Technitrol, Inc.

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Technitrol, Inc.

1210 Northbrook Drive, Suite 385
Trevose, Pennsylvania 19053
U.S.A.
(215) 355-2900
Fax: (215) 355-7397
Web site: http://www.technitrol.com

Public Company
Incorporated: 1947
Employees: 21,400
Sales: 448.5 million (1998)
Stock Exchanges: New York
Ticker Symbol: TNL
NAIC: 334419 Other Electronic Component Manufacturing

A fast-growing supplier to the data communications, telecommunications, housing, and automobile industries, Technitrol, Inc. manufactures electronic components and metallurgical products at 28 locations in 15 countries. Technitrol’s electronic components, which include delay lines and pulse transformers, are used by manufacturers to modify or filter electrical signals. The company’s metallurgical components include electrical contacts and assemblies and contact materials used in circuit breakers, wiring devices, and a variety of electrical products and appliances. During the 1990s, Technitrol expanded aggressively overseas to become a leading supplier to data communications and telecommunications manufacturers.

Post-World War II Origins

Technitrol was founded in 1947 by four engineering graduates of the University of Pennsylvania’s Moore School of Engineering, each a participant in the development of the ENIAC, the world’s first electronic computer. Their pioneering work in the design and development of computer equipment was carried over into their early development of Technitrol, which itself became a pioneer in the computer and electronics industries. Technitrol held the first patent for a magnetic disk drive, which later became the prevalent storage medium for modem computers. The company never manufactured magnetic disk drives, however, deciding the start-up costs involved in such an endeavor were too high. Instead, Technitrol licensed the patent to companies such as IBM, Sperry Rand, RCA, and General Electric, and opted to manufacture other, less capital-intensive products it had developed, products that could be used in the computer industry and by other industries. The company pioneered the development of mercury delay lines and magnetic drums for computer-memory storage, discovering, as it delved into the development of computer equipment during the late 1940s, that there was a dearth of suitable electronic components available on the market. Forced to make its own electronic components, Technitrol’s management realized other companies faced a similar problem. Consequently, company executives resolved to market the electronic components developed by their engineers to other manufacturers, a decision that broadened the company’s customer base considerably—widening its scope from those companies involved in the nascent computer industry to the scores of manufacturers involved in the more broadly defined electronics industry.

Positioned as an electronic components developer and manufacturer, Technitrol achieved early success in 1952 by producing its proprietary pulse transformers, the manufacture of which required less start-up investment than magnetic disk drives. IBM figured as an early and important customer for Technitrol’s pulse transformers and its delay lines, providing sure financial footing as the company developed into an electronic components maker. Development into a premier electronic components manufacturer was pursued through internal expansion and through acquisitions. In 1958 Technitrol purchased L&O Research and Development Corporation, which bolstered the company’s capabilities to produce electronic equipment and provided expertise in the development of complex electromechanical and electro-optical devices—a facet of Technitrol’s equipment division. In 1961 growth was pursued internally, manifested in the formation of Technitrol Engineering Corporation, a subsidiary established to provide engineering services to industrial and government customers.

By the mid-1960s, Technitrol comprised an equipment division, strengthened by the acquisition of L&O, and a components division, which designed, developed, and manufactured pulse transformers, delay lines, and other electromagnetic devices. Manufacturing activity for both divisions was conducted adjacent to the company’s headquarters, located in suburban Philadelphia, and supported by a third manufacturing facility in Durham, North Carolina, which opened in 1965. Sales offices were operating in Philadelphia and Los Angeles. The composition of the company in the mid-1960s offered a limited view of Technitrol’s future, however. By resting its fortunes on the electronics industry—a business whose development was spurred and transformed by advances in technology—Technitrol was forced to rethink its business strategy often, creating a company in constant transition. The changes provoked by advancing technology were continuous, but they were sometimes punctuated definitively, representing turning points in Technitrol’s history. The first such momentous period occurred during the early 1970s, when Technitrol was forced to tailor its operations and strategy to accord with the changing needs of its customers.

