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Company History - Hindustan Unilever

1888 - Sunlight soap introduced in India.

1895 - Lifebuoy soap launched; Lever Brothers appoints agents in

Mumbai, Chennai, Kolkata, and Karachi.

1902 -Pears soap introduced in India.

1903 - Brooke Bond Red Label tea launched.

1905 - Lux flakes introduced.

1913 -Vim scouring powder introduced.

1914 - Vinolia soap launched in India.

1918 - Vanaspati introduced by Dutch margarine manufacturers like Van

den Berghs, Jurgens, Verschure Creameries, and Hartogs.

1922 - Rinso soap powder introduced.

1924 - Gibbs dental preparations launched.

1925 - Lever Brothers gets full control of North West Soap Company.

1926 - Hartogs registers Dalda Trademark.

1930 - Unilever is formed on January 1 through merger of Lever

Brothers and Margarine Unie.

1888, less than four years after William Hesketh Lever launched
Sunlight Soap in England, his newly-founded company, Lever Brothers,
started exporting the revolutionary laundry soap to India. By the
the company merged with the Netherlands-based Margarine Unie in 1930
form Unilever, it had already carved a niche for itself in the
market. Coincidentally, Margarine Unie also had a strong presence
India, to which it exported Vanaspati (hydrogenated edible fat).

1931 - ndustan Vanaspati Manufacturing Company registered on November

27; Sewri factory site bought.

1932 - Vanaspati manufacture starts at Sewri.

- Incorporated on 17th October, under the name of a Lever Brothers
(India) Pvt., Ltd. (LBIL) was the wholly owned subsidiary of
Ltd. London, UK.

- 1933 Lever Brothers India Limited (LBIL) incorporated in India to

manufacture Soaps.

1934 - Soap manufacture begins at Sewri factory in October; North

West Soap Company's Garden Reach Factory, Kolkata rented and expanded
to produce Lever brands.


- On 11th May a subsidiary Co. was incorporated under the name

Traders Pvt. Ltd. for marketing the products of the Co. or imported
from the parent Co.

1937- Mr. Prakash Tandon, one of the first Indian covenanted

managers, joins HVM.

1939 - Garden Reach Factory purchased outright; concentration on

building up Dalda Vanaspati as a brand.

1941 - Agencies in Mumbai, Chennai, Kolkata and Karachi taken over;

company acquires own sales force.

1942 - Unilever takes firm decision to train Indians to take over

junior and senior management positions instead of Europeans.

1943 - Personal Products manufacture begins in India at Garden Reach


1944 - Reorganisation of the three companies with common management

but separate marketing operations.

1947 - Pond's Cold Cream launched.

1951 - Mr. Prakash Tandon becomes first Indian Director. Shamnagar,

Tiruchy, and Ghaziabad Vanaspati factories bought.

1955 - 65% of managers are Indians.


- On 27th October, the Co. was converted into a Public Ltd. Co.

- On 1st November, Hindustan Vanaspati Mfg. Co. Pvt. Ltd., William

Gossage & Sons (India) Pvt. Ltd. and Joseph Crosfield & Sons
Ltd. were amalgamated with LBIL and the name was changed to
Lever Ltd. From 23rd october onwards activities of subsidiary Co.
taken over by its holding Co.

- On 17th November Unilever Ltd. Offered to the public 557,000 No.

equity shares of Rs.10 each.

1957 - Unilever Special Committee approves research activity by

Hindustan Unilever.

1958 - Research Unit starts functioning at Mumbai Factory.

1959 - Surf launched.

1961- Mr. Prakash Tandon takes over as the first Indian Chairman;
191 of the 205 managers are Indians.

1962 - Formal Exports Department starts.

1963 - Head Office building at Backbay Reclamation, Mumbai, opened.

1964 - Etah dairy set up, Anik ghee launched; Animal feeds plant at
Ghaziabad; Sunsilk shampoo launched.

1965 - Signal toothpaste launched; Indian shareholding increases to


1966 - Lever's baby food, more new foods introduced; Nickel catalyst
production begins; Indian shareholding increases to 15%. Statutory
price control on Vanaspati; Taj Mahal tea launched.

1967 - Hindustan Unilever Research Centre, opens in Mumbai.

1968 - Mr. V. G. Rajadhyaksha takes over as Chairman from Mr. Prakash
Tandon; Fine Chemicals Unit commissioned at Andheri; informal price
control on soap begins.

1969 - Rin bar launched; Fine Chemicals Unit starts production; Bru
coffee launched

1971 - Mr. V. G. Rajadhyaksha presents plan for diversification into

chemicals to Unilever Special Committee - plan approved; Clinic
shampoo launched.

1973 - Mr. T. Thomas takes over as Chairman from Mr. V. G.


1974 - Pilot plant for industrial chemicals at Taloja; informal price

control on soaps withdrawn; Liril marketed.

1975 - Ten-year modernisation plan for soaps and detergent plants;

Jammu project work begins; statutory price control on Vanaspati and
baby foods withdrawn; Close-up toothpaste launched.

1976 - Construction work of Haldia chemicals complex begins; Taloja

chemicals unit begins functioning.

- On February synthetic detergents plant in Jammu was commissioned.
Plant for manufacture of linalool from betapinere, pheneyl ethyl
alcohol and eaters commissioned at Jammu.

1978 - Indian shareholding increases to 34%; Fair & Lovely skin cream

- In October, the company set up a new industrial undertaking at
for the manufacture of sodium tri-polyphosphate, phosphoric acid and
sulphuric acid.

- In order to reduce the non-resident holding in the Co. to 51%,
Uniliver Ltd. offered for sale during Feb. out of its shareholding
the Co. 4239523 No. of equity shares of Rs.10 each at a premium of
Rs.9.50 per share in the following manner;

- i) 10,00,000 shares to public financial institutions.

- ii) 25,12,702 shares to the existing resident Indian shareholders

a pro-rata basis in the ratio of 1:4.

- iii) 726,821 shares to employees and Indian directors.

1982 - Government allows 51% Unilever shareholding.


- A new plant for synthetic detergents in Chindwara district of M.P

commissioned Co. took on lease a detergent and toilet soap factory
the request of Punjab govt. owned by a joint sector Co. Stephans
Chemicals Ltd.

- A new fine chemical unit was commissioned.

- As consideration, Indian shareholders of HL Ltd. were offered

62,20,576 No. of equity shares of Rs.10 each of Lipton India Ltd.,
par in proportion of 2:8. ie 2 Lipt:8 HL equity.
1984 - Foods, Animal Feeds businesses transferred to Lipton.


- A project for the manufacture of 500 tonnes per day of diammonium

phosphate was commissioned.

- Lux toilet soap was launched.

- Agri-products unit at Hyderabad starts functioning - first range of

hybrid seeds comes out; Khamgaon Soaps unit and Yavatmal Personal
Products unit start production.

Lifebouy Personal and Breez soaps launched.

- Company in collaboration with National Starch Corporation USA,
undertook to set up a new facility at pondicherry for the
of functionalised biopolymers.

- The Co. took on lease cum purchase basis the detergents

of Union Home Products Ltd. Mangalore.

- Synthetic Detergent plant at Sumerpur in UP & Tiolet soap plant in
Orai in UP were commissioned.

- Cracking catalyst plant at Haldia commissioned.

- Vegetable oil plant commissioned at Kandla free trade zone.


- Seed and Tissue culture projects commissioned at Hyderabad.

- Company proposed to set up a 17,000 tpa. film sulphonation plant

Taloja to manufacture a range of detergent actives.

- Company signed a collaboration and 100% buy back agreement with

Sawyer of Napa, California, USA to produce wool-on-leather garment
wool-on-leather products.

- Commissioned a plant for manufacture of 10,000 tonnes per annum of

toilet preparations at Pondicherry.


- Entered in dental product market by introducing Pepsodent,

G etc.

- A factory to manufacture leather garments and other leather based

products including wool-on-leather garments and wool-on-leather was
up in Chennai.

- The Company undertook to set up a large scale acquaculture centre

Tanjavur in Tamil Nadu for farming and processing catfish for the
markets in technical collaboration with FFDA, Florida, USA who also
provide a full buy-back guarantee.

- Temporary shut down of Haldia Plant due to duty free import of
Entered skin product market by introducing fair & lovely. Also
hair care product by introducing sunsilk salon treatment & clinic
gel. Close-up confident toothbrush also introduced on the same

- During the year Company entered into joint selling agreement with
Ponds India Ltd. for distributing their products.

- Company set up rice millong facilities in the free trade zone of


- Company obtained all permissions and approvals for acquiring 80%

the equity capital of Nepal Lever Ltd. The company was also taking
steps to set up an effective distribution system in Nepal to
and market the products of the Co.

- Tata Oil Mills Co. Ltd. (TOMCO) was merged with Hindustan Lever
with effect from 1st April. As per the scheme of amalgamation,
shareholders of TOMCO were allotted without Payment in cash 2 equity
shares of Rs.10 each of HL for 15 equity shares of Rs.10 each held
TOMCO. After the amalgamation Unilever PLC London were allotted on
preferencial basis 29,84,347 equity shares of Rs.10 each at a
of Rs.95 per share for maintain their share holding at 51% in the

-1993 HLL's largest competitor, Tata Oil Mills Company (TOMCO),

with the company - Erstwhile Brooke Bond India acquires Kissan
from the UB Group and Dollops icecream business from Cadbury - Doom
Dooma and Tea Estates Plantation divisions merged with Brooke Bond -
Brooke Bond and erstwhile Lipton India merge to form Brooke Bond
India Limited 1994 HLL and US-based Kimberley-Clark Corporation form
50:50 joint venture, Kimberley-Clark Lever Ltd.


- Company entered male toiletries segment with the launch of Denim

shave & Ean Dee Toilette.

- Co. set up Hot Melt Adhesive manufacturing facilities at Taloja.

also entered SSP business and trading.

- Wool-on-leather and wool-on-garment plant was commissioned.

- The Company entered into joint venture agreement with

Corporation, USA to promote a joint company `Kimberly-Clark Lever
with 50% equity participation by the company.


- In technical collaboration with Shinto Corporation, a subsidiary

Toya Suisan, Japan, the Co. undertook to set up a Surimi (Fish
project at an initial cost of Rs.15 crores near Veraval in Gujarat
State. The collaborators provided 100% buy-back guarantee for the
output of this unit which seeks to upgrade the hitherto wasted
resources of the country. The plant was commissioned in the second

- The Company entered into joint venture agreement with Lakme Lever
Ltd. to undertake the manufacturing and distribution of colour
cosmetics and other personal care products.

- The Company also entered into an agreement with S C Johnson & Son
USA, for manufacture and sales of insecticides such as insect
repellents, disinfectants and similar products in India.

- The Company received the President's Award for Outstanding

performance in Agri Commodities for the year 1994-95.

- 1995 HLL and Indian cosmetics major, Lakme Ltd, form 50:50 joint
venture, Lakme Lever Ltd. HLL acquires Kwality and Milkfood 100%
brandnames and distribution assets.

- HLL and US-based S.C. Johnson & Son Inc. form 50:50 joint venture,
Lever Johnson (Consumer Products) Pvt. Ltd.HLL Soaps and Detergent
sales cross one million tonnes.


- Brooke Bond India Ltd. was amalgamated with the Company. As per
scheme of amlgamation, the Company allotted 533,28,713 equity shares
the share holders of Brooke Bond India Ltd. in the proportion 9
of the company for 20 shares held in Brooke Bond India Ltd.

- The Company entered into joint venture S C Johnson & Son USA. The
Joint Venture named Lever Johnson Consumer products Pvt. Ltd.


- Company received the Solvent Extractors' Association Award for

the highest exporter of Rice Bran Extractions during 1996-97.

- The Far Eastern Economic Review, Hong Kong, has adjudged HLL the
Indian company in its Review 200: Asia's Leading Companies survey.


- The Directors of Hindustan Lever Limited at their meeting held on

16th March, considered and approved the proposal for amalgamation of
Ponds India Limited with Hindustan Lever Limited. HLL's tea
is among the biggest in the world.

- The Department of Agriculture and co-operation under the ministry

agriculture has directed Lever Johnson (Consumer Products) Ltd., a
subsidiary of Hindustan Lever Limited, and Icon Household Products
Ltd. to withdraw from the market, the mosquito mat repellent Raid
Domex on charges of having grossly violated the conditions of

- HLL has also taken several initiatives in raising awareness of

care and hygiene in India. One of these programmes is the free
check-up programme, which is conducted in collaboration with the
Dental Association.

- In India, the only company in the poultry business that is selling

chicken meat is Venkateshwara Hatcheries (VHL). VHL sells its
under the brand name Venky's which is currently sold in only major
cities, Hindustan Lever is presently working on the feasibility of
poultry business.

- Unilever set up the Hindustan Vanaspati Manufacturing Company, its

first subsidiary in India, and established two more subsidiaries,
Brothers India Ltd. and United Traders Ltd.

- The managements of Pond's (India) Limited and Hindustan Lever

have decided to propose the amalgamation of PIL with HLL. Both the
companies are subsidiaries of Unilever Plc, which holds 51 per cent
equity in each.

- Hindustan Lever Ltd (HLL) has signed the Fuel Supply Agreement
with public sector Indian Oil Corporation (IOC) for the entire fuel
lubricant requirements of its manufacturing unit in Orai. This the
first time that two giants, one from public sector and other from
private sector, have joined hands as partners in progress, and also
augurs future partnerships between IOC and HLL.

- IOC's northern region general manager (sales) I H Hashmi and R K

Mutreja from HLL signed FSA for five years supply of HSD (petrol),
furnace oil and lubes to the tune of 555 kilo litre per month.

- Hindustan Lever is the largest manufacturer of Lifebuoy, Lux,

Rexona and Haman in the country, under a division christened the
personal products division.

- The managements of Pond's (India) (PIL) and HLL have decided to

propose the amalgamation of PIL with HLL. They are subsidiaries of
Unilever, UK, which holds 51 per cent equity in both.

- HLL also proposes to acquire from Lakme the latter's 50 per cent
share holding in the 50:50 joint venture company, Lakme Lever, the
Lakme trademark from Lakme's wholly-owned subsidiary, Lakme Brands,
lakme's manufacturing undertakings at Deonar and Kandla (the latter
owned by Lakme Exports). HLL is setting up a Max Club for children.

- Hindustan Lever Ltd and Nicholas Piramal India Ltd have received
QAD rapid Achiever Award at its first ever Asia Pacific Explore `98
user conference held in Bangkok.

- HLL has signed a memorandum of understanding with Tata Housing

Development Company for developing some of its properties into
residential and commercial complexes.

- In the scheme of amalgamation to the planned merger, the company

stated that about 8.8 per cent of the issue, subscribed and paid-up
capital of the transferor company (Pond's) will stand cancelled.
has 13,25,954 shares of Pond's India.

- HLL had bought eight lakh shares of BBLIL from UTI two weeks prior
the announcement of the merger at a price of Rs. 350 per share on
25, 1996.

- Hindustan Lever Ltd has awarded a country wide project of payroll

management to Calcutta-based Vedika Software (P) Ltd.

- HLL has a world-class information technology infrastructure to

the businesses to respond faster and perform better.

- Hindustan Lever Ltd (HLL) has entered into job work arrangements
some bought leaf tea factories in the Nilgiris.

- The Tatas have joined hands with Hindustan Lever Ltd (HLL) in
to set up a Rs.686 crore hospitality, housing and infrastructure
project. The project proposes to construct a five star hotel
technology park, world trade centre, business and commercial space,
shopping mall and housing complexes at Tatapuram in the heart of
city covering an area of 35 acres.

- HLL has signed a memorandum of understanding with Swastic

of Biratnagar, Nepal, for the supply of hydrogenated oil under its
brandname Dalda.

- Hindustan Lever to buy out Kwality's ice-cream plants; agreement

be signed soon Hindustan Lever Limited (HLL) has suffered twin
in its plans of selling Kwality Ice creams nationwide.

- The board of directors of Tasty Bite Eatables has issued 59,530

convertible preference shares of Rs.100 each at a premium of
per share to Hindustan Lever on private placement basis. The
preference share will carry a coupon of 1 per cent for a tenure of
years, said a notice issued to the Mumbai Stock Exchange.

- HLL has entered into an agreement with Johnson & Johnson for using
the trademark Savlon for its soap products. The agreement was
into eight months back and concerns only soaps.

- HLL has also entered into joint ventures to introduce products

are not in Unilever's global portfolio. These include joint
with Kimberly Clark and SC. Johnson for personal hygiene and
care respectively.

- HLL was one of the first companies to join the National Securities
Depository (NSDL) to encourage its shareholders to avail themselves
its benefits.

- Hindustan Lever Limited's Bangalore factory has received National

Productivity Award for the fourth year in a row from National
Productivity Council. The factor has also received ISO 9002

- 1998 Group company, Pond's India Ltd, merges with HLL. HLL
Lakme brand, factories and Lakme Ltd's 50% equity in Lakme Lever
HLL acquires manufacturing rights of Kwality icecream. Appellate
Authority of Government of India absolves HLL of insider trading
charges, made by SEBI in 1997, in the BBLIL merger.


- Hindustan Lever Ltd (HLL), has joined hands with the Institute for
Social and Economic Change (Isec) for a rural development programme

- Hindustan lever Ltd, has decided to merge its subsidiary

Perfumes Ltd with the company. The merger would be effective from
January 1.

- The company holds 1,27,497 shares of Rs. 100 each. Industrial

Perfumes manufacturers aroma chemicals such as deodorant and
According to the company as per the scheme of amalgamation for every
five equity shares of Rs 10 each of Industrial Perfumes two shares
HLL will be given.

- Hindustan Lever Ltd is selling its Rs 80-crore dairy business to

Nutricia International BV, part of the .7bn Dutch dairy products
giant Koninklijke (Royal) Numico NV Group, for a yet undisclosed
A memorandum to this effect was signed a few days ago.

- Consumer Giant Hindsutan Lever Limited (HLL) has converted a part

its debt, which otherwise would have been non-realisable from Tasty
Bite Eatables Ltd, into non-cumulative, non-convertible redeemable
preference shares carrying an interest rate of 1 per cent.

- Hindustan Lever Limited (HLL) has decided to dispose of its dairy

business to Nutricia (India) Pvt Ltd and spin off its animal and
poultry feeds into a separate subsidiary.

- Industrial Perfumes Limited is to amalgamate with Hindustan Lever

Limited (HLL) and under the scheme HLL is to issue at par and allot
equity shares of Rs 10 each to the shareholders of Industrial
for every five shares held by them in that company.

- Hindustan Lever holds about 51 per cent of the issued, subscribed

paid-up capital of Industrial Perfumes Limited and the shares, if
held by HLL and its subsidiary companies as on the record date in
Industrial perfumes shall be concelled.


- The Company will be the largest e-tailer in the next two years.

- The company has entered into a five-year wet lease agreement with
Hyderabad-based Premier Explosives (PEL) to operate the latter's
mushroom farms near Hyderabad.

- The Company has launched a `ready to drink' (RTD) tea brand Lipton
Ice Tea in Hyderabad with lemon and mango flavours.

- The Company has launched a new brand of toopaste -- Aim.

- The Company has unveiled the country's first liquid detergent for
daily washing needs Surf Excel Liquid detergent in the Indian

- The Company launched the International Lux Skincare range,


- 2000 HLL acquires Modern Foods, the first public sector company to
divested by the

Government of India

- The Coompany has launched Surf Excell Liquid Detergent, for daily
washing of clothes.

- HLL markets more than 110 brands, in 950 packs. the products are
in one million retail outlets, directly covering India's entire
population and about 50,000 villages.

- The Company has launched a cooking medium New Dalda Activ.

- FMCG major Hindustan Lever Ltd, aiming to strengthen its foods

business, has received a boost in this endeavour with its parent
Unilever acquiring the US-based food company Bestfoods.

- The Aviance, the international range of beauty solutions by the

Hindustan Lever Ltd. has launched a hair care range comprising four
shampoos and two conditioners.

- The Company has chalked out its expansion plans in tea through
acquisitions, greenfield ventures and a five-year plan entailing
modernisation, uprooting and research.

- Hindustan Lever's aggressive brand introduction spree in deodorants

nascent Rs 75 crore market seems to be growth by categorisation.

- The Company has been ranked among the top 15 emerging market
companies worldwide. HLL is the only Indian Company, and also the
food and household products firm to figure in the list.

- The Company has offered two alternatives a voluntary retirement

scheme and termination of services to executives of Rossell

- The Company has relaunched Close-Up as Super Fresh Close-Up with

added attribute of containing an anti-bacterial agent along with an
existent mouth wash.

- The Company mount a series of aggressive initiatives this year to

shore up the performance of its ice cream business.

- The Company has tied-up with a growing corporate services agency,

Conclerges, to make itself a one-stop convenience shop by entering
home services sector.

- The Company has acquired four factories from Amalgam Foods Ltd. on
wet lease to carry out the processing of marine products.

- The Company for the second year running, has been rated among the
world's 100 best-managed companies.

- HLL has introduced ColourFast Slims, a new range on lipsticks

its Aviance Beauty Solutions brand.

- The Company has launched the Lux Body Wash along with a Lux loofah
Karnataka. This is the first mass-appeal body wash to be launched
under the brandname Lux.

- Hindustan Lever and Elizabeth Arden, launched Elizabeth Arden,

Unilever's Prestigious cosmetics and fragrance brand, in India.

- The Company has set up 12 counters across the country to carry out
exchange of share certificates for new certificates of Re 1 face

- Kwality Wall's, a division of Hindustan Lever Ltd., has launched

softy ice cream and has positioned it as a mass market product and
of the ice cream business.

- FMCG major Hindustan Lever Ltd will mark its entry into the softy
cream segment by setting up softy kiosks in all major metros
with Chennai.

- The Company has relaunched its tea brand, Brooke Bond Red Label,
Assam Super Tasters.

- Hindustan Lever Ltd. has proposed to make an open offer for a 24

cent stake held by local shareholders in International Bestfoods
which is now a subsidiary of parent Unilever.

- Hindustan Lever Ltd's Pepsodent toothpaste has introduced games at

McDonald's outlets.

- The Company has introduced New Hi-Power Vim Bar with enhanced
cutting power and lime juice.

- The Company has entered into an in-principle agreement of Dheeraj

Kumars Creative eye for buying out Indian satellite rights of the
mega-television serial Om Namah Shivay in Hindi.

- The Company has launched Aim toothbrush in South India.

- The Company has launched an innovative scheme with gold coins

embedded in tablets of its Lux brand of soap.

- The Company has launched the new Nutririch Fair & Lovely fairness
reviving lotion.

- HLL has entered into an agreement with FFI Fragrances to continue

importing and distributing the globally renowned prestige brand -
Elizabeth Arden - for the next six ti twelve months.


- Shampoo brand `Clinic All Clear' on the Net, Hindustan Lever has
launched a host of Web Promotions on popular Websites which include,,,,, and

- Hindustan Lever and International BestFoods are formalising an

agreement under which HLL will sell and distribue IBL products with
effect from January 1.

- Hindustan Lever Ltd (HLL) has launched Clinic Plus Protein Shampoo
with a new formulation that contains a Protein Health Complex.

- Hindustan Lever has launched after-shave lotions from its Calvin

Klein brand of fragrances -- Obsession, Etermotu amd Escape.

- The Company's Nihar, a brand of double-filtered coconut oil, has

changed packaging and logo.

- HLL has over 36,000 employees, and has created 2 lakh indirect
Its operations are spread across 70 locations in India. There are
50 factories, of which 28 are in backward areas. The operations
2000 suppliers and aassociates and 7000 stockists and agents. HLL
emerged as a major Exporter.

