market crash, a company spokesman was quoted in the December 16 issue of the Wall Street Journal as follows: "We are very glad to be able to do our bit in contributing to the efforts being made by Mr. Hoover to insure continued prosperity for 1930." Company officials placed the cost of aggregate expansion, including expenses for new construction and installation of new machinery, at between $50,000 and $100,000.

COMPANY PERSPECTIVES

When you install Schlage products, you know your home is secure. After all, we're the leader in security devices, trusted for more than 85 years. When you safeguard your home and family with Schlage, you ensure your security as well as your peace of mind. Our legendary quality and reliability let you put your worries aside and focus on other things.

In March 1930, the company reported a steep decline in net profits from $95,319 in 1928 to just $42,337 in 1929. Earnings were affected by the collapse in the building industry and by the stock market crash, which drastically reduced the company's operations. Nevertheless, the Schlage Lock Company weathered the financial crisis of the Great Depression, emerging as a more profitable company in the 1940s. In 1946, Walter Schlage died, leaving the company he founded in the hands of his successors, who steered the firm through more profitable times.

POSTWAR PROSPERITY

In 1958, a labor strike together with a slow building year lowered the company's net profits by about 10 percent from the preceding year, from $1,478,337 to about $1,330,000 in 1957. Nevertheless, an unexpected year-end sales increase helped to counter the effects of the six-week strike in the summer of 1957. The year 1958 also started out well, with the company anticipating a 10 percent boost in sales and earnings based on estimates that housing starts would be up a corresponding 10 percent from the previous year. With a strong cash position, the company began looking to expand operations beyond its three San Francisco plants, which totaled 300,000 square feet and 1,600 employees. Despite its optimistic predictions, however, by April 1958, the company announced that about 900 of its 1,075 production workers would go on a four-day work week because of a reduction in business.

The company's declining business was short-lived, however, and by the early 1960s it had returned to profitability. In January 1962, Schlage Lock Company announced that it would build a $1.5 million addition to its San Francisco factory, enlarging the facility by 50 percent. The company further refined its position in the lock business by introducing the deadbolt lock with a strike frame reinforcer, a metal plate that improves the effectiveness of a lock. Schlage Lock also acquired a couple of companies, including the Von Durbin Co. in 1965, adding panic-door devices to its line of products, and the mortise lock manufacturing company, General Lock Company of Pontiac, Michigan, in the 1970s.

In August 1970, former company president Charles H. Kendrick died at the age of 93. Kendrick, a veteran of World War I and holder of the Silver Star, was a national vice-commander of the American Legion in the early 1920s. He later became a critic of the national organization for not taking a stronger stand against the Ku Klux Klan. He also criticized state Legion leaders for opposing socialist Eugene V. Debs's right to speak in San Francisco.

BECOMING A SUBSIDIARY OF INGERSOLL-RAND IN 1974

In 1974, New Jersey-based Ingersoll-Rand Company announced that it agreed to acquire the Schlage Lock Company in an exchange of stock valued at approximately $84 million. Under the agreement, the producer of diversified industrial machinery and equipment would exchange 965,145 shares of Ingersoll-Rand, or 1.23 percent of its shares, for each of Schlage's 784,673 outstanding shares. Schlage Lock would be a wholly owned subsidiary of Ingersoll-Rand and would continue to operate under its current management. In 1973, Schlage Lock had earnings of about $5 million and sales of $75 million.

KEY DATES

1920:: Walter Reinbold Schlage founds Schlage Manufacturing Company.
1923:: Schlage receives his first cylindrical door lock patent and the company goes into full production of the cylindrical door lock.
1924:: Schlage receives a patent for the locking push-button door lock.
1946:: Company founder Walter Schlage dies.
1965:: Schlage Lock acquires Von Durbin Co.
1974:: Ingersoll-Rand Company acquires Schlage Lock Company for approximately $84 million.
1986:: Schlage Lock introduces the KeepSafer Security System, its first low-cost, wireless, easy-to-install home security system.
1996:: The company splits its residential and commercial units.
1998:: Schlage Lock unveils a new line of maximum security products.
1999:: Schlage Lock acquires H.B. Inves Company.
2001:: Schlage Lock launches new lines of plumbing fixtures in its Broadway Collection, and markets the new Schlage E-Bolt, an electronically controlled deadbolt lock.
2002:: Schlage Lock acquires Kryptonite, enabling it to further diversify product offerings and increase sales.
2004:: Schlage announces some work force cutbacks as it shifts production to Mexico and China.