Early 1970s Diversification

From its founding to the beginning of the 1970s, Technitrol had depended heavily on the demand for its pulse transformers, a breakthrough invention during the company’s early years, but no longer a technological marvel years after its development. Advances in core memory technology, Technitrol’s management believed, left the company too dependent on its existing product lines, so a diversification program was launched during the early 1970s. The acquisitions were orchestrated by longtime Technitrol employee, Roy E. Hock. Hock, who had joined the company in the mid-1950s, controlled Technitrol from the mid-1970s until the mid-1990s, becoming its most prominent personality during the 20th century.

During his 18 years of service to Technitrol before being named president in 1973, Hock had held the titles of engineering manager, systems division manager, director, and vice-president. As vice-president of the company, Hock served as “the author of our acquisition program,” according to Technitrol’s chairman in an address to shareholders in the company’s 1973 annual report. The acquisitions spearheaded by Hock included companies that would remain integral facets of Technitrol’s operations into the 1990s. Foremost among these acquisitions were John Chatillon & Sons Inc. and Advanced Metallurgy, Inc. (AMI), both acquired in 1972. Founded in 1835, Chatillon manufactured mechanical scales for commercial and industrial markets and precision springs and spring assemblies for the scale, aircraft instrument, and controls industries, marketing its products through a worldwide network of distributors. AMI manufactured electrical contacts, typically used in circuit breakers, which were sold to customers such as Westinghouse and General Electric. Other subsidiaries operated by Technitrol—the products of the company’s diversification—included Electric Apparatus Company, a manufacturer of small (one horsepower) to large (600 horsepower) electrical motors, and Eastern Data Processing, a subsidiary created in 1968 to provide payroll checks, personnel records, and other data processing services to businesses in the region surrounding Technitrol’s headquarters. The addition of these businesses, particularly Chatillon and AMI, contributed to a 125 percent increase in sales between 1972 and 1973, from $4.7 million to $10.6 million, and caused profits to quadruple from $107,000 to $466,000. With the announcement of these record-setting financial totals, the Hock era of leadership began.

A decade after Hock took control, Technitrol’s annual revenues hovered slightly below $40 million, one tenth of the total the company generated at the end of the 1990s. The exponential leap in sales was achieved primarily through acquisitions, acquisitions that propelled the company toward a change in its business focus. The “strategic repositioning,” as company officials called it, that reshaped Technitrol officially began in 1994, but meaningful progress began at the decade’s start, as the company sought to bolster and to tailor its operations for success in the 1990s and beyond.

Entering the 1990s, the company was collecting slightly more than $90 million in sales a year, a total produced by AMI, Chatillon, and Chace Precision Metals, Inc., a Technitrol subsidiary that manufactured thermostatic and clad metals used by manufacturers of components and controls serving the automotive, appliance, electronics, and electrical equipment industries. The company’s business, divided into a Components & Transformer Division and a Products Division, was conducted in three business segments: Electronic Products, Electrical Products, and Mechanical Products. The operations involved in two of these business segments were expanded through acquisitions during the early 1990s. In 1991 Technitrol acquired Lloyd Instruments, Ltd., a manufacturer and marketer of equipment used in material testing applications, which became part of the company’s Electronic Products business segment. Comprising Lloyd Instruments and certain operations belonging to Chatillon, the Electronic Products segment produced electronic scales, material testing instruments, currency and document counting and dispensing equipment, and electronic components. Technitrol’s Electrical Products segment included the company’s manufacture of electrical contacts and assemblies, undertaken by AMI. In 1992 the contributions of AMI to this segment were augmented by the acquisition of Doduco Corporation, which manufactured electrical contacts in Cedar Knolls, New Jersey. The company’s third segment, Mechanical Products, included the force measuring and weighing instruments and metal laminate material manufactured by Chatillon and Chace.