- Hindustan Lever has entered into a strategic tie-up with the

listed iVillage Inc reported for the year ending December 1999,
operator of to set up a women portal for the Indian

- HLL has launched the New Pears Oil Clear bathing bar.

- The Company is launching a new Website called -- a

b-2-b e-commerce project for Castor.

- Joint Ventures are being formed for two of its non-FMCG businesses
protect their value - one with Godrej Agrovet for our AFS business
another with the ICI group for our Fragrance/Flavours division.

- Hindustan Lever has chalked out a turn-around strategy for its

ice cream business.

- Hindustan Lever Ltd. has organised a mobile van promotion called

`Dare to Wear Black Mania' in order to promote Clinic All Clear, its
anti-dandruff shampoo.

- Hindustan Lever Ltd is hiving off its existing business of

fragrances, flavours and food ingredients into a separate joint
venture, Quest International India, in which paints major ICI India
will hold a majority stake.

- HLL has launched the new Fair & Lovely Fairness Soap -- which will
help make the skin fairer, safely and gently.

- Hindustan Lever's, Pond's Magic DeoTalc, has been launched with a

enhanced deodorant protection.

- International Bestfoods Ltd. has become a subsidiary of Hindustan

Lever Ltd with effect from 22nd April.

- Hindustan Lever has entered into a joint venture with Godrej

a subsidiary of Godrej Soaps.

- An agreement has been entered into with the ICI Group, for a Joint
Venture for the Quest division of the Flavours and Fragrances

- The Company has launched International Rexona 24 HR Intensive, in


- The Company has launched Pond's Light n' Fresh talc.

- The Company has launched the new Lakme Sunscreen Lotion with
ultraviolet rays guard and Alpine Mint.

- The shareholders of Hindustan Lever have approved a proposal to

International Bestfoods and Aviance with HLL.

- Hindustan Lever Ltd’s factory at Garden Reach near Kolkata faces a

one-day strike in July,the reason being to press their demands for
higher wages.

- Hindustan Lever will be closing its thermometer mercury factory at

Kodaikanal in Tamil Nadu.

- Hindustan Lever has commissioned a detergent and a tea factory in

Silvassa, taking its total number of new factories to seven in the
current year.

- MRTPC has dismissed a complaint filed against Hindustan Lever for

allegedly increasing prices of its products Glucon-D and Nycil.

- In October 2000 HLL acting in concert with Unilever made an open

tender offer for the remaining 24.62%of the IBL equity at price Rs
173.00 per share.


- The Board of Hindustan Lever Ltd (HLL) had approved the transfer
its undertaking engaged in seeds business to its subsidiary Paras
Growth Seeds Ltd.

- International Bestfoods Limited (IBL) has become asubsidary of

Hindustan Lever w.e.f April 21,2001. The Board of IBL has already
approved the transfer of 75.38% of the equity of IBL earlierheld by
Best Foods USA in favour of HLL.

- The company has signed an agreement with ICI India, a subsidiary

ICI plc, UK, for sale of Nickel Catalyst business and Adhesives
business, a sub-unit of Specialty Chemicals Division of the
Chemicals and Agri operations for a consideration of Rs.21 crore and
9 crores respectively.


-S Ramadorai appointed as Non-executive Director on the Board of


-Opto Circuits enters into an agreement with HLL to buy the business
line of Digital Thermometers.

-The Lever Gist Brocades, a 50:50 joint venture of Hindustan Lever

(HLL) and DSM of The Netherlands, was sold to Burns Philp India, the
local arm of the Australia-based food conglomerate Burns Philp.

- Company's branded salt Annapurna launched in Africa

- Project Shakti, a rural marketing initiative, brings HLL 20% rise

in rural consumption

- Signs Joint Venture with India Seeds Holdings Ltd., a company

incorporated in Mauritius engaged in the seed and biotechnology
industry, for transfer of its seeds business undertaking
Paras Extra Growth Seeds Ltd. (PEGSL) for a consideration of Rs 115

- Comes out from the premium (prestige) fragrances segment by

stopping distribution of Calvin Klein in the country

- Enters into ayurvedic healthcare market by releasing their Lever

Ayush ayurvedic health and beauty care products

-Enters into sourcing agreement with Unilever Australia and Unilever

US for supplying tea bags

- Lever Gist Brocades, a 50:50 joint venture of Hindustan Lever (HLL)

and DSM of The Netherlands, was sold to Burns Philp India, the local
arm of the Australia-based food conglomerate Burns Philp

- HLL's ice-cream business makes profit for the first time in its

- Shareholders approve bonus debentures issue

- Forays into snack foods market under the Knorr Annapurna brand

- Stops the production of two of its variants under the Sunsilk

shampoo range - Bouncy Volume and Ceramide Plus

- Ties up with Madhya Pradesh government for achieving all-round

growth through empowerment of rural people and launches 'Vindhya
Valley' umbrella brand for food products

- Relaunches Deluxe Green Label with a better and stronger aroma in

the four southern states to consolidate its position as a leading
filter coffee brand

- Acquires remaining 26% stake in Modern Foods for Rs 44.07cr

- The company chosen as the most preferred company on campus

- Hindustan Lever, Kochi wins commendation certificates for energy

conservation from the State-level Monitoring Committee for Energy
Conservation for year 2002


- Ties up with Pepsi for distribution, signs a memorandum of

understanding with Pepsi, to leverage each other’s strengths in
distribution. The agreement provides Pepsi access to the HLL’s
institutional accounts.

- Unveils New Rin Supreme Bar with 'Pure Clean' technology

- Relaunches kids ice-cream with 4 new products, Mango Tango,

Rainbow, Twister and Super Twister, priced between Rs 7 and Rs 15

- Acquires the seafoods business of the south-based Amalgam group

- Sells GLUCOVITA,, a brand in the glucose powder market, to Wipro

- Unilever hands over global marketing of Pears to HLL

- Patents a new technology called 'alphos' for manufacturing soap,

which will allow the company to manufacture the same quality of soap
at low prices

- Forays into conventional biscuits market by launching a traditional

glucose biscuit under its acquired bakery brand Modern

- Relaunches Surf Excel as a low-foam detergent to target markets

facing severe water crisis

- Offloads carpets business for Rs 1 crore

- Infuses over Rs 80 crore to scale up its holding in subsidiaries

- Sets up a Ayurvedic science centre - Ayush Therapy Centre - to

provide a platform for scientific enquiry of Ayurveda and
dissemination of this knowledge through collaborations with leading
national and international scientific, Ayurvedic and medical experts
and institutions

- Floats centralised shared services centre

- Places 88,000 WLL connections order with Reliance

- Begins supplying Unilever's tea bags

- Bharat Petroleum Corporation Ltd (BPCL) forges alliance with

Hindustan Lever (HLL) to sell their goods along with the LPG
cylinders which will allow the sale of durables and FMCG products

- Unites Knorr, Annapurna brands under one roof in the name Knorr
Annapurna Umbrella

- Floats a 100 per cent business process outsourcing (BPO) subsidiary

named 'Christened Indigo'. christened Indigo is divided in to two
divisions, one for domestic market and other for international

-HLL's advertisements reappear on Zee TV after nearly a gap of one


-- The company has tied up with Bharat Petroleum Corporation Ltd for
selling grocery items to LPG customers through BPCL`s distributor
network. the consumers can order all HLL products from Bharatgas
distributors in select cities.

-Introduced two new variants of Pepsodent toothpaste, Regular Fresh

Flavour and White Family Flavour. The company has also launched a 20
gm pack priced at Rs 5.

-Unveiled Lifebuoy, which is priced at Rs 2 at the retail level

-Entered into an agreement with Beeyu Overseas Ltd (BOL) which

agreed to market coffee in Poland

-HLL extended its Knorr Annapurna range into soup powders at Rs 5.

Sporting flavours such as Tomato Tease, Spicy Vegetable, Chicken
Punch and Peppery Chicken

-The company has extended its Modern brand of bread and cakes to

-The companty has introduced a new mango drink 'Mr Fruit'.

-HLL unveils Unnati Scheme


-Relaunches Rin Shakti Powder and Rin Shakti Bar

-Mr. Harish Manwani appointed president, home and personal care,

North America , a business worth 5bn euros in sales turnover for '02

-HLL unveils new festival package for its coffee brands

-HLL unveils new schemes to lure customers in Tamil Nadu

-HLL launches mega project on experimental basis in Mumbai

-HLL creates 'Power in Power'

-Gets award for industrial safety by National Safety Council, Kerala

Chapter in chemical industries sector in medium size industries

-Hindustan Lever Ltd tied up with the private sector power utility,
CESC Ltd, for sampling of Pepsodent toothpaste. `Touchbase with
Kolkata' project said that with its April bills CESC would be sending
out 14.1 lakh covers carrying the Pepsodent label and a small 15 gm
tube of toothpaste with a new flavour.

-HLL to ink MoU with Pepsi

- HLL sets up new Ayush centre in Mumbai

-HLL forays into water biz, rolls out Pure It to purify water

-Hindustan Lever Ltd has introduced its new active Gel Close Up in
the market

-Hindustan Lever launches `Perfect Radiance', range of 12 premium

skincare products under brand name Fair & Lovely on May 26, 2004

-Hindustan Lever, Ernakulam, has won the State Pollution Control

Award, 2004

- Hindustan Lever Ltd launches Domex Thick, a disinfectant cleaner,

in Kerala, priced at Rs 22 for 500 ml.

-HLL unveils 2 imported products under Lakme brand

-HLL enters into kids' personal care market

-Unilever, the parent company of Hindustan Lever and one of the

world's largest consumer products companies, has set up a global
sourcing arm, that will have a large presence in India to buy
products and raw materials from low-cost locations for its
subsidiaries across the world

-HLL sells Kissan factory premises in Bangalore for Rs 60 cr

-HLL's Modern Food unveils diet bread

-Launches Dove Ultra Moisturizing Body Wash

-HLL inks pact with Pepsi in beverage segment


-HLL introduce iced tea in glass bottles

- Unilever Overseas Holdings BV (UOHBV), the Netherlands based wholly

owned subsidiary of Unilever PLC divests 37,00,000 equity shares Rs
10/- each of Rossell Industries Ltd (RIL) in favour of M/s M K Shah
Exports Ltd, one of the leading exporter and tea plantation company
in India, being an Indian unlisted company.

- Hindustan lever Ltd, on May 22, 2005, entered Himachal in a big way
by setting up a home-and-personal-care(HPC) factory, with an initial
investment of Rs 110 crore.

-HLL rolls out Brooke Bond brand variation

-Mcleod Russel & HLL signs MoU

-Brookefields food operations moved to Mumbai


-Hindustan Lever Ltd. has appointed Mr. Ashok K. Gupta as Officer who
is in default for the purposes of Compliance with section 5(f) of the
Companies Act, 1956.

- Company name has been changed from Hindustan Lever Ltd to Hindustan
Unilever Ltd.

-Hindustan Unilever Limited has informed that Mr. Sanjiv kakkar,

Executive Director, Sales & Customer Development has been appointed
Chairman, Unilever Russia, Ukraine and Belarus (RUB), with effect
from 1st September, 2008.

- HUL completes 75 years on 17th October 2008


- Hindustan Unilever on Jan 26 said it has appointed R Sridhar as its

Chief Financial Officer by succeeding D Sundaram. Sridhar was serving
as the Vice-President, Finance and Controller for Unilever (Asia),
Africa and Central & Eastern Europe region. He joined HUL in 1989.

- Hindustan Unilever decided to license 'Lakme' and 'Lever Ayush',

brands to it's subsidiary, Lakme Lever Private Limited, for the
Beauty and Wellness services business.


- Hindustan Unilever said it exited from BPO firm Capgemini Business

Services India by selling its remaining 49% stake to IT consultancy
firm Cap Gemini SA.

- The directors of Hindustan Unilever Limited (HUL) have approved the

appointment of Dev Bajpai as Executive Director, Legal and Company
Secretary with effect from June 1, 2010.

P.O. Box 8131
CH-8050 Zurich

Telephone: (043) 317 7111

Fax: (043) 317 7958

Public Company
Incorporated: 1988 as ABB Asea Brown Boveri Ltd.
Employees: 116,464
Sales: $18.80 billion (2003)
Stock Exchanges: Swiss London Stockholm Frankfurt New York
Ticker Symbol: ABB
NAIC: 334416 Electronic Coil, Transformer, and Other Inductor Manufacturing; 334513 Instruments and Related Products Manufacturing for
Measuring, Displaying, and Controlling Industrial Process Variables; 334514 Totalizing Fluid Meter and Counting Device Manufacturing; 335311
Power, Distribution, and Specialty Transformer Manufacturing; 335999 All Other Miscellaneous Electrical Equipment and Component Manufacturing

Company Perspectives:
ABB is a global leader in power and automation technologies that enable utility and industry customers to improve performance while lowering
environmental impact. We are present in around 100 countries.
We leverage our technology leadership, global presence, application knowledge and local expertise to offer products and services that allow our
customers to optimize their operations. Our integration platform, Industrial IT, enables our customers to manage their installations better and link
up in real time with their own suppliers and customers. The result is a leap in efficiency, quality and competitiveness.
We focus on our core businesses in power and automation technologies and have simplified our organization. This ensures that our customers have
quick and easy access to ABB's offerings, when and where they need us--whether they buy from us directly or through distributors, wholesalers,
system integrators or other partners.
Our businesses work together with one simple and seamless set of values for customers.

Key Dates:
1883: Ludwig Fredholm establishes Elektriska Aktiebolaget in Stockholm as a manufacturer of electrical lighting and generators.
1890: Elektriska Aktiebolaget merges with Wenströms & Granströms Elektriska Kraftbolag to form Allmä-a Svenska Elektriska Aktiebolaget (name
later shortened to ASEA AB).
1891: Charles E.L. Brown and Walter Boveri establish BBC Brown Boveri in 1891 in Baden, Switzerland; initially known as Brown, Boveri & Cie, the
company's early activities include manufacturing electrical components such as electrical motors for locomotives and power-generating equipment
for Europe's railway systems.
1926: ASEA provides the electric locomotives and converter equipment for the first electric trains on the Stockholm-Gothenburg line.
1968: After receiving an order to build Sweden's first full-scale nuclear power station, ASEA merges its nuclear division with the state-owned Atom-
Energi to form ASEA Atom.
1980: Percy Barnevik is named ASEA's managing director and initiates a major reorganization, placing greater emphasis on such areas as robotics,
state-of-the-art electronics, and automation technologies.
1982: ASEA purchases full control of ASEA Atom.
1988: ASEA and Brown Boveri merge the assets of their respective companies, forming ABB Asea Brown Boveri Ltd.; the new entity, based in Zurich,
is 50-50 owned by ASEA and Brown Boveri.
1989: ABB acquires the power transmission and power distribution systems business of Westinghouse Electric Corporation.
Early 1990s:Company makes concerted push into eastern European and Asian markets.
1996: ABB merges its rail transportation unit with that of Germany's Daimler-Benz AG to form ABB Daimler-Benz Transportation GmbH (ADtranz), a
50-50 joint venture; ABB's parent companies change their names, ASEA becoming ABB AB and Brown Boveri becoming ABB AG.
1998: Elsag Bailey Process Automation N.V. is acquired in a $2.1 billion deal.
1999: Half interest in ADtranz is sold to DaimlerChrysler AG; ABB merges its power generation business with that of ALSTOM to create ABB Alstom
Power; parent companies ABB AB and ABB AG are merged as ABB Ltd., whose stock begins trading on the Zurich, Stockholm, London, and Frankfurt
2000: ABB sells its nuclear power operations to BNFL Inc. and its interest in ABB Alstom Power to ALSTOM.
2001: $470 million charge for asbestos liabilities contributes to $691 million net loss for the year--the first of three straight years in the red.
2002: ABB restructures to focus on two core businesses: power technologies and automation; structured-finance unit is sold to General Electric.
2003: "Prepackaged" bankruptcy plan is offered for Combustion Engineering that would cap asbestos liabilities at $1.2 billion; ABB's capital base is
strengthened by more than $4 billion.