At the time of its acquisition, Schlage Lock was a dominant player in the commercial lock business. Because Ingersoll-Rand believed that the lock-making firm relied too much on the construction business, with its periodic downturns, it pushed Schlage into the retail-residential market. As a result, Schlage Lock broke into the home security business, which by the mid-1980s represented more than half of the company's sales. In 1986, Schlage Lock introduced the KeepSafer Security System, its first low-cost, wireless, easy-to-install home security system.

Schlage's market timing rode the crest of an era of rising crime rates, which included increases in home break-ins from an estimated three million in 1985 to about 3.2 million in 1986. The home security business enabled the company to break out of a mature business into a profitable new growth niche. At the time, every American home had an average of 1.57 locks, but only 8 percent had home alarm systems. Schlage priced its KeepSafer alarm system below that of its competitors.

The system came with two wireless transmitters and two sensor sets that could be screwed or stuck onto doors or windows. The transmitters sent out a radio signal that tripped the alarm whenever a door or window frame was moved an inch or more. The system also included a personal access code that enabled only homeowners to program the system. Schlage introduced a more expensive SafeKeeper Plus, which came with more sensors and transmitters, in addition to a remote control unit for arming or disarming the system from outside the home. Schlage's main competitor for its home security device came from Black & Decker, which also offered two wireless systems. In the late 1970s, several other firms had tried and failed to mass-market home security devices, which proved to be too expensive and unreliable. With improved technology and lower prices, the home security market became a profitable new niche for the Schlage Lock Company.

CATERING TO RESIDENTIAL AND COMMERCIAL MARKETS INTO THE 21ST CENTURY

In 1995, the company introduced a line of premium-priced locks aimed at capturing a large piece of the $120 million custom-home market. Schlage Lock closed out 1994 with a 15 percent increase in sales and $350 million in revenues. With escalating concerns about crime during the 1990s, the lock industry experienced a corresponding boom in business. From the beginning, Schlage catered to the mid-priced residential and commercial markets, where it held a 40 percent market share by 1995. It successfully created brand awareness with a national cable advertising campaign that depicted Schlage as the "Doberman of Locks." The company's $3 million ad campaign featured people imitating barking dogs to keep intruders at bay. Schlage's new upscale locks, including the line called Mediterranean Designer Entrances, consisted of three designs under the names Capri, Corsica, and Cypress. The company also invested $3.5 million to produce a new lock that would not stain, tarnish, or allow burglars to jimmy it. The new lock was designed and introduced to challenge the industry's top competitor, Pennsylvania-based Baldwin Hardware, which held a $50 million share of the market. Schlage saw its most profitable growth coming from the high-end residential market, but also had its eye on the growing market for smart locks, such as handheld computer-operated systems that allowed only select individuals to gain entry.

In February 1996, Schlage split its residential and commercial divisions. The company relocated its commercial division's administrative operations from San Francisco to its security plant in Colorado Springs, Colorado. The company's two separate divisions enabled it to sharpen the focus on its respective markets. In September 1996, Professional Builder magazine's 1996 brand use survey confirmed Schlage's leading position in the residential lock and hardware market with an estimated 63.9 percent of the nation's builders stating their preference for the company's products. The findings supported Schlage's business strategy of designing and making products for different markets with distinct needs.

In 1998, Schlage unveiled a new line of maximum security products. The Handleset was introduced in four designs with security features that protected against kick-in and other forced entry attacks. With the acquisition of the H.B. Inves Company in 1999 and Kryptonite in 2002, Schlage was able to further diversify product offerings and increase sales. In May 2001, Schlage continued efforts to broaden its market niches by launching new lines of plumbing fixtures in its Broadway Collection, which could be matched with an array of door hardware and decorative trim. The company also marketed the Schlage E-Bolt, an electronically controlled deadbolt lock that could be programmed to accept only specific keys. The system eliminated the need to rekey or replace locks due to tenant turnover or lost or stolen keys. The E-Bolt system enabled reprogramming of the intelligent deadbolt, which included accepting a new key and denying access by old keys within minutes.

In February 2004, Schlage announced the elimination of 150 temporary jobs at its Security plant in Colorado Springs with the prospect of many more layoffs within three years as the company shifted production to Mexico and China. Reflecting pressures of the global economy, the company claimed that it had to shift production of high-volume residential and commercial locks to foreign plants to reduce costs and remain competitive. Nonetheless, Schlage's position as a leading producer of locks and home security devices appears to assure its continuing profitability into the future.