Company Perspectives:

We may not be a household word, but Technitrol plays a big role in everyday household life —and business life, for that matter. Whenever a computer is ’ ’booted up,” an office network connection made, or a telephone call switched, our products are likely to be at work. Even something as simple as flipping on the lights or turning up the heat probably depends on a Technitrol component somewhere along the line. In other words, we make components for a modern world.

New Strategy Executed in the Mid-1990s

Annual sales, after the acquisition of Lloyd Instruments and Doduco, amounted to $98 million in 1992, having been held in check during the previous two years primarily because of recessive economic conditions. Although financial growth had been achieved haltingly during the early 1990s, robust gains occurred consistently after 1993, when Technitrol edged past the $100-million-in-sales mark for the first time in its history. The catalyst spurring the company’s growth was the sweeping change in business strategy begun in 1994. Organizationally, the company underwent dramatic changes in 1994. The Mechanical Products segment was eliminated, reorganized as the End User/Finished Products segment, which included Lloyd Instruments and Chatillon. The Electrical Products segment became the Metallurgical Products segment, comprising the operations of AMI and Chace. Other striking changes occurred as well, sparked by the strategy devised in 1993, and carried out through acquisitions from 1994 forward. The number of Technitrol employees skyrocketed from 1,000 prior to the benchmark year to more than 21,000 four years into the company’s “strategic repositioning.” Annual sales, during this four-year span, quadrupled, an increasing percentage of which were garnered from international operations. Fittingly, for a campaign executed by absorbing other companies, the transformation and aggrandizement of Technitrol began with an acquisition, completed in January 1994.

In January 1994 Technitrol acquired Fil-Mag Group from FEE Technology, which included FEE Fil-Mag Taiwan, FEE Fil-Mag Singapore, and Fery Electronics, Inc. Fil-Mag, with manufacturing operations in Taiwan and the Philippines, manufactured delay lines, pulse transformers, and filters. The products were used in a variety of computer and telecommunications applications, which became the focus of Technitrol’s strategic repositioning in the years ahead. Data communications and telecommunications were the growing markets of the 1990s, and Technitrol had decided to position itself as an important supplier to such markets in the years ahead.

The acquisition of Fil-Mag was followed in 1995 by other important developments, in what represented a symbolically significant year for Technitrol. After 20 years of leadership, Hock retired, paving the way for a new generation of leadership. James M. Papada, III, a long-time director of Technitrol who had performed legal work for the company during the early years of Hock’s presidential tenure, took over as chairman, and Thomas J. Flakoll, the company’s president and chief operating officer, earned promotion to chief executive officer. As management changed hands, the company took another important step toward becoming a global supplier to the data communications and telecommunications markets by acquiring Pulse Engineering, Inc., a San Diego-based designer, producer, and marketer of electronic components and modules used by manufacturers of local area networks (LANs) and telecommunications systems. Acquired for approximately $60 million, Pulse’s strength was in international markets, where the company maintained an extensive presence through manufacturing operations in Hong Kong, the People’s Republic of China, and Ireland. Primarily because of the Pulse acquisition, the sales recorded by Technitrol’s Electronic Components segment in 1995 increased more than 65 percent to $68.4 million and profits swelled 130 percent to $10.7 million. In addition, Technitrol’s work force tripled in size during the year.

In the wake of the Pulse acquisition, a “new” Pulse organization was formed, comprising the combination of Pulse, Fil-Mag, and the Electronic Components segment, which represented one of the world’s largest suppliers of magnetic components to data communications and telecommunications industries. Having broadened the geographic scope of its electronic components operations, Technitrol next moved to accomplish the same for its metallurgical business. In 1992 the company had acquired the U.S.-based operations of Doduco, and in 1996 it acquired the company’s European operations, which included Doduco GmbH, with operations in Pforzheim, Sinsheim, and Huchenfeld, Germany, and Doduco Espana, located in Madrid. By the end of 1996, Technitrol’s advances on the international front were evident on the company’s balance sheet. International sales had increased from 17 percent of total sales to 31 percent of total sales within two years, driven by the growth of the company’s European operations, which accounted for six percent of sales in 1994 and 25 percent of sales in 1996.