Company History:
Often called the General Electric of Europe, ABB Ltd. has two core business segments: power technologies and automation technologies. Serving
electric, gas, and water utilities, and also industrial and commercial customers, the power technologies division offers a wide array of products,
systems, and services for power transmission and distribution and power plant automation. Offerings include transformers, medium- and high-
voltage products, power systems, and utility automation systems. The automation technologies division specializes in manufacturing-automation
and process-automation products, services, and systems. ABB transacts 55 percent of its total sales in Europe, 19 percent in the Americas, 18
percent in Asia, and 8 in the Middle East and Africa. The Wallenberg family dynasty of Sweden holds about a 10 percent stake in the company. ABB
(formerly known as ABB Asea Brown Boveri Ltd.) was formed in 1988 from the merger of Sweden's ASEA AB and Switzerland's BBC Brown Boveri
Ltd.--two companies founded in the late 19th century.
Early History of ASEA
Elektriska Aktiebolaget in Stockholm was established in 1883 by Ludwig Fredholm to manufacture electrical lighting and generators based on the
designs of a young engineer named Jonas Wenström. Wenström's innovative designs quickly led to financial success, and Fredholm soon wanted to
expand the scope of his firm's operations. He arranged a merger with Wenströms & Granströms Elektriska Kraftbolag, a company founded by Jonas
Wenström's brother Goran.
Allmä-a Svenska Elektriska Aktiebolaget (whose name was later shortened to ASEA AB) was created on November 18, 1890, to provide electrical
equipment for Swedish industry. Goran Wenström shared presidential responsibilities with Fredholm, who also served as chairman of the board.
After Fredholm's death in 1891, Wenström become sole president and Oscar F. Wijkman was appointed chairman.
The dawning of the electrical age provided ASEA with large new markets as the industrial and residential use of electricity became commonplace in
Sweden. The company quickly established itself as a pioneer in the industrial field. ASEA's installation of electricity at a rolling mill in the town of
Hofors is believed to be the first of its kind in the world, and in 1893, ASEA built Sweden's first three-phase electrical transmission, between
Hellsjon and Crangesberg.
ASEA's early success was short-lived. In 1896 one of Sweden's leading inventors and industrialists, Gustaf de Laval, acquired a 50 percent interest in
the company and both Wenström and Wijkman were ousted in a management reorganization. But Laval's mismanagement of ASEA soon led the
company into severe financial difficulties. With the help of the Stockholms Enskilda Bank, management opposed to Laval eventually extricated the
company from his control. Disorganized and deeply in debt, the firm lost a significant share of the electrical equipment market in Sweden.
Stockholms Enskilda Bank played a major role in ASEA's financial recovery. In fact, it was only after the bank agreed to guarantee his salary that J.
Sigfrid Edstrom, the former manager of the Gothenburg Tramways Company, agreed to become president of ASEA in 1903. Under Edstrom's
direction, the company began to show a substantial profit by 1907. In addition, he expanded the firm's markets in Europe: subsidiaries were
established in Great Britain, Spain, Denmark, Finland, and Russia between 1910 and 1914.
Although Sweden remained neutral during World War I, the company was adversely affected by the conflict. ASEA prospered during the early years
of the war because the scarcity of coal stimulated the development of electricity, including the company's first major railway electrification
project. Eventually, however, the firm lost many of its European markets because of the success of German submarine warfare. In Russia, all of
ASEA's operations were interrupted by the revolution beginning in 1917.
The postwar years brought a deep recession to Sweden that lasted from 1920 to 1923. Yet Edstrom's cautious spending policies enabled the
company to survive. By the late 1920s, ASEA was once again on the road to profitability and growth. In 1926 the company provided the electric
locomotives and converter equipment for the first electric trains on the Stockholm-Gothenburg line, and in 1932 ASEA built the world's largest
naturally cooled three-phase transformer.
During the 1930s, company management decided to concentrate on expanding and improving its domestic operations. After several years of
negotiations, ASEA and LM Ericsson Telephone Company signed a pact in 1933 stipulating that the two companies would not compete with each
other in certain sectors of the electrical market. As part of the agreement, ASEA purchased Elektromekano from Ericsson, giving ASEA undisputed
control over a large portion of the electrical equipment market in Sweden.
In addition to its production of electric locomotives and rail equipment for Sweden's national railway electrification program, the firm expanded
into new markets. ASEA purchased AB Svenska Flaktfabriken, a firm specializing in air-freight handling technology, and a large electric-motor
manufacturer in Poland to augment its domestic production. In 1934 Edstrom was named chairman of the board and Arthur Linden, executive vice-
president and a close Edstrom associate for many years, was named president. These two men directed the company's successful growth and
expansion strategy until World War II.
Although Sweden remained neutral during World War II, once again war severely affected the country's economy. The Nazi occupation effectively
curtailed ASEA's operations throughout Europe, and even to a significant extent in Sweden. A new president, Thorsten Ericson, was appointed in
1943, but this management change had little impact on the company's fortunes for the remainder of the war.
During the immediate postwar years, domestic power demands skyrocketed, forcing utility companies to expand rapidly. ASEA was unable to meet
this demand for electrical equipment because of shortages of material. To make matters worse, a five-month strike by metal workers played havoc
with the company's delivery schedule, leaving ASEA unable to meet the demand from the Soviet Union for electric equipment based on a 1946 trade
agreement between Sweden and the U.S.S.R.
In 1947 ASEA broke into the American market by signing a licensing agreement with the Ohio Brass Company for the local production of surge
arrestors. During this time, ASEA also received substantial orders for the first stage of the massive Aswan Dam project in Egypt.
In 1949 Ake T. Vrethem, formerly with the Swedish State Power Board, was named president of ASEA and Ericson became chairman of the board.
Under their direction, the company continued its pioneering efforts in several areas: ASEA supplied electrical equipment and technical expertise to
the world's first 400 kilovolt AC transmission, between Harspranget and Hallsberg in 1952; the company claims to have produced the world's first
synthetic diamonds using high-pressure technology in 1953, two years before General Electric Company announced a similar achievement in the
United States; and ASEA supplied the first permanent high-voltage, direct current (HVDC) transmission, linking the Swedish mainland with the island
of Gotland in 1954.
The company continued to play a critical role in Sweden's rail transit system. ASEA's locomotives accounted for virtually all the traffic on the
country's rail network. In the mid-1950s, the firm introduced its "Ra" light-class electric locomotive, which was an immediate success and gave a
boost to ASEA's efforts to market competitive locomotive models internationally.
Curt Nicolin Era at ASEA: 1961-80
In 1961 Curt Nicolin was appointed president. Nicolin restructured the parent company, introduced a new divisional organization, and relocated
some of ASEA's manufacturing facilities. The company formed an electronics division, signaling the start of ASEA's transition from a traditional
heavy electrical equipment manufacturer to an electronics company in which high-technology played an increasingly important role.
In the mid-1960s, ASEA's American market expanded considerably and became more important to the company's overall sales strategy. After serving
customers such as the Tennessee Valley Authority, the company firmly established itself in the United States when it was chosen to supply HVDC
equipment for the Pacific Internie Project on the West Coast.
ASEA also received an order to build Sweden's first full-scale nuclear power station during this period. The company then merged its nuclear division
with the state-owned Atom-Energi to form ASEA Atom in 1968. ASEA acquired the remaining 50 percent state interest in Atom-Energi in 1982.
In 1963 ASEA achieved a major technological breakthrough with the introduction of an improved thyristor able to handle substantially more
electrical current than existing devices. As a result, the company began manufacturing thyristor locomotives for Swedish and European rail systems.
In the mid-1970s, ASEA worked with its American licensee, the electromotive division of General Motors, to secure an order for 47 thyristor
locomotives for use on Amtrak lines in the Boston-New York-Washington, D.C. corridor.
Nuclear power became an increasingly controversial issue in Sweden during the late 1970s. ASEA continued to manufacture nuclear reactors and
received its first foreign order, from Finland. But in a 1980 national referendum Sweden voted to phase out nuclear power programs over a period
of 25 years. The company was still allowed to complete orders for foreign reactors, but ASEA Atom's future looked bleak.
Curt Nicolin was also appointed chairman of the board in 1976. During the 1970s, however, Nicolin's management style was overwhelmed by the
fast pace of changing technology. A large number of utility and electrical equipment manufacturing companies, including ASEA, experienced falling
profits and lackluster growth.
Percy Barnevik Era at ASEA: 1980-88
ASEA began to revive in 1980, when 39-year-old Percy Barnevik was named managing director and, eventually, CEO. Barnevik immediately began a
reorganization of the company's management strategy. ASEA had previously bid on projects with low profit margins for the sake of maintaining a
minimum sales level and a certain number of employees, but under Barnevik's direction the company would emphasize high profit margin projects.
Barnevik's strategy began to pay off quickly.
ASEA initiated a major expansion into high-tech areas, investing heavily in robotics and other state-of-the-art electronics. The development costs of
robotics at first held profits down in that sector, but Barnevik viewed robotics as a long-term, high-growth area.
Barnevik also considered ASEA's industrial controls business, with products such as large automation controls, a high-growth sector. ASEA already
had a major share of the rapidly expanding market for industrial energy controls, such as those that recycle waste heat. In addition, the company
positioned itself to take advantage of a growing demand for pollution controls, spurred in part by the acid-rain controversy in Europe and North
In 1985 the company was accused of an illegal diversion of proprietary U.S. technology to the Soviet Union. A former ASEA vice-president was
charged by Swedish authorities with tax evasion and violation of foreign exchange regulations in connection with the sale of six sophisticated
computers with possible military applications. Barnevik insisted that the diversions occurred without management's approval. By 1986 ASEA
reported revenues of SEK 46 billion and earnings of SEK 2.6 billion, and its workforce had reached 71,000.
Early History of BBC Brown Boveri
Charles E.L. Brown and Walter Boveri established BBC Brown Boveri in 1891 in Baden, Switzerland; it was initially known as Brown, Boveri & Cie.
The company's development is interesting because it was one of only a few multinational corporations to operate subsidiaries that were larger than
the parent company. Because of the limitations of the Swiss domestic market, Brown Boveri established subsidiaries throughout Europe relatively
early in its history, and at times had difficulty maintaining managerial control over some of its larger operating units. The merger with ASEA, a
company that was praised for its strong management, was expected to help Brown Boveri reorganize and reassert control over its vast international
Brown Boveri's early activities included manufacturing electrical components such as electrical motors for locomotives and power-generating
equipment for Europe's railway systems. In 1919 the company entered into a licensing agreement with the British manufacturing firm Vickers that
gave the British firm the right to manufacture and sell Brown Boveri products throughout the British Empire and in some parts of Europe. The
agreement gave Brown Boveri a significant amount of money and the promise of substantial annual revenue, and also helped the company expand
into foreign markets at a time when protectionist policies inhibited international expansion.
In the early 1920s, Brown Boveri, already a geographically diversified company with successful operating subsidiaries in Italy, Germany, Norway,
Austria, and the Balkans, suffered losses because of the devaluation of the French franc and the German mark. At the same time, in the Swiss
domestic market, production costs increased while sales remained static, causing the company further losses. In 1924 Brown Boveri devalued its
capital by 30 percent to cover the losses it had incurred. In 1927 the agreement with Vickers ran out and was not renewed.
During the same time, Brown Boveri's various subsidiaries grew rapidly. Industrialization throughout Europe created strong demand for the
company's heavy electrical equipment. Italy's burgeoning railroad industry provided a particularly strong boost to Brown Boveri's Italian subsidiary,
and the company's German facility actually did considerably more business than the Swiss parent. For the next few decades Brown Boveri grew as
fast as technological developments in electrical engineering. Each of the company's subsidiaries tended to develop individually, as if it were a
domestic company in the country in which it operated, and broad geographic coverage helped insulate the parent from severe crises when a certain
region experienced economic difficulties.
This sort of segmented development had its drawbacks, however. After World War II, the cold war presented a variety of business opportunities for
defense-related electrical contractors, but Brown Boveri's subsidiaries were seen as foreign companies in many of the countries in which they
operated, sometimes making it difficult for the company to win lucrative contracts involving sensitive technology and other government contracts.
The company, nevertheless, excelled at power generation, including nuclear power generators, and prospered in this field. Electrification efforts in
the Third World also provided Brown Boveri with substantial profits.
Reorganization of Brown Boveri in 1970
In 1970 Brown Boveri began an extensive reorganization. The company's subsidiaries were divided into five groups: German, French, Swiss,
"medium-sized" (seven manufacturing bases in Europe and Latin America), and Brown Boveri International (the remaining facilities). Each of these
groups was further broken down into five product divisions: power generation, electronics, power distribution, traction equipment, and industrial
Throughout the 1970s, Brown Boveri struggled to expand into the U.S. market. The company negotiated a joint venture with Rockwell International
Corporation, the American manufacturer of high-tech military and aerospace applications, but the deal fell through when the two companies could
not agree on financial terms. While Brown Boveri counted a handful of major U.S. customers as its clients, among them large utilities such as the
Tennessee Valley Authority and American Electric, Brown Boveri's American market share was dismal considering the company's international
standing (North American sales accounted for only 3.5 percent of total sales in 1974 and 1975), and the company continued to search for a means of
effectively entering U.S. markets.
In 1974 Brown Boveri acquired the British controls and instrument manufacturer George Kent. The deal at first raised concern in Britain over foreign
ownership of such highly sensitive technology, but Brown Boveri prevailed with the encouragement of George Kent's rank-and-file employees, who
feared the alternative of being bought by Britain's General Electric Company, PLC (GEC). The newly acquired company was renamed Brown Boveri
Kent and made an excellent addition to the parent company's already diverse product line.
In the mid-1970s growing demand in the Middle East for large power-generating facilities distracted the company from its push into North America.
Oil-rich African nations, such as Nigeria, attempting to diversify their manufacturing capabilities, also created new markets for Brown Boveri's
heavy electrical engineering expertise.
In the early 1980s Brown Boveri's sales flattened out and the company's earnings declined. In 1983 Brown Boveri's German subsidiary in Mannheim,
West Germany, which accounted for nearly half of the entire parent company's sales, rebounded. In spite of an increase in orders, however, the
company's cost structure kept earnings down. In 1985 the subsidiary's performance improved as a result of cost-cutting measures but price
decreases in the international market and unfavorable shifts in currency exchange rates largely offset these gains. In 1986 the parent company
acquired a significant block of shares in the Mannheim subsidiary, bringing its total stake to 75 percent. That year, Brown Boveri's revenues
amounted to SEK 58 billion, while earnings were SEK 900 million; the company had 97,000 employees.
In the later 1980s Brown Boveri took steps to reduce duplication of research and development among its various groups. While each subsidiary
continued to do some product development research for its individual market, theoretical research was unified under the parent company, making
more efficient use of research funding. In 1987 the company introduced a supercharging system for diesel engines called Comprex. This system was
capable of increasing an engine's horsepower by 35 percent and delivering up to 50 percent more torque at lower speeds. The Japanese automaker
Mazda planned to use the new supercharger in its new diesel passenger models.
Formation of ABB in 1988
In August 1987 ASEA and Brown Boveri, who had been fierce competitors in the heavy-electrical and power-generation fields, announced their
intent to merge their assets for shares in a new company, ABB Asea Brown Boveri Ltd., to be owned equally by each parent company--which
maintained separate stock listings in their own countries and acted as holding companies for ABB. When the merger took effect on January 5, 1988,
ASEA's Curt Nicolin and Brown Boveri's Fritz Leutwiler became joint chairmen. ASEA's CEO, Percy Barnevik, became the new operating company's
CEO, while his Brown Boveri counterpart became deputy CEO. ABB's headquarters were established in Zurich.
The joint venture between the two former competitors allowed them to combine expensive research and development efforts in superconductors,
high-voltage chips, and control systems used in power plants. In addition, ASEA's strength in Scandinavia and northern Europe balanced Brown
Boveri's strong presence in Austria, Italy, Switzerland, and West Germany. The merger, which created Europe's largest heavy-electrical combine,
was also designed to take advantage of ASEA's management strengths and Brown Boveri's technological and marketing expertise.
The integration of the giant was the new management's first task. CEO Barnevik had been applauded for his excellent job of rationalization at ASEA.
When he took the helm of that company in 1980 it was struggling but by 1986 it was earning 5.5 percent of total sales, compared to Brown Boveri's
1.5 percent. The companies hoped Barnevik would have similar success with Brown Boveri's operations. For his part, Barnevik aimed for ABB to
achieve an overall operating margin of 10 percent.
In 1988 and 1989, ABB reorganized its existing operations by decentralizing and ruthlessly slashing bureaucracy. The combined corporate
headquarters alone went from 2,000 to 176 employees. During the same period, ABB also went on an acquisition spree in Western Europe and the
United States, purchasing a total of 55 companies. Perhaps most importantly, ABB was able to gain a foothold in North America, something both
halves of ABB had struggled to achieve for the previous two decades. In early 1989 ABB formed a joint venture with the American electrical firm
Westinghouse Electric Corporation. ABB owned 45 percent of the new subsidiary, a manufacturer of power transmission and power distribution
systems for international markets. Then, in December 1989, ABB exercised its option to buy Westinghouse out of the venture, leaving ABB the sole
owner of the company. That same month, the company agreed to buy Stamford, Connecticut-based Combustion Engineering Group, an unprofitable
manufacturer of power generators and related equipment, for $1.56 billion. These U.S. investments, however, were not immediately successful for
ABB, and the company, over the next few years, had to reorganize the acquired businesses, divesting $700 million in assets and trimming their
payroll from 40,000 to 25,000.
Expansion in Asia and Eastern Europe and Major Restructurings in the Early to Mid-1990s
With recession plaguing the markets of Western Europe and North America in the early 1990s and with the continuing maturation of those markets,
ABB decided that its future lay in the emerging markets of Eastern Europe and Asia, where opportunities for growth were plentiful and where it
could set up lower-cost manufacturing operations. Although the company had virtually no operations in Eastern Europe at the beginning of the
decade, through a series of acquisitions and joint ventures in Eastern Germany, Poland, and Czechoslovakia, ABB had established a considerable
presence in the region by 1992, employing 20,000 people in 30 companies. By the end of 1995, ABB had a network of 60 companies in Eastern
Europe and the former Soviet Union, giving it the largest manufacturing operation of any Western firm in the region. Operations in Poland and the
Czech Republic continued to lead the way, but significant operations had also been established in Russia (3,000 employees), Romania (2,000
employees), and the Ukraine (1,500 employees).
At the same time, ABB began to expand more cautiously in Asia, laying the groundwork for $1 billion in investments there by the mid-1990s. In 1992
an operating structure was created for the Asia-Pacific region and more than 20 new manufacturing and service operations were established in the
region through acquisitions, joint ventures, and other investments. Investments in Asia continued in 1993, the year that ABB carried out another
major restructuring. This one involved the reorganizing of the company's global operations into three geographic regions: Europe (including the
Middle East and Africa), the Americas, and Asia; the folding of six industrial business segments into the following four: power generation, power
transmission and distribution, industrial and building systems, and rail transportation; and the streamlining of the executive committee to eight
members (Barnevik, the heads of the three geographic regions, and the heads of the four business segments).
In 1994, in addition to making additional investments in Asia, ABB entered into a contract to build a $1 billion combined-cycle power plant in
Malaysia. On January 1, 1996, ABB merged its rail transportation unit with that of Germany's Daimler-Benz AG to form ABB Daimler-Benz
Transportation GmbH (ADtranz), a 50-50 joint venture that immediately became the largest provider of rail systems in the world. As part of the
agreement, Daimler-Benz paid ABB $900 million in cash for its half share of the new venture because its rail operations were only about half the
size of those of ABB.
In February 1996 the parent companies of ABB changed their names, with ASEA becoming ABB AB and Brown Boveri becoming ABB AG. At the same
time, changes were made to ABB's board of directors. These changes were intended to reflect the company's increasingly global nature and to
improve the relationship between the subsidiary and its parent companies. Further management changes came in October 1996 when Barnevik
relinquished his position as chief executive of ABB in order to take over the chairmanship of Investor, the Wallenberg family holding company.
Assuming the position of president and chief executive was Göran Lindahl, a 25-year company veteran who had been executive vice-president for
power transmission and the Middle East and North Africa region. Barnevik remained ABB chairman. In June 1997 the Wallenberg group, in need of
cash for a takeover, reduced its indirect voting stake in ABB from 32.7 percent to 25.5 percent.
In June 1996 ABB was awarded a contract by the government of Malaysia to play the lead role in the building of a $5 billion-plus hydroelectric
power generation plant and transmission system at Bakun on the Balui River, but this project ran into problems in the following year. As a result of
the Asian economic crisis, which hit Malaysia particularly hard, the Malaysian government was forced to announce an indefinite delay in the project
in September 1997. Despite this setback, and the continuing uncertainty surrounding Asian economies, ABB did not pull back from its expansion in
that region. In October 1997 the company announced yet another major restructuring in which it planned to shift thousands of jobs from Europe
and the United States to Asia, cutting 10,000 jobs over an 18-month period. This was in addition to a 3,600-job cut announced just a few days
earlier at ADtranz. ABB's executives were betting that the Asian economic crisis would be of relatively short duration and reasoned that, although
they might lose business in the region in the short term, they could recoup some of these losses by taking advantage of the countries' weakened
currencies, which brought manufacturing costs down even further. To cover the costs of the reorganization, ABB took a charge of $850 million in
the fourth quarter of 1997.
From its first year of operation in 1988 through its ninth year in 1996, ABB Asea Brown Boveri Ltd. nearly doubled in size, increasing revenues from
$17.83 billion to $34.57 billion. Although it failed to reach Barnevik's goal of a 10 percent operating margin for even a single year, the merged
company was much more profitable than its predecessors, ASEA AB and BBC Brown Boveri Ltd., achieving a peak operating margin of 9.7 percent in
1995 before falling back to 8.8 percent in 1996. ABB was already much stronger, better managed, and more global in nature than its parent
companies had been when operating independently.
1998-2000: Lindahl's Transforming Moves
During the late 1990s and into 2000, Lindahl left his mark on ABB through a number of significant initiatives. In August 1998 the company launched
a major restructuring that did away with the group's regional reporting structure in favor of a realignment of business activities on global lines. In
addition, some existing business segments were broken up into smaller, more focused categories. For example, the industrial and building systems
segment was split into three new segments: automation, products and contracting, and oil, gas, and petrochemicals--the latter being the largest of
the three. The power transmission and distribution segment was divided into two covering power transmission and power distribution. Remaining
unchanged were the power generation and financial services segments.
Next, Lindahl spearheaded a series of moves to shift ABB's focus toward high-tech sectors, particularly industrial robots and factory control systems,
and away from the traditional heavy engineering activities. In October 1998 ABB completed the largest acquisition in company history, buying Elsag
Bailey Process Automation N.V., a Netherlands-based maker of industrial control systems, for $2.1 billion, including $600 million in debt. This deal
made ABB's automation segment the world's leading maker of robotics and automated control systems, with annual revenues of $8.5 billion. On the
divestment side, ABB in January 1999 sold its 50 percent stake in ADtranz to DaimlerChrysler AG for $472 million. In March 1999 ABB and France-
based ALSTOM merged their power generation businesses into a 50-50 joint venture called ABB Alstom Power. For transferring to the venture
operations that generated some $8 billion in annual revenues, ABB received $1.5 billion in cash. Then in May 2000 ABB sold its 50 percent interest
in the venture to ALSTOM for $1.2 billion. That same month, ABB completed the sale of its nuclear power business to the U.K. firm BNFL Inc. in a
$485 million deal.
The final step in the integration of the ABB predecessors ASEA and Brown Boveri also occurred under Lindahl's watch. During 1999 ABB AB and ABB
AG were united under a single stock, ABB Ltd., which began trading in June on the Zurich, Stockholm, London, and Frankfurt exchanges. (A listing
on the New York Stock Exchange was later added, in April 2001.) With the dramatic changes that had taken place at ABB under his relatively brief
tenure--changes that had by and large been received favorably--Lindahl's sudden resignation at the end of 2000 came as a surprise. It later came to
light that Lindahl had been forced out in a behind-the-scenes power struggle. Jörgen Centerman, the head of ABB's automation segment, was
named to replace Lindahl as chief executive. The now smaller ABB reported net income of $1.44 billion for 2000 based on revenues of $22.97
Early 2000s: A Fallen Giant Battling for Survival
Centerman quickly launched a restructuring of his own. In January 2001 ABB reorganized around four customer-focused divisions--utilities; process
industries; manufacturing and consumer industries; and oil, gas, and petrochemicals--and two divisions based on product type, power technology
products and automation technology products. The new organization was intended to accelerate ABB's shift away from heavy industrial products
toward new technologies and services, as well as to streamline its relationship with large corporate customers. Centerman also engineered one
major acquisition during 2001, the June purchase of Entrelec Group for $284 million. Gaining Entrelec, a supplier of industrial automation and
control products based in Lyon, France, strengthened ABB's position in key North American and European markets.
During the first half of 2001, operating earnings at ABB were down 21 percent and revenues were flat as the company's key markets suffered from
the economic slowdown. In July ABB announced that it planned to cut 12,000 jobs, or 8 percent of its workforce, over the following 18 months, in
an effort to shave $500 million off its annual expenses. Concerns about the company's performance and growing U.S. asbestos liabilities sent the
company's stock sharply lower. It was in this environment that Barnevik unexpectedly announced his resignation as chairman in November 2001.
Succeeding him as nonexecutive chairman was Jürgen Dormann, who was concurrently serving as chairman of the pharmaceuticals group Aventis
S.A. and had been on the ABB board for three years.
In January 2002 ABB doubled its provisions for asbestos liabilities by taking a $470 million charge against fourth-quarter 2001 earnings. ABB's
exposure to asbestos lawsuits stemmed from its 1990 acquisition of Combustion Engineering, which prior to the mid-1970s was a supplier of
products containing asbestos. This charge coupled with asset writedowns, a change in accounting practices, and losses on certain projects led to a
$691 million net loss for 2001. Soon after announcing these dismal results, ABB became embroiled in controversy through the embarrassing
revelation that former top executives Barnevik and Lindahl, apparently taking advantage of a lax corporate governance environment, walked away
from the company with pension and retirement benefits worth a combined $143 million. ABB pushed them to return some of the money, and in
March 2002 the two agreed to give back a combined $82 million. Saddled with $4 billion in debt, ABB next had to repair its balance sheet to avoid a
financial collapse. In April the company got some breathing room by restructuring a $3 billion loan. Then in September it reached a deal to sell its
structured-finance unit to General Electric; this deal, which closed in November, generated much needed cash proceeds of about $2.5 billion.
Also in September 2002, Dormann, unhappy about the pace of restructuring, took over as chief executive, replacing Centerman. Within weeks he
streamlined ABB's divisional structure, cutting its five divisions down to two core businesses: power technologies and automation. The building
products and oil, gas, and petrochemicals units were placed into a discontinued operations category, slated for divestment. Through this latest
reorganization, Dormann hoped to realize annual savings of $800 million. In December 2002 ABB sold its water and electricity metering business to
Ruhrgas Industries GmbH for $223 million. That same month, liquidity was assured for 2003 and 2004 through the securing of a $1.5 billion credit
facility. For 2002, ABB posted a record net loss of $783 million on revenues of $18.3 billion. Over the course of the year, the company's stock,
battered by the incessant bad news, fell 70 percent. The stock closed the year at $2.87 per share, down from $33 just three years earlier.
In January 2003 ABB and its Combustion Engineering subsidiary announced plans for a "prepackaged" bankruptcy for the U.S. unit and an offer to
resolve the unit's asbestos liability through a deal that would cap payments at $1.2 billion. This plan was soon approved by a U.S. district court, but
an appeal filed by a group of plaintiffs was pending in mid-2004. On the divestment front, ABB in August 2003 sold its building systems business in
Sweden, Norway, Denmark, Finland, Russia, and the Baltic states to Helsinki-based YIT Corporation for about $233 million. In December the
company agreed to sell its Sirius reinsurance business to the Bermuda-based White Mountains for about $425 million. In January 2004 ABB reached
an agreement to sell the upstream portion of its oil, gas, and petrochemicals unit to a private equity consortium led by Candover Partners, a
European buyout firm, in a deal estimated to be worth at least $925 million. During 2003, ABB also further bolstered its depleted capital base
through a $2.5 billion rights issue, a $750 million bond, and a $1 billion unsecured credit facility.
The various initiatives undertaken in 2003 failed to prevent ABB from posting its third straight full-year net loss. The news of the $767 million loss,
however, was soon followed by a report of the company's first quarterly profit in two years, during the first quarter of 2004. It appeared by then
that the worst of the crisis was over, and that ABB had firmly pulled itself back from the brink of bankruptcy. There was nevertheless a measure of
uncertainty in the form of the unresolved asbestos litigation. But Dormann felt confident enough about the company's future to announce in early
2004 that he would step aside as chief executive at the end of the year. Selected to succeed him was Fred Kindle, the head of Sulzer AG, a Swiss
engineering group much smaller than ABB.

Via Goldoni, 10
20129 Milan
Telephone: 39 02 774271
Fax: 39 02 76020600

Private Company
Incorporated: 1982
Employees: 1,531
Sales: EUR 475 million ($524 million) (2003)
NAIC: 316214 Women's Footwear (Except Athletic) Manufacturing; 315233 Women's and Girls' Cut and Sew Dress Manufacturing; 315234 Women's and
Girls' Cut and Sew Suit, Coat, Tailored Jacket, and Skirt Manufacturing; 315999 Other Apparel Accessories and Other Apparel Manufacturing

Company Perspectives:
It's not easy to circumscribe the Dolce & Gabbana universe within a definition. A world made up of sensations, traditions, culture and a
Mediterranean nature.
Domenico Dolce and Stefano Gabbana have made a trademark of their surnames which is known throughout the world, easily recognizable thanks to
its glamour and great versatility. Two Designers who have known how to make a flag out of their Italian character.
Two Designers who have known how to interpret and impose their sensual and unique style on a world-wide basis. Two young Designers who address
themselves to young people and who draw inspiration from them. Two Designers adored by the Hollywood stars who have made the duo their
favorites: two Designers who dress all of the rock stars of the moment and who have elected them as their unquestionable leaders. The Designers of
Madonna, Monica Bellucci, Isabella Rossellini, Kylie Minogue and Angelina Jolie, amongst others.

Key Dates:
1982: Domenico Dolce and Stefano Gabbana open their own studio in Milan.
1985: Dolce & Gabbana is selected as one of three "New Talents" for the Milano Collezioni.
1986: Dolce & Gabbana debuts its first full collection of women's clothing.
1991: The company launches a scarves collection, the first product to be made under license.
1995: D&G is launched in the United States.
2000: The company brings production of scarves, ties, and other accessories in-house.
2003: The company begins buying out franchise store owners, predicting sales of more than EUR 1 billion by 2005.

Company History:

Dolce & Gabbana SpA cuts an independent swath in the international fashion scene. The Milan, Italy-based company is one of that country's most
well-known fashion houses, boasting such high-profile clients as Madonna, Isabella Rossellini, Monica Bellucci, Tom Cruise, David Beckham, Kylie
Minogue, and many others. Led by founders Domenico Dolce and Stefano Gabbana, who serve as company CEO and president, respectively, the
company produces designs for women's and men's clothing, shoes, bathing suits, lingerie, and accessories. The company also designs a children's
clothing line, and develops eyeglasses and fragrances produced under license. Products are grouped under two core brands: Dolce & Gabbana, and
D&G Dolce & Gabbana. The company also further divides its designs under the "basic" White line and the more adventurous "Black" line. Dolce &
Gabbana has been moving toward greater vertical integration in the 2000s, buying control of much of its own production, and bringing in-house
most of its formerly licensed products. The company also has been buying up many of its previously franchised retail sites, and at the end of 2003
directly controlled some 60 stores. While remaining committed to its privately held status, in 2003 Dolce & Gabbana took the unusual step of
publishing its first annual report--in part to highlight its impressive growth. By that year, the company's sales had risen to EUR 475 million ($525
Partnering for Success in the 1980s
Domenico Dolce began his fashion career designing for his father's small clothing manufacturing business near Palermo, in Sicily. Dolce went on to
study fashion design, then moved to Milan, where he became an assistant designer in a workshop in 1980. There, Dolce met Venice-born Stefano
Gabbana, then just 18, who had entered the fashion business after starting out in graphic design. The pair quickly began working together, and by
1982 decided to enter into business for themselves, setting up their own studio in Milan that year with an initial investment of the equivalent of
just $1,000.
Dolce and Gabbana worked as free-lancers, designing for other houses in the early 1980s. The partners' big break came in October 1985, when they
were among a select group of just three young Italian designers chosen to present their designs in the "New Talents" section of that year's Milano
Collezioni event. Dolce and Gabbana threw themselves into the preparations for the show, laying the foundations for the later Dolce & Gabbana
look. The partners' irreverent and overtly sexual designs caused an immediate sensation, and Dolce & Gabbana left the event as an established
brand name.
Dolce and Gabbana now set to work on creating their first full collection, and in March 1986 solidified their reputation with the presentation of
their "Real Women" show. The Dolce & Gabbana look became synonymous with pinstripe suits, overtly worn lingerie, and extravagant prints--
especially animal patterns--alternated with designs in black.
The company opened its first showroom in 1987, on Milan's Via Santa Cecilia. For the production of the line, the pair turned to Dolce's father, whose
company, Dolce Saverio, became the group's primary manufacturer. That position was solidified when the two companies signed an agreement that
turned over production of Dolce & Gabbana's ready-to-wear line to Dolce Saverio in 1988.
By then, Dolce & Gabbana were rising stars of the international fashion world. Their reputation was helped in large part by their success in dressing
a number of top Hollywood names--such as Isabella Rossellini, who famously stated: "They find their way out of any black dress, any buttoned-up
blouse. The first piece of theirs I wore was a white shirt, very chaste, but cut to make my breasts look as if they were bursting out of it."
Dolce & Gabbana's designs became steadily more sensual toward the end of the decade, as the pair heightened what was described as their
celebration of womanhood. This "celebration" continued to attract celebrities to the young design team's creations. An important early customer
was Madonna, who told WWD: "I like their designs because they make clothes for a womanly body. Most designers seem to be making clothes for
girls with stick bodies who are flat-chested, but I always appreciate my own voluptuousness when I'm wearing their dresses."
Even as Dolce & Gabbana built a following in Hollywood, the company had begun to build sales in the Far East, specifically in Japan. In 1988, the
company signed a distribution agreement with Onward Kashiyama, which opened the first Dolce & Gabbana franchise store in Tokyo the following
Fashion Stars in the 1990s
In 1989, Dolce and Gabbana expanded their collection, adding beachwear and the Intimo line of lingerie. In January 1990, the company expanded
again, launching its first Men's collection. At the same time, Dolce & Gabbana signed on as the design team behind the Complice clothing line--
previously designed by Versace and Claude Montana--marketed by Milan's Genny Group. In November 1990, the company backed up its growing U.S.
sales with the opening of its first showroom in that country, in New York City. By then, the group's sales had topped the equivalent of $20 million.
Dolce and Gabbana continued adding to their collection of designs with the launch, in 1991, of a series of scarves, produced under license, followed
by a second licensed product, ties, in early 1992. These products were followed by other licensed products, including the first Dolce & Gabbana-
branded perfume, produced and distributed by Euroitalia, and a men's beachwear collection, also launched in 1992. In 1993, the company added
men's underwear, again manufactured under license. Footwear also became part of the Dolce & Gabbana portfolio during this period.
Dolce & Gabbana's growth maintained its rapid pace throughout the 1990s. The brand achieved new fame when Dolce & Gabbana were chosen to
create costumes for Madonna's 1993 world tour. The immediate interest in the group's clothing following that tour led it to shift into high gear: in
1994, Dolce & Gabbana created a secondary line, D&G Dolce & Gabbana, designed for a broader, and younger, market. That line was launched in
partnership with Iteria, which acquired a six-year production license.
The success of the new line quickly boosted the company's sales. From approximately $50 million at the beginning of 1994, Dolce & Gabbana's
revenues jumped to nearly $125 million by the end of that year. First launched in Europe, the D&G collection was introduced to the U.S. market in
Dolce & Gabbana also began adding new large-scale "signature" boutiques, featuring the group's full collection. By 1997, the company operated 13
boutiques, in addition to a growing number of franchised locations. Adding to the company's sales was the 1995 launch of its D&G Jeans line. In that
year, in addition, the group signed a license agreement with Italy's Marcolin to produce Dolce & Gabbana-branded eyewear.
Vertically Integrated and Independent in the 2000s
With retail revenues soaring past $200 million, Dolce & Gabbana began a restructuring effort in the late 1990s. A key feature of the group's new
organization was a drive toward becoming a vertically integrated group with control of its own industrial operations. In 1999, the company bought
up a 51 percent stake in Dolce Saveria, which, in addition to giving the company its own production component, brought Saveria's $58 million in
revenues into the business. The acquisition also included a 100 percent stake in subsidiary DGS, which had handled distribution to the group's sales
network. Dolce & Gabbana also bought a 6 percent stake in its eyewear licensee, Marcolin, which was then preparing its public offering.
Having acquired its own production capacity, Dolce & Gabbana now moved to further its vertical integration. In 2000, the company took over the
manufacturing of many of its formerly licensed products, including ties, scarves, beachwear, and lingerie and underwear. Later that year, the
company established its own Leather & Footwear division near the Italian shoe center of Florence, which began producing prototypes of the Dolce
& Gabbana shoe designs.
In the meantime, the company continued to hone its product offering, dividing its clothing collections into two new labels: the more basic White
and the more extravagant Black. The new labels first appeared in 2000. At the same time, the company launched its own collection of watches,
D&G TIME. Another significant launch for the company came with the début of its line of children's clothing in 2001.
Dolce & Gabbana now began gearing up for even greater expansion in the 2000s. In 2003, the company continued in its vertical integration drive,
opening a number of new, large-scale flagship stores, including in New York City and Las Vegas, as well as making its first entry into the Chinese
market, with the opening of a store in Hong Kong. Dolce & Gabbana also moved to take firmer control of its retail network, beginning a program of
buying out its franchisees, including the purchase of 20 stores from its Japanese partner that year. At the end of that year, the company's revenues
had grown to EUR 475 million ($525 million).
By then, Dolce & Gabbana had matured into a fully vertically integrated and independent business. The company also was brimming with
confidence. As Stefano Gabbana told the Daily News Record: "We're a strong company and right now we're at a significant period in our business. By
2005, we should reach the one-billion-euro mark." The company even began publishing its own annual reports--despite the fact that it had no plans
to shed its status as a privately held company. From a company launched with just $1,000, Domenico Dolce and Stefano Gabbana had built one of
the world's most respected fashion houses.
Principal Subsidiaries: Dolce & Gabbana Japan KK; DGS SpA; Dolce & Gabbana Industries SpA (51%).
Principal Competitors: Christian Dior SA; LVMH SA; Benetton SpA; Guess SpA.

Domino's, Inc.
30 Frank Lloyd Wright Drive
P.O. Box 997
Ann Arbor, Michigan 48106-0997

Telephone: (734) 930-3030

Toll Free: 888-366-4667
Fax: (734) 930-3580

Private Company
Incorporated: 1965 as Domino's Pizza, Inc.
Employees: 15,000
Sales: $1.33 billion (2003)
NAIC: 722211 Limited-Service Restaurants; 533110 Lessors of Nonfinancial Intangible Assets (Except Copyrighted Works)

Company Perspectives:
Domino's Pizza Vision: Exceptional people on a mission to be the best pizza delivery company in the world utilizing the company's guiding principles,
which are:
At the moment of choice
1. We demand integrity.
2. Our people come first.
3. We take great care of our customers.
4. We make great pizzas every day.
. We operate with smart hustle and positive energy.

Key Dates:
1960: Tom Monaghan and his brother Jim buy a pizza shop in Ypsilanti, Michigan, called DomiNick's.
1961: Jim Monaghan trades his half of the business for a Volkswagen Beetle.
1965: After briefly partnering with Jim Gilmore, Tom Monaghan gains full control of the company, which is incorporated under the new name
Domino's Pizza, Inc.
1967: The first Domino's Pizza franchise store opens in Ypsilanti.
1983: The first international store opens in Winnipeg, Canada.
1984: Headquarters are reestablished at Domino's Farms in Ann Arbor, Michigan.
1989: The company introduces its first new product, pan pizza.
1998: Monaghan sells a controlling 93 percent stake in the company to Bain Capital, Inc.; the company is renamed Domino's, Inc.
1999: Monaghan retires as chairman and CEO and is succeeded by David A. Brandon.
2001: Domino's Pizza International purchases a majority stake in Dutch Pizza Beheer B.V., a franchisee operating 52 Domino's outlets in The
2002: Domino's acquires 82 franchised stores in the Phoenix, Arizona, area in the largest store purchase in company history.
2003: The company announces a multiyear partnership with NASCAR, becoming the "Official Pizza of NASCAR"; Domino's has more than 7,300 stores
worldwide by the end of the year.

Company History:

Privately held Domino's, Inc. is the number two pizza chain in the world, trailing only the Pizza Hut division of YUM! Brands, Inc. The company
operates a network of more than 7,300 company-owned and franchised stores in all 50 U.S. states and more than 50 other countries. Nearly 90
percent of Domino's more than 4,800 U.S. outlets are franchise stores. Including the employees of franchisees, there are about 145,000 Domino's
workers around the world, and global systemwide sales in 2002 totaled $3.96 billion. Domino's was built on simple concepts, offering just delivery
or carry-out and an extremely limited menu: for more than 30 years, the company offered only two sizes of pizza, 11 topping choices, and--until
1990--only one beverage, cola. In recent years the company has added salads, breadsticks, and other non-pizza items to its menu in an effort to
stave off rivals Pizza Hut, Papa John's International, Inc., and Little Caesar Enterprises, Inc., but has otherwise held fast to its focus on the basics
of providing quality pizza and service. The driving force behind Domino's for most of its history was founder Tom Monaghan, who late in 1998 sold
control of the company to Bain Capital, Inc., a Boston-based private equity investment firm. Monaghan, however, retained a 27 percent voting
Originating in the 1960s
Monaghan was born in 1937 near Ann Arbor, Michigan. Following his father's death in 1941, Monaghan lived in a succession of foster homes,
including a Catholic orphanage, for much of his childhood. His mother, after finishing nursing school and buying a house, made two attempts to
have Tom and his brother live at home with her, but she and Tom failed to get along. During these years Monaghan worked a lot of jobs, many of
them on farms. His father's aunt took him in during his senior year of high school, but after that he was once again on his own. A quote from
Monaghan in his high school yearbook read: "The harder I try to be good the worse I get; but I may do something sensational yet."
For several years Monaghan worked to try to save money for college; he joined the Marines and saved $2,000, but gave it in several installments to
a fly-by-night "oil man" he met hitchhiking, who took the money and ran. Monaghan returned to Ann Arbor to live with his brother Jim, who worked
for the Post Office and did occasional carpentry work at a pizza shop called DomiNick's. When Jim Monaghan overheard the pizza shop owner
discussing a possible sale, he mentioned buying it as a possibility to Tom. With the aid of a $900 loan from the Post Office credit union, in
December 1960 Jim and Tom Monaghan were in business in Ypsilanti, Michigan.
Within eight months, Jim Monaghan took a beat-up Volkswagen Beetle as a trade for his half of the partnership. Tom moved in across the street
from his shop. The store Monaghan bought had little room for sit-down dining; from the start, delivery was key. The first drivers, laid-off factory
workers, agreed to work on commission. After only $99 in sales the first week, profits climbed steadily to $750 a week. Early on, Monaghan made
decisions that streamlined work and greatly enhanced profits: on two separate occasions he dropped six-inch pizzas and submarine sandwiches from
his menu when he was shorthanded at his shop, reasoning that he and his staff could handle the rush better without making special-sized pizzas or
sandwiches in addition to regular pizzas. When he went over the numbers the day after, both times Monaghan found that his volume and profits had
increased. Keeping the menu simple made financial sense.
Although his salary rose to $20,000 a year, Monaghan was not satisfied. On the advice of Jim Gilmore, a local chef with some restaurant
experience, Monaghan opened a Pizza King store offering free delivery in Mt. Pleasant, near the Central Michigan University campus. Gilmore ran
the original DomiNick's as a full partner with Monaghan. By early 1962, although the Ypsilanti store was not doing well, Gilmore persuaded
Monaghan to open a Pizza King at a new Ann Arbor location, which Gilmore would oversee while Monaghan whipped the original DomiNick's back
into shape. Gilmore convinced Monaghan to continue expanding in a financially dangerous way: because Gilmore had been bankrupt when the
partnership began, all papers were in Monaghan's name. By 1964, when Gilmore became ill, he made his differences clear: he liked sit-down stores
while Monaghan ran delivery. He asked for $35,000 for his share in the pizzerias. Although Monaghan considered the price preposterous, he did
want to separate from Gilmore. He hired lawyer Larry Sperling, who worked out a deal whereby Monaghan would pay Gilmore $20,000. Gilmore
would keep two restaurants in Ann Arbor; Monaghan, two pizzerias in Ypsilanti and one in Ann Arbor. Although their partnership was dissolved,
Monaghan was still dependent on Gilmore's success in business. In February 1966 Monaghan bought one more shop from Gilmore, but later that year
Gilmore filed for bankruptcy, with a total debt of $75,000, in Monaghan's name. Monaghan managed to sell Gilmore's restaurant, leaving him
immediately responsible for only $20,000, with the new owner of Gilmore's to pay off related debts on a month-by-month basis.
As Monaghan's operations grew, the original owner of DomiNick's decided to maintain rights to the name. Under deadline for a Yellow Pages ad,
driver Jim Kennedy came up with the name Domino's Pizza. The new company incorporated in 1965. Free from the Gilmore-related debts,
Monaghan was ready to begin franchising. The first board of directors included Tom, his wife and bookkeeper, Margie, and Larry Sperling. Sperling
drafted a franchise agreement in which Domino's would keep 2.5 percent as royalties from sales, 2 percent to cover advertising, and 1 percent for
bookkeeping. As Monaghan stated in his autobiographyPizza Tiger: "By today's standards, the royalties were far too favorable to the franchisee. But
it served our purpose then, and I was not concerned about covering all future contingencies."
The first franchisee, Chuck Gray, was a man visible in local and state politics; he took over an original store on the east side of Ypsilanti. While
Sperling and Monaghan hammered out financial matters--the former wanted to control costs, the latter to build sales--Domino's Pizza slowly
gathered a base of corporate staff. The second franchisee, Dean Jenkins, was handpicked by Monaghan to take over the first store to be built from
the ground up. By July 1967, when Jenkins's store was up and running, Domino's Pizza moved to East Lansing, home of Michigan State University. Its
dormitory population, at approximately 20,000, was the largest in the nation. Dave Kilby, originally hired to do some radio copywriting for
Domino's, later bought into a franchise, then began working at company headquarters, located above the Cross Street shop in Ypsilanti. Kilby then
worked on franchisee expansion with Monaghan.
In February 1968 a fire swept through Monaghan's original pizza store. Advertising manager Bob Cotman escaped the building just in time, climbing
down a fireman's ladder. Although the pizza shop reopened within two days, headquarters was wiped out and Domino's first commissary, with
$40,000 of stored goods, was destroyed. The staff pulled together, with each existing store location responsible for producing one pizza item--
cheese, dough, chopped toppings--which drivers then ferried from one store to the next to keep operations running.
The biggest challenge for Monaghan was not simply covering the total fire losses of $150,000 (only $13,000 paid for by insurance), but also paying
the leases on five new franchises and finding store operators as soon as possible. While Tom worked on his task, Margie Monaghan brought in Mike
Paul, her contact at the Ypsilanti bank, who soon joined Domino's to run the commissary. Paul fired half of the staff and cleaned up operations; he
introduced caps, aprons, and periodic spot checks for employee neatness.
Monaghan learned a lot in the early years of Domino's, due in part to road trips he took to research business and learn from competitors. When
observing the competition did not result in better methods, Monaghan innovated. Looking for equipment ideas at a Chicago convention, he found a
meat-grinder that he used to chop cheese as well as mix consistent pizza dough in less than a minute, in contrast to standard mixers, which took
eight to ten minutes to mix dough. Dough, once mixed, was stored on oiled pans; although covered by towels, the outside edges of the dough
hardened. Monaghan discovered an airtight fiberglass container that stored dough very well, and his practice later became a standard in the
industry. Monaghan also was dissatisfied with standard pizza boxes: they were too flimsy to stack, and heat and steam from the pizza weakened
them. Monaghan prodded his salesman to work with the supplier and devise a corrugated box with airholes, which also became an industry
Franchising in the 1970s
Plans began in earnest for Midwest expansion as Domino's jumped on the 1960s franchise bandwagon. Although Monaghan had worked on his plan to
expand on college campuses, opening a new store a week in late 1968 proved to be the beginning of a nightmare. Monaghan opened 32 stores in
1969 and was hailed as Ypsilanti's boy wonder. Spurred by McDonald's great success going public in 1965, Monaghan planned to do the same. With
the aid of loans, he bought a fleet of 85 new delivery cars, and spruced up his personal image; he also hired an accounting firm to computerize the
company's bookkeeping. When moving information from paper to computer, Domino's lost all its records. Perhaps as a result, the company
underpaid the Internal Revenue Service by $36,000. Monaghan was forced to sell his stock for the first time to raise the money to pay the IRS.
Monaghan tried to do too much, too fast. Ohio stores opened before Domino's reputation had spread that far and sales were poor. This was only the
beginning of the downturn: on May 1, 1970, Monaghan lost control of Domino's. Dan Quirk, who had bought Monaghan's stock, recommended that he
contact Ken Heavlin, a local man known for turning businesses around. Heavlin, in exchange for Monaghan's remaining stock, would run the
company, get loans to cover IRS debts, and after two years keep a controlling 51 percent interest in the company, with Monaghan getting 49
percent. In the meantime, Domino's became the target of lawsuits from various franchisees, creditors, and the law firm Cross, Wrock.
In March 1971 Heavlin ended his agreement with Monaghan, who shortly went to speak with each franchisee, persuading them that Domino's would
survive the crisis and they would all fare better working with him rather than against him. Their lawsuit was dropped. Monaghan pushed on, and
Domino's was back in business, however tight its financial strings. One man instrumental in the growth of the early 1970s was Richard Mueller.
Originally from Ohio, Mueller bought a franchise in Ann Arbor in 1970, during Domino's lowest period. After Mueller ran this store for a year,
Monaghan sent him to Columbus to revive an ailing store; within three months, sales shot up from $600 to $7,000 a week. Mueller soon operated
ten Domino's franchises and incorporated as Ohio Pizza Enterprises, Inc. Within six-and-a-half years Mueller opened 50 stores. As Domino's grew,
Mueller went on to become vice-president of operations in 1978.
Quick to rebuild Domino's, Monaghan encouraged trusted employees and friends to expand. Steve Litwhiler opened five stores in Vermont, while
Dave Kilby, who had relocated during the Domino's slump, managed to build a strong base in Florida. A significant hire by Kilby was Dave Black, a
top-selling manager who later rose to become president and COO of Domino's Pizza.
The year 1973 was a turning point for Domino's. The company introduced its first delivery guarantee, "a half hour or a half dollar off," as stated in
the company newsletter the Pepperoni Press. The College of Pizzarology was founded to train potential franchisees. The company decentralized as
well: accounting was moved from Ypsilanti headquarters to local accountants, while the commissary was reorganized as a separate company.
Domino's introduced its corporate logo, a red domino flush against two blue rectangles, in 1975. The company was sued the same year by Amstar
Corporation, parent company of Domino Sugar, for the right to use the name. After a five-year battle, Domino's won, but not until after more than
30 new stores were opened under the interim name Pizza Dispatch.
Free to expand, Domino's planned to grow by 50 percent each year. By the late 1970s, several acquisitions contributed significantly to company
growth. Domino's merged with PizzaCo Inc., in 1978, gaining 23 open stores plus a handful more under lease. The merger with this Boulder-based
company allowed Domino's to move into Kansas, Arizona, and Nebraska. The following year, joining with Dick Mueller's Ohio Pizza Enterprises, Inc.,
Domino's added 50 stores in Ohio and Texas, for a total of 287 stores. The company ended 1979 by announcing plans to expand internationally. The
new non-U.S. store subsequently opened in Winnipeg, Canada, in 1983.
Rapid Growth in the 1980s
The 1980s was a decade of phenomenal growth for Domino's Pizza, but this time the company was prepared. Although Monaghan had always feared
that formal budgeting systems promoted bureaucracy, with the advice of Doug Dawson, Monaghan decided to design companywide budgeting
procedures, which Domino's continued to use as training tools for potential franchisees. Dawson implemented the new accounting methods and
moved on to become vice-president of marketing and corporate treasurer. Instrumental in Domino's surge was John McDevitt, a financial consultant
Monaghan met in 1977. Among other accomplishments, he created and became president of TSM Leasing, Inc., a financial services company that
loaned money to franchisees who could not find other start-up financing.
To Monaghan, operations was the backbone of the business. When Dick Mueller left the post of vice-president of operations in 1981 to work as a
franchiser once again, Monaghan decided to regionalize Domino's operations. Mueller's previous job entailed far too much travel, and changes were
necessary. Monaghan set up six geographic regions, with a director fully responsible for each territory. The regional system, as Monaghan stated
in Pizza Tiger, "gave us the long communication lines with tight controls at the working ends that we needed for rapid but well-orchestrated
At the executive level, Bob Cotman took over as senior vice-president of operations, including marketing. Dave Black advanced from field
consultant and regional director to vice-president of operations. Both men (like Dick Mueller and Monaghan himself) had climbed every step of the
Domino's ladder, after beginning as delivery driver and pizza maker. In 1981 Black carried Monaghan's favored "defensive management" strategy--
whereby each store concentrated on keeping the customers it had--to a new level, by moving the company's focus away from its top-performing
stores to its weakest ones. Bringing the lower performers up worked extremely well. As the company added an average of nearly 500 stores each
year through the decade, newer, weaker stores were constantly given attention to improve sales.
One other element vital to Domino's 1980s growth spurt was choosing Don Vlcek, formerly in the meat business, to head the eight commissary
operations. Vlcek focused on uncovering best practices and disseminating them throughout the organization. When he discovered that one
commissary saved on laundry bills by rinsing out the towels used to dry trays, making them last a week before cleaning was necessary, Vlcek made
all other commissaries do the same. When he found that another commissary's manager was buying from a local cheese distributor instead of a less
expensive national one, the manager reworked his purchasing policies. Vlcek moved sauce-mixing from the commissaries to the company's tomato-
packing plant, which resulted in highly consistent, quality pizza sauce. Once Vlcek had taken care of the basics, in one eight-month period he
opened a new commissary a month, all with state-of-the-art equipment.
All the support Monaghan received gave him time to fulfill boyhood dreams on a dramatic scale. In 1983 he bought the Detroit Tigers baseball team,
which went on to win the World Series in 1984. He followed with the establishment in 1984 of Domino's Farms in Ann Arbor, a $120 million
corporate headquarters modeled after architect Frank Lloyd Wright's Golden Beacon tower. Wright advocated the integration of a high-rise building
in a rural setting, rather than an urban one. Monaghan also set up a working farm adjacent to the tower.
In 1985, Advertising Age placed Domino's "among the fastest-growing money makers in the restaurant industry." The company had to keep pace not
only with its own growth but also with that of its competition, including the industry leader, Pizza Hut, which had more than 4,000 units to
Domino's 2,300. Domino's stepped up advertising, increasing media spending 249 percent over the previous year. Pizza Hut entered the delivery
business in 1986, posing a huge threat to Monaghan's empire.
Domino's systemwide sales reached $1.44 billion by 1987. The company had grown to 3,605 units, spreading to Canada, Australia, the United
Kingdom, West Germany, and Japan. While 33 percent of U.S. stores were company-run, international units were franchised, usually to one
operator who could opt to subfranchise. The international marketing challenge was to convince buyers of the need for delivery. Back in the United
States, Domino's imitated McDonald's Corporation by tailoring an ad campaign to attract the Hispanic market. Competition in the late 1980s got so
tough that Monaghan was quoted inAdvertising Age as saying, "I want people here in the company to think of it as a war." Unfortunately, with wars
come casualties.
By 1989 more than 20 deaths had occurred involving Domino's drivers, calling the company's 30-minute delivery guarantee into question. A
Pittsburgh-based attorney representing a couple whose car was broadsided by a driver subpoenaed Domino's for its records. Citizen's groups, major
news networks, and the National Safe Work Place Institute joined in the heated criticism. Domino's responded with a national ad campaign and with
various tactics at the franchise level. One franchisee hired an off-duty police officer to track his drivers to ensure that they obeyed the law.
Domino's opened its 5,000th store by January 1989, moving into Puerto Rico, Mexico, Guam, Honduras, Panama, Colombia, Costa Rica, and Spain.
U.S. sales hit $2 billion. Monaghan named Dave Black as president and chief operating officer, announcing his own intentions to spend more time on
community work. In May Domino's introduced pan pizza, its first new product in 28 years. This news was hardly as big, however, as Monaghan's
October announcement of his intent to sell the company. After a buyout attempt in the form of an employee stock ownership plan failed, Monaghan
went shopping for buyers. By April 1990 Domino's cut its public relations and international marketing departments and continued cutting executive
and corporate support staff as part of a companywide effort to improve profitability. Payroll that year decreased by $24 million. Kevin Williams,
who made his name as a regional director, replaced Mike Orcutt as vice-president of operations. At the store level, Domino's opened fewer than 300
units in both 1989 and 1990.
Another Comeback in the 1990s
With Domino's sales slipping, and rivals Pizza Hut and Little Caesar's gaining market share, Monaghan returned to Domino's in March 1991 to pull his
company back on track. By December he had fired David Black, along with other top executives. Former franchisee Phil Bressler became vice-
president of operations. Domino's closed 155 stores, cut regional offices from 16 to nine, and unloaded extravagances such as corporate planes, a
three-masted ship, a travel agency, a lavish Ann Arbor Christmas display, and various sports sponsorships. Monaghan made some personal sacrifices,
too, leaving his post on the boards of directors of 16 Catholic colleges and organizations. Domino's 1991 systemwide revenues remained flat at $2.6
billion, and the company posted a loss of $67 million.
Adding three new senior executives, the company geared up to battle Pizza Hut, which had aired an ad showing unkempt Domino's drivers buying
Pizza Hut products. Domino's moved its advertising accounts to New York's Grey Advertising, Inc., from the local ad agency Group 243. While
Monaghan was away, Pepsico's Pizza Hut had converted half of its 7,000 units for home delivery.
Under fire, Monaghan insisted on maintaining Domino's original concept of a simple menu that speeds order preparation, allowing the company to
uphold its 30-minute guarantee. In an effort to be flexible--and to compete with Pizza Hut's pan pizza--Domino's offered a new pizza with more
cheese and an increased number of toppings. Taking another tip from its rival, Domino's worked on developing a single U.S. phone order number for
Domino's customers and a new computer system to track sales, costs, and trends. The company closed the Columbus and Minneapolis offices, with
corporate headquarters in Ann Arbor assuming their duties. The overall goal was to decrease debt. Monaghan considered making a public stock
offering again in 1992, but too few buyers were forthcoming. The company also worked to lessen the number of company-owned stores.
In November 1992 Monaghan shook up his upper ranks by replacing his longtime adviser and vice-president of finance, John McDevitt, with Tim
Carr, another financial executive at Domino's, and hiring Larry Sheehan, a former executive vice-president of Little Caesar's, as vice-president of
marketing and product development. Sheehan immediately put his stamp on the turnaround effort, convincing Monaghan to experiment with new
strategies and products, including salads, thin-crust pizza, and submarine sandwiches. "Tom Monaghan is now very open about the pizza business,"
he said. "He believes we need to take a different approach to this business and be willing to change."
The changes seemed to work. Earnings for 1993 picked up, after dropping significantly the two previous years. In yet another change, Domino's
dropped its famous 30-minutes-or-less pledge after a jury awarded a $78 million settlement to a woman who had been hit by a Domino's delivery
driver in 1989. Monaghan stated that "with our success in home delivery has come a negative public perception that we are not committed to
safety." The 30-minute guarantee was replaced with a more general customer satisfaction guarantee.
In January 1994 Larry Sheehan left Domino's, after a dispute with Monaghan over the size of his year-end bonus. Although his departure was widely
considered a loss to the company, his changes had taken hold, and Domino's systemwide sales crept upward, to $2.5 billion in 1995. Shortly
thereafter Domino's celebrated the opening of its 1,000th international store, in a suburb of Perth, Australia. With a stated goal of having more
international than domestic stores, Domino's opened stores in Ecuador, Peru, and Egypt in 1995, and planned to have 3,000 international stores by
the year 2,000. By 1996 foreign sales stood at $503 million, and in 1997 Domino's entered its 50th international market. In the meantime, the menu
in the U.S. stores expanded yet again, with the introduction of buffalo wings in 1994 and through a limited-time-only promotion of flavored-crust
pizzas during 1996.
Sheehan was succeeded as vice-president of marketing and product development by Cheryl Bachelder, a seasoned executive with experience at
Planters, Gillette, and Procter & Gamble who brought focus to Domino's efforts. "We're not trying to be fun and wacky and do delivery and carry-
out all at the same time," she said. "We're trying to excel single-mindedly on the basics of this business." In March 1997 Domino's announced its
previous year results, which dispelled any doubts that the company was back on track. Earnings were a record $50.6 million on systemwide sales of
$2.8 billion. "We believe the return to focusing on our core business--pizza delivery--coupled with great new products and strong international
growth accounted for our tremendous results in 1996," said CFO Harry Silverman.
Early in 1998 Domino's stores began using a new pizza delivery bag called HeatWave that had been developed by the company. The HeatWave bags,
which featured a heating mechanism that was warmed up using electricity prior to use, helped Domino's drivers deliver hotter and crisper pizzas to
their customers. The company that year also opened its 6,000th store. But the biggest news came late in the year when Monaghan finally succeeded
in selling the company. Seeking to devote his full energies to several Catholic charities, Monaghan sold a controlling 93 percent stake in Domino's to
Bain Capital, Inc., a Boston-based private equity investment firm, for about $1 billion and the assumption of about $50 million in Domino's debt.
Despite larger offers from other parties, Monaghan took the offer from Bain because the investment firm accepted the existing strategy for growth
and did not plan any immediate major changes. As part of the recapitalization, the company's name was shortened to Domino's, Inc., and Monaghan
retained a 27 percent voting stake.
Late 1990s and Beyond: The Post-Monaghan Era
After a nationwide search, David A. Brandon was hired as chairman and CEO in March 1999, succeeding Monaghan, who stayed on the company
board as chairman emeritus. Brandon was a marketing veteran who had most recently headed up Valassis Communications, Inc., a Livonia,
Michigan, firm specializing in the printing and distribution of coupons and newspaper advertising inserts.
Brandon quickly went to work placing his imprint on the company. Within a year of taking over, he completed a store rationalization program in
which 146 unprofitable stores were either closed or sold to franchisees, relocated some stores to more visible locations, and cut 100 administration
positions at corporate headquarters while simultaneously beefing up such areas as product development and brand management. He also stepped
up the expansion pace by opening 340 new stores during 1999 and another 418 in 2000.
On the overseas front, Brandon selected J. Patrick Doyle, formerly senior vice-president of U.S. marketing, to head Domino's Pizza International.
Doyle oversaw the opening of the 2,000th Domino's located outside the United States in 2000, and then the following year his division purchased a
majority stake in Dutch Pizza Beheer B.V., a Netherlands franchisee that operated 52 Domino's outlets in that country. The acquired firm was
subsequently turned into a regional office for managing European franchise expansion and supporting the existing operations in Europe.
Back in the United States, there were several developments in 2001. Two new products were added to the menu: cheesy bread and Cinna Stix, the
latter cinnamon breadsticks being the first dessert item to be offered by the chain. The 7,000th Domino's opened its doors. In addition, a new
advertising campaign was launched featuring the tag line, "Get the Door. It's Domino's." The corporation ended 2001 with net income of $36.8
million on revenue of $1.26 billion, while systemwide sales totaled $3.78 billion, an increase of 6.8 percent over the preceding year.
During 2001 and 2002 Brandon continued to focus on the bottom line, taking a fairly ruthless approach to shutting down or selling poorly performing
stores. As a result unit growth was turned down a notch, and the number of outlets increased only from 6,977 in 2000 to 7,230 in 2002.
Consequently, while revenues were fairly flat in 2002, profits nearly doubled, hitting $60.7 million. Also in 2002 the firm acquired 82 franchised
stores in the Phoenix, Arizona, area in the largest store purchase in company history, and another new product was launched, Buffalo Chicken
Kickers--strips of chicken breast breaded with a buffalo wings-style seasoning.
The new products kept coming in 2003 with the launch of another dessert item, Domino's Dots, balls of dough baked in cinnamon and sugar and
served with a vanilla icing glaze. Also introduced that year was the Philly Cheese Steak Pizza. On the advertising and promotion front, the company
in February 2003 announced a multiyear partnership with the National Association for Stock Car Auto Racing (NASCAR) through which Domino's
became the "Official Pizza of NASCAR." Domino's also began rolling out a new point-of-sale computer system called Pulse that was aimed at cutting
errors in making and delivering pizzas, improving customer service efficiency, and enhancing overall communications.
At the time that Monaghan had sold Domino's to Bain, the company had been losing market share in the U.S. delivered pizza sector for several
years, and it eventually saw its number one position in that sector taken over by upstart Papa John's. Brandon reversed this trend by focusing on
improving the U.S. store portfolio: by 2003, 90 percent of the domestic outlets had either been relocated or remodeled. Improvements on the
international side came from the chain's departure from several loss-making markets and a concentration on a handful of the best performing
markets: Canada, Mexico, Brazil, the United Kingdom, France, Australia, and Japan. There were more than 7,300 Domino's stores worldwide by the
end of 2003, and the company was aiming to eventually have 10,000, with room for at least another 1,000 stores in the United States. Domino's
financial position also was improving, as the increased earnings enabled the heavy debt load incurred to fund the 1998 buyout to be gradually
reduced; the debt was trimmed even further in mid-2003 through a refinancing. Speculation also was growing about a possible exit strategy for
Bain--either a sale of the company to another player in the industry or an initial public offering of stock.
Principal Subsidiaries: Domino's Pizza LLC; Domino's Franchise Holding Co.; Domino's Pizza PMC, Inc.; Domino's Pizza California LLC; Domino's Pizza
International, Inc.; Domino's Pizza International Payroll Services, Inc.; Domino's Pizza NS Co. (Canada); Domino's Pizza of Canada; Domino's Pizza of
France S.A.S.; Dutch Pizza Beheer B.V. (Netherlands).
Principal Competitors: Pizza Hut Inc.; Papa John's International, Inc.; Little Caesar Enterprises, Inc.