Technitrol’s 50th anniversary in 1997 saw the company continue to build upon its core strength in magnetic components and steer away from businesses deemed outside its scope. Late in the year, the company acquired the magnetic components business of Northern Telecom Ltd., which included manufacturing facilities in Malaysia and Thailand and design offices in Ottawa, Canada. Earlier in the year, management decided to abandon its involvement with test and measurement products, leading to the June divestiture of Chatillon and Lloyd Instruments.

With the sale of Chatillon and Lloyd Instruments, Technitrol’s operations were focused on two business segments: electronic components and metallurgical components. On the electronic side, the company was represented by its Pulse organization, while the company’s metallurgical business was consolidated in 1998 by integrating AMI, Chace Precision Metals, and Doduco to form a single global subsidiary named AMI Doduco. Each division expanded geographically in 1998 through acquisitions. In July, the company acquired FEE Technology, S.A., a magnetic components manufacturer based in France and supported by operations in Bangkok, Warsaw, and Frankfurt. With sales of approximately $36 million, FEE Technology designed its products for telecommunications and power conversion equipment. Once acquired, the French company became part of the Pulse subsidiary. On the same day Technitrol acquired FEE Technology, it also acquired Metales y Contactos, S.A. de C.V., a Mexico City-based designer and manufacturer of precious and semi-precious metal contacts used in automobiles and other durable goods. The acquisition of Metales y Contactos was indicative of Technitrol’s desire to expand its metallurgical business throughout Latin America. The Mexican company was organized as part of the AMI Doduco subsidiary. Late in the year, the purchase of GTI Corporation, a manufacturer of electronic components, added to the breadth and depth of Pulse’s operations.

As Technitrol entered 1999, concerns surfaced regarding the company’s future leadership. In early January, Flakoll resigned to pursue other interests, leaving the company without a president or a chief executive officer. Meanwhile, as a search for a replacement was conducted by Technitrol’s board of directors, Papada filled the leadership vacuum on a temporary basis and directed his energies toward integrating 1998’s acquisitions into Technitrol. In April, the board of directors ended their executive search and appointed Papada president and chief executive officer. Concurrent with the decision, the responsibilities of a chairman and chief executive officer were combined, leaving Papada fully in charge of the company’s future. Papada’s immediate objectives were to assimilate FEE Technology, Metales y Contactos, and GTI Corp. into the Technitrol family, which was expected to be completed by the third fiscal quarter of 1999, while long-term plans called for the continued expansion via acquisition of the company’s electronic components and metallurgical businesses.

Principal Subsidiaries

AMI Doduco (PA), Inc.; AMI Doduco (NJ), Inc.; AMI Doduco (PR), Inc.; AMI Doduco (NC), Inc.; AMI Doduco (Mexico), S. de R.L. de C.V.; AMI Doduco España, S.L. (Spain); AMI Doduco GmbH (Germany); Dongguan Pulse Electronics Co., Ltd.; FEE GmbH (Germany); FEE S.A. (France); Pulse Canada Ltd.; Pulse Components Ltd. (Hong Kong); Pulse Electronics (Singapore) Pte. Ltd.; Pulse Engineering, Inc.; Pulse Engineering Distribution Ltd. (Ireland); Pulse Philippines, Inc.; Pulse Production (Malaysia) Sdn. Bhd.; Pulse Production (Thailand) Ltd.; Pulse Taiwan Corporation; Technitrol Delaware, Inc.; Technitrol Singapore Holdings Pte. Ltd.; TNL Singapore Components Holdings Pte. Ltd.; Valor East Electronics Ltd. (Hong Kong); Valor Europe Ltd. (United Kingdom); Valor GTI Electronics (Shenzhen) Co. Ltd. (People’s Republic of China).