7-1-27, Ameerpet
Hyderabad, Andhra Pradesh 500 016

Telephone: 91-40-373-1946
Fax: 91-40-373-1955

Public Company
Incorporated: 1984
Employees: 5,796
Sales: Rs 18.01 billion ($391.8 million) (2003)
Stock Exchanges: Bombay New York
Ticker Symbol: RDY
NAIC: 325412 Pharmaceutical Preparation Manufacturing

Company Perspectives:
Our vision is to become a discovery-led global pharmaceutical company.
We will achieve this vision by building: A workplace that will attract, energise and help retain the finest talent available. An organisational culture
that is relentlessly focused on the speedy translation of scientific discoveries into innovative products that make a significant difference in people's

Key Dates:
1984: Dr. Anji Reddy founds Dr. Reddy's Laboratories, based on a bulk actives business he had founded in the 1970s, in order to extend into the
production of drug formulations.
1986: Dr. Reddy's goes public on the Bombay stock exchange.
1988: The company acquires Benzex Laboratories in order to expand the bulk actives business.
1992: Dr. Reddy's Research Foundation is founded as part of the strategy to enter drug development.
1994: The company opens a subsidiary in the United States.
1995: The company files its first patent for an in-house developed drug.
1999: The company acquires American Remedies Ltd.
2000: The company acquires Cheminor Drugs Limited and becomes the third largest Indian drug company.
2001: The company lists shares on the New York Stock Exchange; a new research and development facility opens in Atlanta, Georgia.
2002: The company acquires BMS Laboratories Ltd. and its marketing and distribution subsidiary Meridian Healthcare Ltd. in the United Kingdom.
2003: The company gains tentative approval to market generic versions of Serzone, developed by Bristol Myers Squibb.

Company History:

Dr. Reddy's Laboratories Ltd. is one of India's leading pharmaceutical companies with global ambitions. The company has departed from the Indian
pharmaceutical market mainstream of copying patented drugs to pursue the development of its own--patentable--molecules. As such, the company
has already achieved success with a number of promising anti-diabetic molecules. At the same time, Dr. Reddy's is pursuing a share of the lucrative,
but highly competitive, U.S. generics market, including the higher-margin "branded generic" market. Dr. Reddy's operates through several strategic
business units, including: Branded Finished Dosages; Generic Finished Dosages; Bulk Actives; Custom Chemicals; Biotechnology; Diagnostics; Critical
Care; and Discovery Research. A leader in its domestic market, the company is also active on the international scene, which accounted for 64
percent of the company's total sales of Rs 18 billion ($392 million) in 2003. North America contributed 32 percent of sales, while Russia added 28
percent. The rest of the company's international revenues were generated through the Asian, African, and South American markets. Dr. Reddy's is
led by founder and Chairman Dr. Anji Reddy and CEO (and Reddy's son-in-law) G.V. Prasad. Dr. Reddy's Laboratories was the first Asian
pharmaceutical company, excluding Japan, to list on the New York Stock Exchange.
Bulk Actives to Generics in the 1980s
In 1970, the Indian government, then led by Indira Ghandi, abrogated laws respecting international pharmaceutical patents. The move, meant to
reduce the cost of providing healthcare to India's large and exceedingly poor population, had the effect of supercharging the country's
pharmaceutical sector. With a long history in process chemistry, and a large and highly educated pool of scientists, the sector quickly became
experts at reverse-engineering, and then copying, the drugs developed by the world's large multinationals.
The new industry quickly became one of the world's most energetic markets--by the 1990s, there were more than 20,000 companies operating in
India's pharmaceuticals industry. Indian producers were able to produce drugs and their components for a fraction of the cost of their Western
counterparts, and quickly found an enormous demand throughout the developing world. Yet the highly competitive domestic market, as well as the
slender margins available from the copied--many would call them pirated--drugs forced the Indian companies to develop highly cost-effective
manufacturing and marketing models.
Dr. Anji Reddy, the son of a well-to-do turmeric farmer in Andra Pradesh in the south of India, was one of the early entrants into the new and fast-
growing market. Reddy traveled to Bombay to pursue pharmacology studies, then went on to earn a Ph.D. in chemical engineering. Reddy then
went to work for state-owned pharmaceutical company IDPL. At the time IDPL had been reliant on Russian technology; yet the company quickly
turned the tables, gaining expertise--and eventually providing that to Russia itself.
Reddy remained with IDPL into the early 1970s. The change of law and the rise of new opportunities in the pharmaceutical industry, however,
encouraged him to set up his own business, and in the mid-1970s, Reddy founded a company for producing and selling bulk actives--the basic
ingredients of drug compounds--to pharmaceutical manufacturers. Reddy's clientele soon featured a host of national and multinational companies,
such as Burroughs Wellcome and others.
In the early 1980s, however, Reddy sought to aim higher and establish himself as a manufacturer of finished products. In 1984, Reddy founded Dr.
Reddy's Laboratories, using $40,000 of his own, backed by a bank loan for $120,000. Reddy jumped into the market of producing copies, taking
advantage of the 1970 law. As he told Forbes: "We are products of that. But for that, we wouldn't be here. It was good for the people of India, and
it was good for this company."
Reddy's grew quickly, adding a large number of formulations, and achieving strong local success with its NISE range of painkillers. The company also
had success with its copy of Bayer's antibiotic ciprofloxacin and, especially, with AstraZeneca's omeprazole, which, under the trade name Losec,
had become the world's largest-selling drug. That drug provided fortune for Dr. Reddy's as well, as Reddy told the Financial Times: "After Astra, I
think I must be the largest producer in the world."
Meanwhile, Reddy's took advantage of India's low wage and production costs to boost its production of bulk actives. By 1986, the company prepared
to expand still further, and listed its stock on the Bombay exchange. In that year, also, the company began its first exports of bulk actives,
including methyldopa.
The company achieved another crucial milestone in 1987 when it gained U.S. FDA approval for its ibuprofen formulation. That approval, which was
coupled with the all-important FDA certification of its factory, marked the start of the company's international formulations exports.
In the meantime, Reddy's continued to develop its bulk actives business, becoming one of India's largest exporters of drug ingredients. In order to
support that growth, the company made its first acquisition, of Benzex Laboratories Pvt. Ltd., a bulk actives specialist.
Risking on Research in the 1990s
By the early 1990s, Reddy's, like its Indian counterparts, boasted a wide range of "copied" drugs in its portfolio. International sales were also
becoming an increasingly important part of the company's total revenues, a trend boosted by the company's entry into the Russian market in 1991.
That country later grew into one of the company's primary export markets.
Reddy himself, however, by then joined by son-in-law and future CEO G.V. Prasad, recognized that continued pressure from multinational drug
companies, with political backing from their domestic governments, coupled with India's desire to join the World Trade Organization, would
eventually lead to the re-imposition of respect for international drug patents. At the same time, competition among Indian manufacturers--with as
many as 100 companies producing knockoffs of the same drug preparation--had become increasingly heavy, making it harder to generate profits.
Meanwhile, the restriction-free market in India had led to a mass exodus of the country's highly regarded researchers and scientists.
These factors led Dr. Reddy's to a dramatic strategic shift. In 1992, Reddy founded Dr. Reddy's Research Foundation and determined to lead his
company through the transition from copier to pharmaceutical innovator. By 1993, the company's new research and development wing was
operational, and it set to work performing "drug discovery" work in a variety of fields, including metabolic disorders, such as diabetes, and cancer
treatments, among others.
Reddy's shift initially met with skepticism from the Indian community. As Reddy told the Financial Times: "I made a statement in Bangalore in 1993.
I said: 'Don't think that because we don't have millions of dollars we cannot invent new drugs. Don't shy away from this.' But nobody had the
conviction that an Indian company could discover anything."
Nonetheless, for its research and development effort, Reddy's adopted a standard practice among even the largest multinationals, that of
developing "analogue" preparations of existing drugs. By slightly altering the composition of a molecule or preparation, Reddy would be able to
present a new drug, which was sufficiently different chemically to achieve a separate patent.
The shift into research represented only one prong of Dr. Reddy's ambitions. In its determination to become a player in the global market, the
company moved to end production of illegal copies and instead shift its operations to the manufacture of--legal--generic drugs. In 1994, the
company placed a rights issue of $48 million in order to construct a new facility dedicated to producing generic drugs capable of meeting the
legislative requirements of Western markets. The company also opened a U.S. subsidiary in New Jersey that year.
By 1995, Reddy's initial research and development efforts had already paid off, as the company filed its first patent application for a new and
promising anti-diabetes formulation. The company successfully completed laboratory testing on the drug, an insulin sensitizer dubbed balaglitazone
by 1997. Yet, lacking the funds to engage in its own clinical testing, the company placed the patent up for grabs, and licensed it to Novo Nordisk in
1997. This marked a first for an Indian-developed drug. The following year, Novo Nordisk acquired the license for Dr. Reddy's second insulin
sensitizer, ragaglitazar.
Going Global in the 21th Century
The year 1997 marked a new era for Dr. Reddy's. In that year, the U.S. FDA adopted new rules, designed to encourage the growth of the generic
drugs market in the United States, which provided a six-month exclusivity period for the first company to gain approval to market newly available
drugs in a generic form. Dr. Reddy's decided to get in on the action--as an estimated $60 billion of drugs was expected to outgrow their patents
over the next ten years--and in 1997 the company filed an abbreviated new drug application (ANDA, used for registering a drug in its generic
formula) for a generic version of the popular anti-ulcer medication Zantac.
Buoyed by its early success, Dr. Reddy's moved to expand its operations at the turn of the century. In 1999, the company made a new acquisition,
buying up American Remedies Limited, based in Chennai, boosting its formulations capacity. That year, also, the company set up a research and
development subsidiary, Reddy US Therapeutics, in Atlanta, Georgia, placing part of its drug discovery effort closer to the U.S. market.
In 2000, the company made another important acquisition, this time of Cheminor Drugs Limited, which enabled Dr. Reddy's to claim the number
three spot among Indian pharmaceutical companies. That year, the company launched the commercial distribution of its first generics in the United
States. Back home, the company's research efforts had paid off with the filing of an Investigational New Drug Application for an anti-cancer
molecule developed in the company's labs.
Dr. Reddy's global ambitions now took it to the New York Stock Exchange, where the company listed its stock in 2001, becoming the first Asian
pharmaceutical company outside of Japan to do so. The company clearly revealed its ambitions, as Reddy told Business Week: "We want to be a
truly innovative company discovering and marketing drugs the world over." That year, the company scored a new success in its research activities,
licensing a second-generation anti-diabetic molecule to Novartis in a deal worth some $55 million. Meanwhile, on the generics front, the company
was lifted when its application for a 40mg generic version of the popular anti-depressive Prozac was awarded a 180-day exclusivity period. That
period generated some $56 million--nearly all profit--for the company.
By 2002, the Indian government had agreed to re-introduce patent enforcement in the pharmaceutical industry, starting in 2005. Although some
observers questioned whether the company would maintain the political will to enforce the new rules, Dr. Reddy's emerged as one of only a handful
of Indian companies capable of independent research. Indeed, the company had continued to build up its research capacity. In 2001, it had created
a new subsidiary, Aurigene Discovery Technologies, dedicated to the biotechnology sector.
The year 2002 also marked the company's first overseas acquisition, when it paid £9 million to acquire the United Kingdom's BMS Laboratories Ltd.
and its marketing and distribution subsidiary Meridian Healthcare Ltd. That purchase enabled the company to expand into the U.K.--and ultimately
European--generics market.
At the end of 2002, Dr. Reddy's scored a new victory in the U.S. market, when it successfully defeated lawsuits lobbied by Pfizer to prevent the
Indian company's marketing of its own variant of the pharmaceutical giant's Novasc. The company then began preparations to introduce its version
of the drug in 2003. Yet the new compound was expected to mark a new step for the company, as it became determined to enter the higher-margin
branded generics category.
Dr. Reddy's backed this change in strategy with a new portfolio of drugs, including the filing of an ANDA for fexofenadine HCI (better known as
Allegra, from Aventis) in April 2003. In July of that year, the company scored a new victory when it was granted tentative FDA approval to develop
and market generic versions of the Bristol Myers Squibb drug Serzone. Dr. Reddy's appeared well on its way to achieving its goal of becoming a
global pharmaceutical company.
Principal Subsidiaries: Aurantis Farmaceutica Ltda (Brazil; 50%); Aurigene Discovery Technologies Inc. (U.S.A.); Aurigene Discovery Technologies
Limited; Cheminor Drugs Limited; Compact Electric Limited; Dr. Reddy's Exports Limited (22%); Dr. Reddy's Farmaceutica Do Brazil Ltda.; Dr.
Reddy's Laboratories (EU) Limited (U.K.); Dr. Reddy's Laboratories (Proprietary) (South Africa); Dr. Reddy's Laboratories (UK) Limited; Dr. Reddy's
Laboratories Inc. (U.S.A.); DRL Investments Limited India; Kunshan Rotam Reddy Pharmaceutical Co. Limited (China; 51%); OOO JV Reddy Biomed
Limited (Russia); Pathnet India Private Limited (49%); Reddy Antilles N.V. (Antilles); Reddy Cheminor S.A. (France); Reddy Netherlands B.V.; Reddy
Pharmaceuticals Hong Kong Limited; Reddy Pharmaceuticals Singapore; Reddy US Therapeutics Inc.; Zenovus Biotech Limited.
Principal Competitors: RPG Enterprises; GlaxoSmithKline Consumer Healthcare Ltd.; East India Pharmaceutical Works Ltd.; Cipla Ltd.; Concept
Pharmaceuticals Ltd.; Khandelwal Laboratories Ltd.; Dabur India Ltd.

Duracell International Inc.

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Berkshire Corporate Park
Bethel, Connecticut 06801

Telephone: (203) 796-4000

Toll Free: 800-551-2355
Fax: (203) 207-7145

Wholly Owned Subsidiary of The Gillette Company
Incorporated: 1935 as P.R. Mallory & Company
Sales: $2.02 billion (2003)
NAIC: 335911 Storage Battery Manufacturing

Company Perspectives:
Through the Duracell Technology Center, comprised of scientists and engineers from around the globe, the company continues to invest in ways to
enhance the performance of its alkaline and specialty batteries.
From its long history of innovation and its focus on best serving the needs of the consumer, Duracell continues to set the standard for portable
Key Dates:
1935: P.R. Mallory founds Duracell's predecessor company.
1944: Inventor Samuel Ruben joins forces with Mallory, kicks off battery business.
1966: Earnings per share hit $2.34 before falling off with recession related drop in consumer spending.
1972: Sales of electrical and electronic items to industry are boosted.
1978: P.R. Mallory is acquired by Dart Industries.
1980: Dart merges with Kraft Inc.
1986: Kraft retains Duracell portion of business after split with Dart.
1988: Kohlberg Kravis Roberts takes over Duracell during leveraged buyout spree.
1989: Duracell goes public.
1996: The Gillette Company acquires Duracell.
2005: Procter & Gamble is set to buy Gillette.

Company History:

Duracell International Inc., owned by The Gillette Company, is the world's leading manufacturer and marketer of high-performance alkaline
batteries. Known as P.R. Mallory for decades after its founding in 1935, the company took on the Duracell name in 1978 when it was acquired by
Dart Industries. Subsequently, the battery maker was involved in numerous acquisitions and mergers, including one of the largest leveraged buyouts
(LBOs) of the 1980s. Duracell's distinctive copper and black color scheme has been around for more than three decades. In addition to its alkaline
batteries, the company sells primary lithium, zinc air, and rechargeable nickel-metal hydride batteries as well as a line of flashlights. Gillette--
parent to Duracell since 1996--was in line to be purchased by Procter & Gamble in 2005.
Mallory Charging Up with Duracell: 1935-77
P.R. Mallory and his basic business tenets of "invest in research" and "the customer is King" laid the groundwork for Duracell back in 1935.
Independent inventor Samuel Ruben entered the picture in 1944 and with Mallory introduced the world's first mercury battery, forerunner of the
alkaline battery. The innovation allowed the U.S. military to replace poorly performing zinc carbon batteries used in their equipment during World
War II, according to Gillette.
The battery component of Mallory's business grew steadily throughout the post-World War II period, reflecting the booming economy and the rapidly
growing market for consumer durables and electronic consumer goods, some of which would require battery power. The first hearing aid button cell
used Ruben's mercury battery technology.
During the early 1960s, the company introduced its AA size and AAA size alkaline batteries. The Duracell brand name was adopted in 1964, and the
Copper Top graphic came on the scene early in the 1970s.
Although revenues were growing, the company also closely tracked the business cycle because sales of many of its products were at the mercy of
consumer buying power, itself a function of wages and earnings. From the early 1960s into the mid-1970s sales grew strongly (the average annual
rate was 5 percent from 1963 to 1972); however, company profits reflected the recession of the mid- and late-1960s, with earnings per share
hitting a peak of $2.34 in 1966 before falling sharply with the recession. With the beginning of the deep recession in mid-1973, company earnings
began to fall sharply.
Mallory's profit margins were respectable in that price-competitive climate, but were under constant pressure. The boom of 1972 allowed the firm
to boost sales of electrical and electronic items to industry, complementing consumer sales. Specifically, makers of appliances bought Mallory
components to satisfy the growing retail demand for household items, such as laundry units, electric and gas ranges, and dishwashers, among other
consumer durables. The company saw this expansion of consumer durables, in particular, as a basis for long-term growth.
The strong growth in consumer durables generated an expanding volume of sales and, thus, economies of scale in production, meaning lower unit
costs, higher profit margins, and some insulation from price wars. Therefore, even as the U.S. economy left the fast-growth path of the 1960s and
Mallory's margins fell, it was able to weather the downslide of demand that accompanied the recession of 1973. The company's debt load was small,
and, although most of its market was domestic, it was well positioned to take on the foreign firms using their low production costs to make
headway into the U.S. market in the late 1970s.
In 1977, Fortune magazine ranked Mallory as the 507th largest company, with $323 million in sales and profits of $10 million (which put it in the
170th position). Most of the company's sales were to individual consumers and to makers of consumer durables. Industry accounted for the rest of
Duracell's sales, mostly electrical contacts, welding products, and special metals for the automotive, power generating, aerospace, and
communications industries. Mallory was also a supplier of batteries of all sizes to the military, and its Duracell batteries were used in everything
from hearing aids to military communications equipment. Brand building was essential during this time; the company's ad campaign focused on the
use of batteries in toys, and the "copper-top" image it created would be very successful in promoting the "long life" of Duracell batteries.
The battery was essentially an undifferentiated product, and niches in the market were primarily established through advertising. To a certain
extent, before the 1980s, the technology included transistor batteries and photo and watch batteries. But with the advent of the 1980s, however,
Duracell and competitor Eveready began to primarily sell general purpose batteries where image was the only means to promote differentiation.
Furthermore, the decade would see a shift in electronic technology. Duracell would have to adapt to the "cellular age," adjusting its products to
meet the demand for smaller and smaller cells.
High Voltage Deals: 1978-90
P.R. Mallory was bought by Dart Industries in 1978, becoming Duracell Inc. and kicking off what would be a tumultuous two decades of mergers and
acquisitions. Many deals transpired in the 1980s, including one of the largest leveraged buyouts in history.
The 1978 takeover was launched by Dart CEO and President C. Robert Kidder, who had come to Dart from Ford. Mallory fought the takeover but
eventually settled on Dart's offer of $46 per share, making the total acquisition worth $215 million. At the time, Mallory was being hit hard by
competition from Energizer and Panasonic. Kidder had joined Dart as vice-president of Planning and Development and made the recommendation
that Dart acquire Mallory in order to add more consumer business to Dart. After gaining control over Mallory, Dart divested several of Mallory's
subsidiaries but kept and promoted Duracell.
Shortly thereafter, Kidder joined Duracell as a vice-president based in Europe, where company growth was slower. Within one year, Kidder was
promoted by Chairman Pete Viele to vice-president of sales and marketing for Duracell U.S.A. Kidder would be credited with the forward-looking
strategy of creating the "cordless Duracell home" of cellular phones and pocket computers and, most importantly, recognizing the need to capture
this market. This market shift pointed to the unique, and perennial, technological parameters of a profitable battery business--companies could not
just invent new battery products without an established application for their use. Thus, Duracell's success would be highly dependent on energy
technologies, especially in the 1980s and 1990s, built into cellular telephones, camcorders, pocket computers, and other innovations.
By 1980 the company was again on the market, this time as part of a deal between Kraft Inc. and Dart. Kraft, which was owned by Phillip Morris at
the time, merged with Dart, owner of Duracell. This marriage would last until 1986, when Dart and Kraft split, with Kraft keeping Duracell.
The battery business, meanwhile, kept with its long-held tradition of introducing value-added features. Duracell began placing "freshness dating" on
alkaline battery packaging in 1987--the first consumer battery producer to do so.
In 1988, Duracell was taken over by the investment banking firm of Kohlberg Kravis Roberts (KKR) in what would be one of the largest leveraged
buyouts of the 1980s. The central players, Jerome Kohlberg, Jr., Henry R. Kravis, and George R. Roberts, raised $62 million to buy out 35
companies between 1976 and 1989, including Duracell. The purchase price for Duracell was $1.9 billion in 1988. Kidder and the management team
that organized the buyout from Kraft became 30 percent owners, Kidder was named president and CEO of Duracell, and the new Kidder team
devised a particular marketing and restructuring strategy for the newly independent firm.
At the time, the KKR buyout was viewed as very successful in that, compared to other LBOs, there were no assets sold and no large layoffs.
Increased research and development spending, prudent debt management, and cost-cutting measures led to an increased market position for the
KKR-controlled Duracell. The buyout was hailed by some as KKR's most successful LBO. Of course Duracell also benefited from the increase in
battery demand in the United States as well. Duracell and its major rival, Eveready, together controlled 75 percent of the $3 billion a year market.
Another key factor in the success of the LBO was the fact that most of the growth of the business had shifted to long-lasting alkalines (from zinc
batteries) so that alkalines accounted for 80 percent of Duracell's revenues in 1989.
In addition, the new marketing strategy for the streamlined company emphasized marketing the Duracell brand around the world, including such
new products as Lithium Manganese Dioxide batteries and the Copper Top Tester, a package that allowed consumers to test the power of batteries.
These marketing commitments were part of the buyout agreement. The commitment to the fierce mass marketing campaign paid dividends as
Duracell distribution became vast. "We're in mass merchandising, food, drug, jewelry, and hardware stores, catalogue showrooms, 7-Elevens, and
the Price Club, to name a few," said Kidder.
The LBO firm KKR had a reputation for piling on debt as part of its takeovers, and the future of Duracell was uncertain in spite of its strong
marketing position. To maintain a healthy cash flow, and as part of the takeover agreement, they sold two plants. Further, shortly after the
buyout, KKR took Duracell public in May 1989, and the share values rose from $15 to $20 in the first hour of trading. KKR made a $1.1 billion paper
profit, and Kidder made a handsome paper profit as well. KKR still controlled 61 percent of the company's stock while institutions held some 36
percent. Operating profits in the second quarter of 1990 rose 13 percent over the previous year to $194 million.
Back in the battery market, Duracell was closing the gap on market leader Eveready Battery; Eveready held 60 percent of sales in 1986, but by 1989
Eveready's share had fallen to 42 percent and Duracell made a significant gain, to a 36 percent share. Duracell challenged Germany's Varta
internationally and in 1988 captured almost half of Europe's alkaline market, despite aggressive advertising by European battery makers, who spent
$25 million on advertising that year.
As part of its advertising strategy, Duracell hired the high-profile advertising agency Ogilvy & Mather to promote its new battery tester product.
Whereas previous Duracell ads focused on the toy market, these television spots showed people, for example, at a bridal shower, unable to capture
the event on film or operate any appliances because their batteries were dead. Of course, had they purchased the Duracell's Tester, they would
have known beforehand that the batteries were dead. Promoted as "another Tester-monial," the spots used nonactors in everyday situations where
batteries are essential. The spots were very successful.
Established As Power Player: 1991-95
Each year, as part of its marketing strategy, Duracell's higher spending on advertising continued to pay off. Worldwide sales in 1991 were close to
$1.5 billion and netted a 43 percent share of the U.S. alkaline market. As of the early 1990s, Duracell was outsold in the U.S. market only by
Ralston Purina and was challenged in Europe only by Varta, which is Europe's one major rival to the North American heavyweights.
As Duracell moved into 1993, the unbridled growth of the modern "cellular society"--telephones, computers, compact disc players, and power
tools--brought double-digit growth to the battery industry and to Duracell. The consumer battery market had become one of small batteries with
more power than ever, with narrow, smaller penlite-type and mini-penlites taking over two-thirds of the market, squeezing out the traditional C
and D battery lines.
Duracell was also a leader in the new alkaline manganese battery, whose longer life--up to six times that of zinc carbon--more than compensated
for its higher price. Zinc-chloride batteries seemed to be ready to take over the market in the early 1980s but were overcome by the longer-lasting,
lower-cost alkaline cell.
As the market for zinc and alkaline cells began to reach its limits in a global market, new challenges faced Duracell in its battle with the largest
players in the battery industry. According to International Management in 1993, this intense struggle showed no sign of slowing down. One issue
that surfaced was recyclability, notably in Europe, adding another dimension to the competitive struggle. The throwaway image of nonrechargeable
batteries provoked concern about the environment, with the European Commission, in 1989, giving battery makers a choice: eliminate dangerous
metals (notably cadmium and mercury) or collect batteries for recycling. Although some companies, such as Varta, moved to make batteries
mercury-free, some argued that the costs associated with recycling outweighed the environmental benefits. In some cases, companies cooperated
to deflect costs; Europile, the consumer battery makers association, included Duracell, and Duracell's Richard Leveton chaired the Europile
environment committee.
The rechargeable market was also revived, with companies trying to balance the higher costs of new technology with the potential gains from new
markets. Duracell, for example, began supplying nickel-metal hydride cell phone batteries to Fujitsu and launched a consumer version of the same
product in the early 1990s. Although Duracell had cooperated with other industry leaders on such issues as recyclability and the environment,
intensified competition continued in the core markets. In one effort to reap the benefits of new product development, Duracell entered into a joint
research project with competitor Varta (Germany) and Toshiba. The company hoped to expand into new products and new geographical markets,
especially in Asia. In any case, the ever present competitive warfare of the industry exerted continuing pressure on Duracell to innovate and cut
costs. As International Management summed up the situation in its April 1993 issue: "The struggle for power shows no sign of running down."
Duracell International Inc., parent company of Duracell Inc., was firmly established as a power player in the early 1990s. The company controlled
79 percent of the U.S. consumer battery market. Its only real competitor was Eveready, which, with Duracell, combined for about 80 percent of the
alkaline battery market worldwide. Although best known for its batteries, Duracell produced a variety of electrical components used by
manufacturers of consumer durables and many related products bought by industry, various government agencies, and consumers.
During 1994, Duracell moved to strengthen its international presence: establishing in India a joint venture to make and market alkaline batteries;
spending in China $70 million to build factories to manufacture alkaline batteries; and striking an alliance with Toshiba Battery Co. of Japan and
Varta Batterie of Germany to manufacture rechargeable batteries in the United States. In 1996, Duracell acquired Eveready South Africa. But on the
European front, the company was planning a restructuring, in response to the economic slowdown which had limited growth for several years.
Sharp New Owner: 1996-2005
Successful international marketer Gillette entered into its biggest deal to date when it acquired Duracell in 1996 for more than $7 billion. Batteries
immediately became its second leading product line, behind razors and blades. Gillette planned to funnel Duracell's products through its marketing
channel which spanned more than 200 countries across the globe. According toFortune, Gillette had been looking for a strong addition to its
consumer products business during the first half of the 1990s. Gillette also sold Braun electrical appliances; Right Guard and Soft & Dri personal
care products; Parker, Paper Mate, and Waterman pens; and Oral-B toothbrushes. All were strong products and Duracell appeared a good match,
garnering fiscal 1996 sales of $2.3 billion, with room to grow globally. Gillette's 1995 revenues were $6.8 billion.
The Duracell Ultra was introduced in early 1998, and the company turned its attention to promoting that enhanced performance, higher priced line.
Duracell revenue growth, which had averaged about 10 percent annually from 1995 to 1997, dropped off in 1998 and 1999, falling to 4 percent and
6 percent, respectively. Gillette had envisioned a world in which better, more expensive batteries would be embraced as had their shaving
innovations. "Consumers [globally] are not trading up to the alkaline batteries as much as I expected," Gillette stock analyst Tony Vento of Edward
Jones, told the Boston Globe in April 2000. "I think a lot of that is the result of these economic difficulties around the world in the last few years."
While Duracell's Ultra sales did grow in 1999, it was at the expense of their regular alkaline sales, resulting in a net loss of overall market share.
Moreover, Duracell, unlike Gillette, had a major competitor pumping out product to match its innovations. Energizer had introduced its own high-
end battery to go up against Ultra for use in "high-drain" electronic products. Duracell's cause was not helped much either when Consumer
Reports concluded the added cost of Ultra batteries outweighed performance benefits.
In 2000, Duracell brought in nearly 30 percent of overall Gillette sales but the battery maker's operating profits had fallen off by 28 percent. The
departure of Gillette's top executive in the fall of 2000 was due in part to Duracell's performance, according to the Boston Globe. For 2001, Gillette
planned the relaunch of its mid-priced Copper Top line, complete with improved performance, new packaging, and the return of TV ads.
Other factors contributed to Duracell's woes in 2000. During 1999 batteries flew off the shelves, driven by the much publicized possibility of power
blackouts related to Y2K computer glitches. In 2000 those batteries by and large were still stockpiled in the homes of consumers. During the year,
competitors turned to discounting to drive up sales and gain market share.
Promotional spending continued into 2002. Duracell sponsored the World Cup tournament and launched the "Trusted Everywhere" campaign. The
company also implemented price cuts in the light of intensified competition. Despite these tactics, Duracell's market share dropped to 45 percent
in 2003. Energizer and value-priced Rayovac were beneficiaries.
The unprecedented hurricane season aided Duracell in 2004, as Floridians and others in the Southeast suffered with wave after wave of damaging
storms. Demand for digital electronic products improved the outlook of batteries introduced for that segment of the market. The disposable
Duracell CP 1 primary prismatic battery, for example, was integral to some new digital cameras. "With devices getting smaller and smaller it
becomes harder for manufacturers to incorporate disposable and rechargeable power into digital cameras," Kara Salzillo, manager of grand
communications, told Chain Drug Review in early January 2005. "With a flat shape and high-power chemistry our new battery fills a void in the
market, so we are very optimistic about its possibilities."
In late January 2005, Procter & Gamble Co. (P&G) announced plans to buy Gillette. The combined businesses would create a company with more
than $60 billion in annual revenue. The sale was expected to be completed in the fall of 2005. "For Gillette, P&G's broad reach will help it sell more
razors and batteries in huge developing markets like China," Jessica Wohl wrote forReuters.
Principal Competitors: Energizer Holdings, Inc.; Varta Aktiengesellschaft; Beghelli S.p.A.; Exide Technologies.

2005 Corporate Avenue
Memphis, Tennessee 38132

Telephone: (901) 369-3600

Fax: (901) 346-1013

Public Company
Incorporated: 1971 as Federal Express Corporation
Employees: 11,000
Sales: $10.27 billion
Stock Exchanges: New York Toronto Boston Midwest Pacific
SICs: 4513 Air Courier Services; 4212 Local Trucking Without Storage

Company Perspectives:

FedEx understands there is no such thing as a "glide path" to sustained profitability and market leadership in our industry. Instead, we're continually
applying new information technologies, strategic management initiatives and aggressive marketing strategies to better connect with customers,
reduce operating costs and improve profitability.

Company History:

FedEx Corporation specializes in overnight delivery of high-priority packages, documents, and heavy freight. The company created the overnight
air-express industry virtually singlehandedly in the 1970s; its success was such that by the 1990s it faced the sincerest form of flattery: increasing
competition from rival carriers. However, FedEx's continued mastery of logistics and its ability to track packages during the shipping process has
enabled it to retain its leadership role in the express air cargo industry, as well as act as a moving warehouse for numerous corporate and individual
customers. It operates in 211 countries, and serves all of the United States, providing 24-to-48-hour delivery of valuable, time-sensitive cargo to
any destination worldwide.
FedEx was founded as Federal Express Corporation in 1971, by 28-year-old Memphis, Tennessee, native Frederick W. Smith. Smith, a former Marine
pilot, originally outlined his idea for an overnight delivery service in a term paper he wrote for a Yale University economics class. He felt that air
freight had different requirements than air passenger service and that a company specializing in air freight rather than making it an add-on to
passenger service would find a lucrative business niche. Speed was more important than cost, in Smith's view, and access to smaller cities was
essential. His strategies included shipping all packages through a single hub and building a private fleet of aircraft. Company-owned planes would
free the service from commercial-airline schedules and shipping regulations, while a single hub would permit the tight control that got packages to
their destinations overnight. In making his dream a reality, Smith selected Memphis as his hub: it was centrally located and despite inclement
weather its modern airport rarely closed.
Term Paper Topic Becomes Reality, 1973
Smith supplemented a $4 million inheritance from his father with $91 million in venture capital to get his idea off the ground. In 1973 FedEx began
service in 25 cities with a fleet of 14 Dassault Falcon aircraft and 389 employees. The planes, which were relatively small in size, collected
packages from airports every night and brought them to Memphis, where they were immediately sorted. They were then flown to airports close to
their destination and delivered by FedEx trucks the following morning.
Smith's idea was costly indeed; it required creating an entire system before the company's first day of business. FedEx added to these start-up costs
by beginning expensive advertising and direct-mail campaigns in 1975. The company lost $29 million in its first 26 months of operation: in 1975
alone it gained $43.5 million in sales against an $11.5 million loss. Smith's investors considered removing him from the helm of the fledgling
company, but company president Arthur Bass backed the young founder. Bass improved delivery schedules and FedEx's volume climbed to the point
where it was profitable: By late 1976 the company was carrying an average of 19,000 packages a night, and by year's end it was $3.6 million in the
In 1977 company profits hit $8 million on sales of $110 million. The company had 31,000 regular customers, including such giants as IBM and the
U.S. Air Force, which used it to ship spare parts. It also shipped blood, organs for transplant, drugs, and other items requiring swift transport.
FedEx serviced 75 airports and 130 cities. While the major airlines gave the company stiff competition on heavily traveled passenger routes, there
was virtually no competition on routes between smaller cities. Its principal competitor, Emery Air Freight, used commercial airlines to ship
packages, giving FedEx an important time advantage.
Airline Deregulation in 1977 Fuels Growth
Deregulation of the airline industry in 1977 gave the still-struggling company an important boost. At the time of FedEx's startup, the U.S. airline
industry had been subject to tight federal regulation. In fact, the company had only managed to get into business through an exemption that
allowed any company to enter the common carrier business if its payloads were under 7,500 pounds. These self-same regulations, written in 1938 to
protect passenger airlines, would ultimately hold back FedEx's growth. The company was forced to fly up to eight small Falcon jets side-by-side to
bigger markets when use of one larger jet would have saved money. Smith led a legislative fight to end regulation, and a bill doing so was passed in
1977. Deregulation meant the company could fly anywhere in the United States anytime, and use larger aircraft like 727s, and later, DC-10s. FedEx
bought a fleet of used 727-1OOCs, using its Falcons to expand into small- and medium-sized markets.
In 1978, with its prospects looking solid, FedEx went public, selling its first shares on the New York Stock Exchange. The move raised needed capital
and gave the company's backers a chance to gain back a portion of their initial investment. Profits for 1979 were $21.4 million on sales of $258.5
million. By late 1980 FedEx was well established and growing at about 40 percent a year. It had 6,700 employees and flew 65,000 packages a night
to 89 cities across the United States. Its fleet included 32 Falcons, 15 727s, and five 737s.
Explosive growth continued as a tidal wave of businesses switched to overnight service. Miniaturization of consumer electronics and scientific
instruments translated into increasing numbers of small, valuable packages needing express shipment. In addition, many U.S. companies were
shifting to just-in-time inventories as a way to keep prices down, lessen quality-control problems, and cut costs. Consequently, these companies
often needed emergency shipment of goods and parts, and FedEx was there to provide that much-needed service. It soon began billing itself as a
"500-mile-an-hour warehouse."
Competition and Price Wars During the 1980s
A decline in the reliability of the U.S. Postal Service caused even more companies to switch to FedEx for important packages. Courier-Paks became
the fastest growing part of the company's business, accounting for about 40 percent of revenue. In 1980 Courier-Paks&mdash-velopes, boxes, or
tubes used for important documents, photographs, blueprints, and other items--cost the consumer $17 but guaranteed overnight delivery. By mid-
1980 the company had eight $24 million DC-10s on order or option from Continental Airlines, each capable of carrying 100,000 pounds of small
packages. It had also acquired 23 additional used 727s, and operated 2,000 delivery vans.
In mid-1981 FedEx announced a new product that would bring it into direct competition with the U.S. Postal Service (USPS) for the first time: the
overnight letter. The document-size cardboard envelope, which could contain up to two ounces, would be delivered overnight for $9.50 at that
By 1981 Federal Express had the largest sales of any U.S. air freight company, unseating competitors like Emery, Airborne Freight, and Purolator
Courier, which had gone into business about two decades earlier. Unlike FedEx, competitors shipped packages of all sizes using regularly scheduled
airlines, and didn't stress speed; FedEx's narrowly focused, speed-oriented service won over many of its competitor's customers. To compete, Emery
copied FedEx's strategy, buying its own planes, opening a small-package sorting center, and pushing overnight delivery. Airborne also entered the
small-package air express business. United Parcel Service of America (UPS), the leading package-shipper by truck, moved into the air-express
business in 1981. The USPS began heavily marketing its own overnight-mail service after FedEx's Courier-Pak began eating into its revenues. The
Postal Service's overnight mail was about half the price of FedEx's, but was not as accessible in many locations.
While FedEx was the leader in the U.S. overnight package-delivery industry, DHL Worldwide Courier Express Network built a similar service
overseas; the two would become major competitors when FedEx started building its own overseas network. Such increased competition put
pressure on FedEx's niche, but its lead was large and its reputation excellent. In 1983 the company reached $1 billion in annual revenues--the first
company in the United States to do so within ten years of its start-up without mergers or acquisitions.
Aggressively Pursues International Market Dominance
In 1984 FedEx made its first acquisition, Gelco Express, a Minneapolis-based package courier that served 84 countries. Hoping to recreate its U.S.
market dominance overseas, the company made further acquisitions in Britain, the Netherlands, and the United Arab Emirates. Meanwhile, UPS also
began building a competing overseas system.
By the late 1970s Smith had realized that up to 15 percent of the company's Courier-Pak business was information that would eventually be digitally
transmitted as telephone and computer technology improved. He spent $100 million to develop his own electronic-mail system, which was launched
in 1984 as ZapMail. A system for sending letters by fax machine and couriers, ZapMail was plagued by technology problems from the beginning: Fax
machines broke down frequently; light-toned originals would not transmit; minor telephone-line disturbances interrupted transmissions. ZapMail
cost $35 for documents up to five pages, plus $1.00 for each additional page, and high-volume customers soon discovered it was less expensive to
install their own fax machines. The program also faced competition from MCI Communications' electronic-mail system. ZapMail was still losing
money in 1986 when FedEx abandoned the system, taking a $340 million charge against earnings. In line with the company's policy of limiting
layoffs, the 1,300 employees working on the ZapMail system were absorbed into other FedEx operations.
In 1985 FedEx took a major step in its attempt to expand its services to Europe by opening a European hub at the Brussels airport. Revenue reached
$2 billion in 1985. In 1986 the company opened sorting centers in Oakland, California, and Newark, New Jersey, to more quickly handle shipments
to nearby high-volume destinations. And FedEx's hubs were being transformed into warehouses for its clients, as parts were stored there until
customers needed them, then shipped overnight. For example, IBM used FedEx to store mainframe parts and get them quickly to malfunctioning
computer systems. This trend coincided with a decline in FedEx's overnight mail volume, which was hurt by the spread of fax machines and the
lower rates charged by competitors. Revenue for 1987 was $3.2 billion, while rival UPS collected about $1.7 billion from overnight delivery.
By 1988 FedEx, with 54,000 employees, was providing service to about 90 countries and claimed to ship about 50 percent of U.S. overnight
packages. Mounting competition, however, had led to a price war that eroded company profits from 16.9 percent of revenue in 1981 to 11 percent
in 1987. Profits in 1988 were $188 million on revenue of $3.9 billion.
Expanding overseas proved tougher than FedEx had anticipated, and the company's international business lost $74 million between 1985 and 1989.
In February 1989, hoping to quickly develop a global delivery system, FedEx bought Tiger International, Inc., for $883 million, thereby acquiring its
heavy-cargo airline, Flying Tiger Line. Before the acquisition, FedEx had landing rights in five airports outside the United States: Montreal, Toronto,
Brussels, London, and limited rights in Tokyo. The company hoped to supplement these with the delivery routes Tiger had built over its 40-year
history, which included landing rights in Paris and Frankfurt, three Japanese airports, and cities through east Asia and South America. FedEx could
use its own planes on these routes instead of subcontract to other carriers, which the company had been doing in many countries. Tiger's large fleet
of long-range aircraft also gave FedEx an important foothold in the heavy-freight business. In 1988 Tiger had 22 747s, 11 727s, and six DC-8s; 6,500
employees; and revenue of $1.4 billion. Unfortunately, many of Tiger's planes needed quick repairs to meet U.S. government safety deadlines,
which led to lower-than-anticipated profits.
The purchase price paid by the company--which several analysts claimed was too much--also increased FedEx's debt by nearly 250 percent to $2.1
billion, and put the company into a market that was more capital-intensive and cyclical than the domestic small-package market. Owning Tiger also
put FedEx into an awkward position--many of Tiger's best customers were FedEx's competitors, and the company feared it might lose many of them.
Such fears proved unfounded, although Tiger's on-time record temporarily fell to 80 percent after the takeover, climbing to 96 percent by early
At the same time price wars continued with competitors, some of which made inroads into the overnight market. Earnings from UPS's overnight
service rose 63 percent between 1984 and 1988, and its revenues tripled. FedEx had a 55 percent share of the U.S. overnight letter market and
shipped 33 percent of U.S. overnight packages. It was clearly the leader in the express-delivery business, but its growth was slowing. FedEx's U.S.
shipment volume grew 58 percent in 1984 but declined to 25 percent in 1988. The company compensated by pushing its higher-margin package
service, which grew 53 percent from 1987 to 1989. Analysts estimated that packages provided 80 percent of FedEx's revenues and about 90 percent
of its profits.
In April 1990 FedEx raised its domestic prices, ending the seven-year price war. The U.S. air-freight industry was consolidating, and rival UPS had
heavy capital expenses from its own overnight air service, giving its competitor room to raise its prices. FedEx needed the extra profits--estimated
at between $50 million and $75 million a year&mdashø help pay for losses in its international business. Its foreign operations lost $194 million in
1989 as it struggled to integrate Tiger and build a delivery system in Europe. Tiger was unionized but unstructured; FedEx was non-union but
bureaucratic. Several uneasy months passed while the two systems were unified and a pilot seniority list was drawn up. To help increase overseas
tonnage, the company introduced one-, two-, and three-day service to large shippers between 25 cities worldwide and 85 cities in the United
Maintains Market Lead in the 1990s
FedEx entered the 1990s with increasing competition in the U.S. market, but was able to maintain its leading market share. UPS, now its main
competitor, continued to slowly woo away some customers by introducing volume discounts, a policy which it had resisted for years. FedEx
responded by instituting a customer-by-customer review of its own pricing strategy that resulted in a consolidation of subcontractor trucking
routes, the streamlining of pickup and delivery routes, and an increased profitability of certain freight runs; in some cases prices were also
adjusted upward. Enhancements were offered to express-service customers, including earlier-in-the day service options, computer software that
allowed FedEx clients to electronically prepare all shipping documentation, and Internet tracking of shipments via FedEx's new homepage. And the
company's network of retail affiliates was expanded, with new FedEx drop-boxes installed in more than 870 office supply superstores nationwide.
The results: Despite erosion from aggressive competitors, FedEx's domestic package volume rallied in mid-1992, with revenues growing from $7.6
billion to $7.8 billion over the previous year.
Internally, FedEx began company-wide cost-containment policies to reduce waste and overhead, as well as gain increased efficiency in meeting the
needs of its customers. The company's Station Review Process allowed the most effective local policies to be shared by the entire FedEx station
network. Despite cost-cutting measures, however, employee-related expenses rose when FedEx became mired in over two years of contract
negotiations with the Air Line Pilots Association (ALPA). Despite what Smith had considered generous enough salaries and benefit packages to keep
the threat of unionization at bay, heated labor negotiations ultimately resulted in the 1996 unionization of FedEx's 3,100 pilots. However, only a
few weeks after the pro-union vote, an organization of company pilots was petitioning the National Labor Mediation Board to call a second vote to
oust the union, leading analysts to doubt ALPA's continued influence over FedEx budgetary policy. On the plus side, the expiration of a federal
cargo tax during the federal budget impasse of January 1996 would provide FedEx with a fiscal boost as the company maintained prices despite a
temporary hiatus in federally directed excise payments.
In the early 1990s FedEx's foreign operations were troubled, and their losses dragged down company earnings. While overall sales rose from $5.2
billion in 1989 to $7.69 billion in fiscal 1991 operating income fell from $424 million to $279 million over the same period, much of it resulting from
the costly development of overseas markets. Industry analysts were divided over whether or how soon the company would be able to make its
foreign operations profitable. Some analysts questioned how long FedEx could accept international losses while carrying $2.15 billion in long-term
Smith countered such concerns by arguing that when the company's international volume increased, international service would become profitable.
In an effort to boost that volume, FedEx traded in its 727s for larger-capacity Airbus Industrie jet aircraft for their three daily European-destination
flights, filling extra cargo space with non-express packages to increase per-flight profitability. In 1994 the company became the first international
express cargo carrier to receive system-wide ISO 9001 certification; by mid-decade international service accounted for 12 percent of the company's
business: FedEx linked over 200 countries and territories worldwide, representing the bulk of global economic transactions. By 1996 the company
could boast sales of $10.27 billion against operating income of $624 million.
Further Expansion and a Look to the Future
Aggressive international route expansion included creating divisions in several hemispheres. A Latin America and Caribbean division was created in
1995 to integrate services within the second-fastest world's economic growth area. And in September of that year the company introduced FedEx
AsiaOne: a next-business-day service between Asian countries and the United States. Via a hub established at Subic Bay, Philippines, FedEx planned
to duplicate its successful hub-and-spoke delivery service within 11 of that continent's commercial and financial centers. Unfortunately, the
company's plans were confounded by the Japanese government, which limited FedEx's flying rights from Japan to other Asian countries in mid-1996,
after a series of talks between the U.S. and Japan failed to reach a compromise. While the U.S. government contemplated appropriate sanctions
against the Japanese government for its failure to honor existing flight privileges with FedEx, Japan viewed the company's growing success in Asia
as a threat to its own overseas cargo industry. Despite difficulties with Japan, the extension of its world-renowned service to the Pacific Rim area
placed FedEx in a strategic position within one of the fastest-growing economic centers in the world--particularly with regard to China, where the
company was the sole U.S.-based cargo service then authorized to do business.
Through 2015 the international express air cargo market was predicted to grow nearly 18 percent per year; FedEx was expected to reap a major
portion of that growth as it saw its foreign operations increasing by as much as 25 percent per year. By retaining the confidence of its customers
through its logistical capabilities, expanding the carrying capacity of its fleet of over 557 fuel-efficient aircraft and 37,000 vehicles, and a
continued dedication to providing cost-effective express service, "FedEx it" continued to be the generic way to request express shipment.
Principal Subsidiaries: Federal Express Aviation Services; Federal Express International; Flying Tiger Line Inc.; Tiger Inter Modal Inc.; Tiger
Trucking Subsidiary Inc.; Warren Transport Inc.
P.O. Box 320
Cresco, Iowa 52136

Telephone: (319) 547-6000

Toll Free: 800-800-1230
Fax: (319) 547-6100

Public Company
Sales: $190.87 million (1998)
Stock Exchanges: NASDAQ
Ticker Symbol:FTHR
NAIC: 33621 Motor Vehicle Body & Trailer Manufacturing; 336212 Truck Trailer Manufacturing; 336214 Travel Trailer & Camper Manufacturing;
336211 Bus Bodies Manufacturing

Company Perspectives:

Headquartered in Cresco, Iowa, Featherlite is a leader in designing and manufacturing high-quality aluminum and specialty trailers.

Company History:

Featherlite Inc. is an innovative leader in the design, manufacture, and marketing of aluminum specialty trailers and luxury motorcoaches. Through
a dealer network encompassing the United States and Canada, as well as other parts of the world, Featherlite offers more than 400 standard and
custom-made trailers. The company, headquartered in Iowa, serves the horse, livestock, utility and cargo, drop deck and flatbed semi,
snowmobile, car, and race car trailer/transporter markets.
Moving from Earth to Aluminum: 1988
In 1988 the Clement family acquired the assets of an El Reno, Oklahoma-based business that had been manufacturing trailers since the early 1970s
under the Featherlite brand name. "I was in the farm and construction equipment business, the auction business and real estate for 20 years before
that," said President and Chief Executive Officer Conrad Clement. "When my two sons, Tracy and Eric, and I bought the company in 1988, it had 72
employees and annual sales of under $20 million." The Clements immediately moved the business to Grand Meadow, Minnesota. At first, the
company almost exclusively manufactured horse and livestock trailers, but soon decided to change the mix of its trailer business by diversifying its
product lines and developing higher-end products. The sales of the company grew steadily with this diversification
These early years of the company were characterized by great expansion as well as diversification of the product line. When the Clements first took
over, there were only two plants totaling 160,000 square feet of space. By 1992 the company had nearly doubled its manufacturing space with the
addition of the Nashua, Iowa plant, and increased from 72 to 460 the number of workers employed.
Featherlite's next move quickly propelled them into the fast lane toward success. The company decided to expand its line to build car transporters.
Conrad Clement looked at the racing industry and saw potential not only for attracting new customers but for enhancing the visibility of the
company brand. Thus, he contacted Richard Childress and Dale Earnhardt, both well-known on the NASCAR circuit at the time, and struck a deal to
build them new race car transporters. These first trailers were completed in 1992. Then the company built a third trailer for Richard Petty, whose
family name was synonymous with professional racing. Clement was a master at involving the drivers in the development process to win their
approval. Both Childress and Petty flew to the plant to oversee the designs, and Clement even enlisted Petty to conduct an autograph session with
his employees.
Building on this success, Featherlite quickly established itself as a leader in innovative specialty trailer designs by building race car transporters and
other types of specialty trailers for motor racing's biggest stars. Featherlite's customer list soon began to look like a virtual "Who's Who" of racing
greats, including NASCAR Winston Cup champion Jeff Gordon; CART Champion Alex Zanardi; NHRA Funny Car champion John Force; NASCAR Busch
Series champion Dale Earnhardt, Jr.; NASCAR Craftsman Truck Series points champion Jack Sprague; and World of Outlaws sprint car champion
Steve Kinser.
Going Public, 1994
In 1993 the company moved its corporate headquarters to a new 50,000-square-foot facility in Cresco, Iowa, to be closer to its manufacturing
plants at Cresco and Nashua. By this time, the company employed 530 workers in all its plants. In September of the following year, the company
raised $10.4 million in new capital through an initial public offering of common stock. About $4.2 million went into the construction of a 140,000-
square-foot manufacturing space in Cresco in anticipation of future growth. The company also quickly increased the number of its employees to
800. In addition, Featherlite signed an agreement with Polaris Industries in 1994 to produce private label snowmobile, ATV, and personal watercraft
Race car transporters continued to fuel the growth of the company. In 1995 the 100th race car transporter was built for famous race car driver A.J.
Foyt. That same year, Featherlite built its third plant, adding 101,000 square feet to its manufacturing capacity, and also constructed an addition
to its interiors facility, increasing its size by 40,000 square feet.
In October 1995, Featherlite acquired the assets of Diamond D Trailer Manufacturing, a nationally recognized steel trailer manufacturer in
Shenandoah, Iowa, in order to provide customers and dealers with a high quality, but less expensive alternative to all-aluminum trailer models. The
acquisition included Diamond's 117,000-square-foot facility and added 75 Diamond D dealers to Featherlite's distribution system, while further
augmenting the workforce by 985 employees. The innovative leader in the steel trailer industry, Diamond D trailers were designed to insure
maximum structural integrity and cosmetic longevity while maintaining affordability to discriminating consumers.
As the company continued to diversify its product line, it also gained in popularity. By 1996 the company had 1,030 employees on the payroll and
could have coasted. Instead it raced ahead. In January 1996, Featherlite entered the luxury motorcoach market with the acquisition of the assets of
Vantare International, Inc. of Sanford, Florida. The Vantare acquisition enlarged the company's total workforce to 1,150 employees and added
another 52,000-square-foot facility to its manufacturing capacity. Featherlite fully integrated Vantare's new luxury motorcoach division into its
operations, contributing approximately $35 million in revenues to the company. Very quickly, Featherlite became a leading manufacturer and
marketer of luxury motorcoaches.
In 1997 Featherlite completed a 20,000-square-foot addition to the Vantare plant, constructed a 20,000-square-foot addition to its employee Work
Center, and raised its workforce to 1,200. By that year, revenues had grown to over $135 million. In October 1997 the company signed a joint
venture agreement with GMR Marketing to form Featherlite/GMR Sports Group, LLC. The goal of this joint venture was to develop promotional
events and implement marketing strategies in the rapidly evolving motorsports industry. The company believed that a clearer marketing
infrastructure was needed to support its growing brand name.
Having embraced the motorcoach line with the Vantare acquisition, Featherlite took a further step to secure its lead in the marketplace. The
company reasoned that many of its established racing car transporter customers would also want luxury coaches. Consequently, in May 1998
Featherlite acquired the assets of Mitchell Companies, the manufacturer of Vogue luxury motorcoaches and bus conversion vehicles including its
90,000-square-foot manufacturing facility. Featherlite made changes in the Vogue line and introduced the 5000 Series (formerly the Vogue V) and
Le Mirage Prevost conversion. Once again, Featherlite applied its now famous high quality craftsmanship to the Vogue.
The company also acquired the marketing and distribution system of Mitchell Motorcoach Sales, from which Featherlite was able to successfully
market its now increased price point range in luxury motorcoaches and thereby broaden its market coverage. With the Featherlite Vogue, the
company's presence in the recreation and leisure markets established Featherlite as the pacesetter for high-end luxury motorcoaches in the United
By 1998 when Featherlite marked its 25th anniversary, it boasted 1,737 employees. Featherlite's dealer network consisted of 240 full-line and
approximately 900 limited-line dealers throughout the United States and in selected Canadian markets, further strengthening Featherlite's market
penetration. The company implemented extensive training for all its dealers to improve their knowledge, experience, and productivity, and
designed new, attractive marketing tools and reference materials to assist in closing sales. In addition to this network, the company had 75
Diamond D dealers nationwide and 30 regular and 1,500 part-time vendors in its vendor network throughout the Midwest. Another marketing
strategy was its decision to take part in trade shows, fairs, and exhibitions annually. In 1998 alone, Featherlite's dealers worked 1,200 fairs with an
additional 300 major exhibitions covered directly by Featherlite employees. Featherlite also made a major commitment to national advertising
programs, including both print media and television.
Land, Sea, and Sky: 1998 and Beyond
In 1998 Featherlite decided to extend its penetration into an important niche market by establishing a formal agreement with Yamaha Motor
Corporation USA to supply its line of recreational trailers to Yamaha dealers throughout the United States. The sales of motorcycle, snowmobile,
ATV, and personal watercraft trailers through Yamaha dealers nationwide opened an important new distribution channel for Featherlite in this
expanding recreational market.
Featherlite also began to venture into the aviation industry by starting a consulting and brokerage company, called Featherlite Aviation Company.
The new company specialized in Beech and Cessna twin engine and turbine-powered product lines, offering professional aircraft brokerage and
consulting primarily to existing clients wanting to purchase or sell quality aircraft. The company made a commitment to the city of Cresco, Iowa, to
construct a hangar facility at a cost of approximately $300,000 as part of an airport expansion project.
By the late 1990s Featherlite trailers had a strong lead on competitors and orders for trailers were backed up. The company built a warehouse
facility for raw material storage at its Cresco location at an approximate cost of $1.8 million financed with new borrowings and began a long range
expansion of its Vantare facilities. At this time the company was using approximately one million pounds of aluminum per month. The availability
and cost of aluminum, needless to say, was critical to the company. Therefore, Featherlite took a very aggressive stance in negotiating long-term
commitments from its suppliers to provide, at a fixed price, substantially all of its total aluminum requirements on an established schedule into the
future. The company estimated that even at a minimum increase of about four percent in the cost of aluminum it was money ahead.
Orders for specialty trailers continued to grow. By this time Featherlite produced over 400 custom order and standard model specialty trailers.
Products included horse trailers, stock trailers, carhaulers, truck beds, utility trailers, commercial trailers, vending trailers, hospitality trailers, dry
freight trailers, race car transporters, customized drop frame vans, ATV trailers, snowmobile trailers, watercraft trailers, and motorcycle trailers.
Each year, the company produced approximately 8,000-10,000 trailers. Retail trailer prices ranged from approximately $1,000 for the small utility
trailers to $250,000 for the most elaborate race car transporters to $650,000 for luxury coaches. The average trailer price was approximately
Featherlite began investing more in promotions, developing such products as golf shirts, oxfords, jackets, T-shirts, sweatshirts, and collectibles that
were displayed by sales department personnel and dealers at over 1,200 fairs, trade shows, races and other events throughout North America each
year. The company also started to branch out into other recreation sport niches. In 1999 Featherlite held its first Featherlite Vogue Golf
Tournament. The company donated a utility trailer that was positioned on the fairway of the second hole, giving players the opportunity to be the
first to hit the trailer and take it home. Featherlite also became more involved in sponsorships that garnered recognition and publicity for its
trailers. Sponsorships over the years of horse shows alone included: The Equine-All American Quarterhorse Congress, the National Cutting Horse
Association, the National High School Rodeo Association, the Paso Fino Horse Association, the United States Team Roping Championships, the
Livestock-Black Hills Stock Show, the Iowa State Fair, the National Finals Rodeo, the National Western World Pork Expo, the World's Toughest
Rodeo, and the Professional Bull Riders.
The manufacturer also continued to dominate in the race car transporter business, with an estimated 80 percent of all drivers on the NASCAR
Winston Cup series and many other teams hooked up to Featherlite race car transporters. For years it held the coveted title of "Official Trailer" of
NASCAR, CART, IRL, NHRA, and the World of Outlaws sanctioning bodies, as well as the Indianapolis Motor Speedway and the Las Vegas Motor
Speedway. Its race sponsorships included SPORTSCAR, the Featherlite Southwest Tour, the NASCAR Featherlite Modified Tour, the Eagle River
Snowmobile Derby, and the Super Boat International Productions, Inc.
Throughout the growth and development of Featherlite, innovation, industry leadership, and top-notch products have been recognized as the
company's key strengths. With a virtual lock on its core markets, and legions of loyal customers, Featherlite would likely remain a heavyweight in
its industry well into the 21st century.
Principal Subsidiaries: Featherlite Aviation Company.

7701 Legacy Drive
Plano, Texas 75024-4099

Telephone: (972) 334-7000

Fax: (972) 334-2019

Division of PepsiCo, Inc.
Incorporated: 1961 as Frito-Lay, Inc.
Employees: 92,000
Sales: $10.98 billion (1998)
NAIC: 311919 Other Snack Food Manufacturing; 311821 Cookie and Cracker Manufacturing

Company Perspectives:

Our Mission Statement: To be the world's favorite snack and always within arm's reach.
Key Dates:

1932: Elmer Doolin founds the Frito Company in San Antonio, Texas, and begins making Fritos corn chips.
1938: Herman W. Lay buys Atlanta potato chip maker, changes name to H.W. Lay & Company, Inc., the following year.
1944: H.W. Lay begins marketing potato chips under the Lay's name.
1948: Frito Company introduces Chee-tos snacks.
1958: Frito Company acquires the rights to Ruffles brand potato chips.
1961: The Frito Company and H.W. Lay & Company are merged to form Frito-Lay, Inc.
1965: Frito-Lay, Inc. and the Pepsi-Cola Company merge to form PepsiCo, Inc., with Frito-Lay becoming a division of the new company.
1967: Doritos tortilla chips make their national debut.
1970: Frito Bandito advertising campaign is abandoned following complaints from Mexican American organizations.
1981: Company introduces Tostitos tortilla chips.
1991: Sunchips multigrain snacks are introduced.
1997: Company acquires the Cracker Jack brand.
1998: Wow! line of low-fat/no-fat chips debuts.

Company History:

Frito-Lay Company is the world leader in the salty snack category, controlling more than 35 percent of the world market in snack chips and 60
percent in the United States. Among the company's well-known brands are five that generate annual sales of $1 billion each: Lay's, Ruffles, Doritos,
Tostitos, and Chee-tos. In addition to its dominance of the potato chip, tortilla chip, and corn chip sectors (the last of these led by the Fritos
brand), Frito-Lay has major brands in other categories, such as Rold Gold pretzels, Cracker Jack candy-coated popcorn, and Grandma's cookies.
About $4 billion of the company's overall net sales are generated outside the United States, with sales in 42 countries. Lay's, Ruffles, and Chee-tos
are among Frito-Lay's major international brands, along with such local favorites as Walker's in the United Kingdom and Sabritas in Mexico. Frito-Lay
Company is the snack food division of PepsiCo, Inc., generating about half of the parent company's revenues and two-thirds of its profits.
Early Years of the Frito Company
Frito-Lay traces its origins to the early 1930s. In the midst of the Great Depression, the lack of job prospects spurred a number of young people to
turn to entrepreneurship in order to get ahead. Among these were the founders of the two companies that would merge in 1961 to form Frito-Lay.
Elmer Doolin's entrance into the snack food industry was one of happenstance. In 1932 the Texas native was running an ice cream business which
was struggling because of a price war. Doolin began seeking a new venture and happened to buy a five-cent, plain package of corn chips while
eating at a San Antonio café. At the time, corn chips or "fritos" (the word frito means fried in Spanish) were a common fried corn meal snack in the
Southwest. Typically, cooks would cut flattened corn dough into ribbons, then season and fry them.
Impressed with his five-cent snack, Doolin discovered that the manufacturer wished to return to Mexico and would sell his business for $100. Doolin
borrowed the money from his mother, purchasing the recipe, 19 retail accounts, and production equipment consisting of an old, handheld potato
ricer. Initially setting up production in his mother's kitchen, Doolin spent his nights cooking Frito brand corn chips and sold them during the day
from his Model T Ford. Early production capacity was ten pounds per day, with profits of about $2 per day on sales ranging from $8 to $10 per day.
Doolin soon expanded to the family garage, and increased production by developing a press that operated more efficiently than the potato ricer.
Within a year of his purchase of the business, Doolin moved the headquarters for the Frito Company from San Antonio to Dallas, the latter having
distribution advantages. Sales began expanding geographically after Doolin hired a sales force to make regular deliveries to stores. The Frito
Company also began selling the products of potato chip manufacturers through license agreements. The company soon had plants operating in
Houston, Tulsa, and Dallas.
In early 1941 Doolin expanded to the West Coast by opening a small manufacturing facility in Los Angeles. Only the onset of World War II and
rationing slowed Frito's growth. But sales quickly picked up again following the war's end, and by 1947 revenues exceeded $27 million. Doolin
moved his company toward national status through licensing agreements. The first came in 1945, when Frito granted H.W. Lay & Company an
exclusive franchise to manufacture and distribute Fritos in the Southeast. This marked the beginning of a close relationship between the two
companies, and would eventually lead to their 1961 merger. In 1946 another franchise was launched in Bethesda, Maryland, followed by a Hawaii-
based franchise in 1947. The following year, Frito introduced Chee-tos brand Cheese Flavored Snacks, which gained immediate popularity.
Meantime, the Fritos brand went national in 1949 when Doolin purchased color advertisements in several magazines, including Ladies' Home
Journal, Better Homes and Gardens, and Life.
By 1954 the Frito Company business included 11 plants and 12 franchise operations. In 1953 the Frito Kid made his debut as a company spokesman;
the character continued to be used in Fritos advertising until 1967. In 1956 the Frito Kid made an appearance on the "Today" show with host Dave
Garroway, marking the Frito Company's first use of television advertising. Fritos gained a new advertising theme in 1958 with the debut of "Munch a
Bunch of Fritos." That year, the Frito Company acquired the rights to Ruffles brand potato chips. The following year, Doolin died, having led his
company to its status as a major snack food maker, with revenues exceeding $51 million. The Frito Company continued to operate 11 plants, but its
franchise operations had been reduced to six after the company bought out several franchisees. John D. Williamson took over as president of the
company. Within two years of Doolin's death, the Frito Company would merge with H.W. Lay.
Early Years of H.W. Lay & Company
H.W. Lay & Company, Inc. was founded by another entrepreneur, Herman W. Lay. Born in humble circumstances in 1909 in Charlotte, North
Carolina, Lay had worked a variety of jobs and run a few small businesses from the age of ten, including an ice cream stand, before taking a
position as a route salesman at the Barrett Food Products Company, an Atlanta-based potato chip manufacturer, in 1932. Later that year, Lay
borrowed $100 to take over Barrett's small warehouse in Nashville on a distributorship basis. This was coincidentally the same year that Doolin had
established the Frito Company.
Lay started out selling Barrett's Gardner brand products from his 1928 Model A Ford, initially pocketing about $23 a month. Growth came rapidly,
however. In 1933 Lay hired his first salesman, and by the following year his company had six sales routes. By 1936 Lay employed a workforce of 25
and had moved his company from its original warehouse to another Nashville building. From this location, Lay began manufacturing products
himself, including peanut butter cracker sandwiches and french fried popcorn. In 1938 the latter became the first item marketed under the Lay's
name, specifically Lay's Tennessee Valley Popcorn. By that year Lay was distributing snack foods throughout central Tennessee and southern
Kentucky, and had opened a new warehouse in Chattanooga. The most significant development of 1938, however, came as a result of financial
difficulties encountered by Barrett Food Products. After securing $60,000 in financing through business associates and friends, Lay bought Barrett,
its plants in Memphis and Atlanta, and the Gardner's brand name. He changed the name of the company to H.W. Lay & Company, Inc., with
headquarters in Atlanta.
During the early 1940s H.W. Lay added manufacturing plants in Jacksonville, Florida; Jackson, Mississippi; Louisville, Kentucky; and Greensboro,
North Carolina. Lay also built a new plant in Atlanta featuring a continuous potato chip production line, one of the first in the world. In 1944 the
company began marketing potato chips under the Lay's name, with the Gardner's brand becoming a historical footnote. That same year, H.W. Lay
became one of the first snack food concerns to advertise on television, with a campaign featuring the debut of Oscar, the Happy Potato, the
company's first spokesperson. The following year, H.W. Lay gained from the Frito Company an exclusive franchise to manufacture and distribute
Fritos corn chips in the Southeast.
After establishing a research laboratory to develop new products in 1949, H.W. Lay expanded its product line during the 1950s to include barbecued
potato chips, corn cheese snacks, fried pork skins, and a variety of nuts. The company also expanded outside the Southeast and acquired a number
of weaker competitors. In 1956 H.W. Lay went public as a company with a workforce exceeding 1,000, manufacturing facilities in eight cities, and
branches or warehouses in 13 cities. Revenues in 1957 stood at $16 million, making Herman Lay's company the largest maker of potato chips and
snack foods in the United States. H.W. Lay had also gained fame for carefully developing and utilizing its sales routes. Company salespeople were
among the first to go beyond simply delivering their merchandise to store owners, as they also stocked the merchandise for the owners, set up
point-of-purchase displays, and helped to assure product quality by pulling stale bags off the shelves and displays before they could be sold. This
"store-door" delivery system helped to increase revenues as the salespeople were able to "work" a particular sales territory more intensely. By the
spring of 1961, H.W. Lay had operations in 30 states, following the purchase of Rold Gold Foods, makers of Rold Gold Pretzels, from American Cone
and Pretzel.
Frito-Lay, Inc.: 1961-65
In September 1961 H.W. Lay and the Frito Company merged to form Frito-Lay, Inc., a snack food giant headquartered in Dallas with revenues
exceeding $127 million. The new company began with four main brands--Fritos, Lay's, Ruffles, and Chee-tos--and a national distribution system.
Williamson served as the first chairman and CEO of Frito-Lay, with Lay taking the position of president. In 1962 Lay took over as CEO, with Fladger
F. Tannery becoming president; two years later, Lay added the chairmanship to his duties.
In 1963 Frito-Lay began using the slogan "Betcha Can't Eat Just One" in its advertising for Lay's potato chips. Two years later comedian Bert Lahr
began appearing in ads in which he attempted--always unsuccessfully--to eat just one Lay's chip. Annual revenues for Frito-Lay exceeded $180
million by 1965, when the company had more than 8,000 employees and 46 manufacturing plants.
June 1965: Frito-Lay + Pepsi-Cola = PepsiCo
In June 1965 Frito-Lay merged with Pepsi-Cola Company to form PepsiCo, Inc., with Frito-Lay becoming an independently operated division of the
new company. Pepsi's CEO and president became CEO and president of PepsiCo, while Herman Lay was named chairman, a position he held until
1971. Lay then served as chairman of the executive committee until 1980, when he retired. He died in December 1982.
There were a number of forces that drove the two companies together. The 1960s was an era of consolidation, with a number of food and beverage
firms being gobbled up by larger entities. Pepsi-Cola was considered a takeover target not only because it ran a distant second in the soft drink
sector to industry giant Coca-Cola Company, but also because little of the company's stock was in the hands of management. Following the creation
of PepsiCo, however, the new company's directors held a much larger proportion of shares, with Lay holding a 2.5 percent stake himself. A second
force behind the merger was Frito-Lay's desire to more aggressively pursue overseas markets. The company's sales had largely been restricted to
the United States and Canada, but it could now take advantage of Pepsi's strong international operations, through which Pepsi products were sold in
108 countries.
A third force was the perceived synergy between salty snacks and soft drinks. As Kendall succinctly related to Forbes in 1968, "Potato chips make
you thirsty; Pepsi satisfies thirst." The plan was to jointly market PepsiCo's snacks and soft drinks, thereby giving Pepsi a potential advantage in its
ongoing battle with Coke. Unfortunately, these plans were eventually scuttled by the resolution of a Federal Trade Commission antitrust suit
brought against Frito-Lay in 1963. The FTC ruled in late 1968 that PepsiCo could not create tie-ins between Frito-Lay and Pepsi-Cola products in
most of its advertising. PepsiCo was also barred from acquiring any snack or soft drink maker for a period of ten years.
New Products, the Frito Bandito, and Increased Competition: 1965-79
Frito-Lay began its PepsiCo era with the same lineup of brands it had when Frito-Lay was created in 1961: Fritos, Lay's, Ruffles, Chee-tos, and Rold
Gold. Shortly after the creation of PepsiCo, Lay's became the first potato chip brand to be sold nationally. Of even greater importance was
increased new product development activity. In 1966 Frito-Lay began test-marketing a new triangular tortilla chip under the brand name Doritos.
Compared to regular tortilla chips, Doritos were more flavorful and crunchier. Launched nationally in 1967, Doritos proved successful, but
additional market research revealed that many consumers outside the Southwest and West considered the chip to be too bland--not spicy enough
for what was perceived as a Mexican snack. Frito-Lay therefore developed taco-flavored Doritos, which were introduced nationally in 1968 and
were a tremendous success. Four years later, national distribution began of nacho cheese-flavored Doritos, which were also a hit. Ironically, with
increasing popularity, Doritos became less and less identified as a "Mexican snack," a development that echoed the earlier brand history of Fritos.
During the 1970s Doritos became Frito-Lay's number two brand in terms of sales, trailing only Lay's. This spectacular growth was fueled by heavy
advertising expenditures--as much as half of the company's overall $23 million ad budget in the mid-1970s. The "Crunch" campaign began in the
early 1970s, and gained added impetus in 1976 when Avery Schrieber began crunching Doritos on national television. Frito-Lay also found lesser
success in this period with other new products, including Funyuns onion-flavored rings, which debuted in 1969, and the Munchos potato crisps that
were launched in 1971.
In 1968 Frito-Lay began a new Fritos advertising campaign featuring the Frito Bandito, a Mexican bandit complete with a long mustache, sombrero,
and six-gun who spoke in a heavy accent. Ads showed the cartoon character robbing and scheming to get his beloved Fritos corn chips. The
campaign quickly drew heavy criticism from Mexican American groups who alleged that it showed a prejudice against Mexican Americans and
perpetuated a stereotype. Responding to the protests, radio and television stations in California began pulling Frito Bandito spots off the air. Frito-
Lay finally ended the campaign in 1970.
During the 1970s Frito-Lay began feeling the effects of increased competition. The Lay's brand was challenged not only by more aggressive regional
brands but also by such newfangled chips as Pringles and Chipos. These chips were made from mashed or dehydrated potatoes molded into a
uniform shape, which enabled them to be stacked into a can or packaged in a box. In either case, they had several advantages over regular potato
chips: they were less fragile, their packaging was less bulky, and they had a longer shelf life. Most importantly, they could be made in one location
and shipped nationally, rather than having to be made in a nationwide system of regional plants. Pringles and Chipos were also backed by the
national advertising prowess of two consumer product giants--Procter & Gamble Company and General Mills, Inc., respectively. Additional
competition in the 1970s came from Nabisco Inc., maker of Mister Salty pretzels and such extruded snacks as Flings and Corkers, and Standard
Brands Inc., which was expanding its Planters brand beyond nuts into corn and potato chips, cheese curls, and pretzels. Despite its formidable foes,
Frito-Lay remained the clear leader in the U.S. snack industry, with sales by the late 1970s exceeding the $1 billion mark, more than double that of
the nearest competitor, Standard Brands. Moreover, Frito-Lay was far from resting on its laurels. It increased its overall production capacity by one-
third by 1979 through the opening of a new plant in Charlotte, North Carolina, and the culmination of expansion programs at ten existing plants.
Keeping Frito-Lay ahead of the competition during this period was D. Wayne Calloway, who became president and chief operating officer in early
New Product Ups and Downs in the 1980s
The 1980s started out promisingly, with Frito-Lay acquiring the Grandma's regional brand of cookies in 1980 for $25 million, in a venture outside of
its salty snack stronghold. In 1983 the company made a national launch of the Grandma's brand, and soon was selling five varieties. Among these
was a homemade-style cookie that was soft on the inside but crispy on the outside. In 1984 Procter & Gamble sued Frito-Lay and two other cookie
makers for infringing on its patent for Duncan Hines crispy-chewy cookies. The parties reached a settlement in 1989, whereby Frito-Lay agreed to
pay about $19 million to Procter & Gamble, while the bulk of the $125 million settlement was shared equally by the two other defendants, Nabisco
and Keebler Co.
In addition to the acquisition of Grandma's, the early 1980s also saw Frito-Lay introduce Tostitos tortilla chips. Debuting in 1981, Tostitos was the
most successful new product introduction yet in Frito-Lay history, garnering sales of $140 million in the first year of national distribution. The
development of Tostitos came out of market research on Doritos indicating that some consumers felt the latter chips were too heavy, too thick,
and too crunchy; at this time, there was a general trend toward consumer preference for 'lighter-tasting' foods, as well as an increased interest in
Mexican food. Frito-Lay thus created the thinner, crispier Tostitos, which could be eaten alone, made into nachos, or dipped into increasingly
popular salsas. By 1985 Tostitos was Frito-Lay's number five brand, with sales of about $200 million, trailing only Doritos ($500 million), Lay's ($400
million), Fritos ($325 million), and Ruffles ($250 million). Also in 1985 Frito-Lay expanded its tortilla chip line with the introduction of Santitas
white and yellow corn round chips.
In 1983 Calloway shifted to the PepsiCo headquarters in Purchase, New York, to become the parent company's CFO (and eventually its chairman and
CEO). Taking over as president of Frito-Lay was Michael Jordan, who held the position for two years before also heading to Purchase and eventually
becoming PepsiCo president. Willard Korn served as president of Frito-Lay during the mid-1980s, a period coinciding with the company's relocation
of its headquarters from Dallas to Plano, Texas, but more importantly with a spate of failed product introductions. In 1986 Frito-Lay rolled out a
slew of new products, several in the nonsalty snack sector, including Toppels cheese-topped crackers, Rumbles crispy nuggets, and Stuffers dip-
filled shells. The company also attempted to penetrate the growing market for kettle-cooked chips, a variety harder and crunchier than regular
potato chips, with a brand called Kincaid. The barrage of new products was too much for Frito-Lay's 10,000-strong sales force to handle; products
were lost on store shelves and all of the new brands were quickly killed. Korn resigned from his post in November 1986, with Jordan returning to
Texas to head Frito-Lay once again.
Under Jordan's leadership in the late 1980s, Frito-Lay focused on revitalizing its existing brands rather than developing new brands. Among the
successful line extensions introduced in this period were Cool Ranch flavor Doritos and a low-fat version of Ruffles. In 1989 Frito-Lay acquired the
Smartfood brand of cheddar-cheese popcorn, a regional brand it hoped to roll out nationwide. The company was also finding success in the
international market, where profits were increasing 20 percent per year, revenues exceeded $500 million by the end of the decade, and Frito-Lay
products were being sold in 20 countries. Overall sales stood at about $3.5 billion.
Rising Fortunes in the 1990s
Entering the 1990s, Frito-Lay faced continuing challenges from both regional and national players, including the upstart Eagle Snacks brand, owned
by beer powerhouse Anheuser-Busch Cos. Eagle Snacks gained market share in the 1980s with premium products that sold for low prices, some of
which were 20 percent lower than those of Frito-Lay. In addition to the increased competition, Frito-Lay also suffered in the late 1980s through
1990 from self-inflicted wounds, such as increasing prices faster than inflation, letting the corporate payroll become bloated, and allowing product
quality to decline. As a result, profits were on the decline in the early 1990s.
In early 1991, Roger A. Enrico was named to the top spot at Frito-Lay, after most recently serving as president of PepsiCo Worldwide Beverages.
Enrico, a former Frito-Lay marketing vice-president, immediately set out to turn around the stumbling but still formidable snack giant. During 1991
the company eliminated 1,800--or about 60 percent--of its administrative and managerial jobs, creating a much more streamlined structure. Four of
the company's 40 plants were closed or sold off, and more than 100 package sizes and brand varieties were dropped from what had become an
unwieldy product portfolio. These moves resulted in annual savings of approximately $100 million. On the selling side, Frito-Lay created 22
sales/marketing offices to bring decision-making closer to retailers and consumers. The company also slashed its prices. In its first big new product
success since Tostitos, Frito-Lay launched SunChips in 1991, garnering $115 million in sales during the first year; the multigrain, low-sodium, no-
cholesterol chip/cracker found a ready market among adults seeking a more healthful snack. In moves designed to revitalize its longstanding
brands, Frito-Lay redesigned the packaging for several products, including Fritos and Rold Gold pretzels, and reformulated both Lay's and Ruffles
potato chips--the first time the Lay's formula had ever been changed. To enhance the flavor of both chips, the company developed a new frying
process and switched from soybean oil to cottonseed oil. With consumers preferring less salty snacks, the sodium content of the chips was also
reduced. The new Lay's chips were introduced in 1992 through an ad campaign featuring the tag line, 'Too Good to Eat Just One!,' a variation on the
old 'Betcha Can't Eat Just One' slogan. In 1993 Rold Gold pretzels were the subject of the product's first network television campaign, with ads
featuring 'Seinfeld' star Jason Alexander as 'Pretzel Boy.' The following year the formula for Doritos was reformulated to make the chips 20 percent
larger, 15 percent thinner, and stronger tasting--changes that were based on careful market research. Frito-Lay also continued to roll out new
products, including Wavy Lay's potato chips and Baked Tostitos (1993), Cooler Ranch flavor Doritos (1994), and Baked Lay's (1996).
By the mid-1990s, as the snack food sector entered a slower growth period marked by heavy price competition, it became increasingly clear that
Frito-Lay would remain the industry front-runner by a wide margin. The company increased its share of the salty snack market in the United States
from 38 percent in the late 1980s to 55 percent by 1996. Competitive pressure from Frito-Lay led two of its fiercest rivals to wave the white flag.
Borden sold most of its snack businesses in the mid-1990s as part of a massive restructuring. In early 1996 Anheuser-Busch shut down its Eagle Snack
unit after failing to find a buyer for the unit; it sold four of Eagle's plants to Frito-Lay, which converted them to production of its main brands.
In 1996 PepsiCo merged its domestic and international snack food operations into a single entity called Frito-Lay Company, consisting of two main
operating units, Frito-Lay North America and Frito-Lay International. The following year Frito-Lay bought the Cracker Jack brand from Borden,
marking the company's reentrance into the nonsalty snack food sector. Also in 1997 Frito-Lay reentered the sandwich cracker market with the
national introduction of seven varieties. Frito-Lay expanded internationally in 1998 through the acquisition of several salty snack assets in Europe
and Smith's Snackfood Company in Australia from United Biscuit Holdings plc for US$440 million. In late 1998 Frito-Lay announced that it had
formed a broad Latin American joint venture with Savoy Brands International, part of a Venezuelan conglomerate, Empresas Polar SA. Covering
Venezuela, Chile, Colombia, Ecuador, Guatemala, Honduras, Panama, Peru, and El Salvador, the joint venture was designed to enable Frito-Lay to
better penetrate the $3 billion salty snack sector in Latin America. Also in 1998 Frito-Lay began selling its Wow! line of low-fat and no-fat versions
of Doritos, Ruffles, Lay's, and Tostitos. Made with a fake fat called olestra developed by Procter & Gamble (ironically the maker of rival chip
Pringles), the Wow! products were controversial because of reports and studies that indicated that the chips could cause gastric distress. All olestra
products carried warning labels stating that they 'may cause abdominal cramping and loose stools.' Despite waves of negative publicity, the Wow!
line was the best-selling new consumer product of 1998, garnering a whopping $350 million in sales.
By the end of the 1990s, Frito-Lay's aggressive new product development, advertising, and marketing efforts had further increased the company's
share of the U.S. salty snack market to 60 percent. With the domestic market so firmly in its control, Frito-Lay was sure to look increasingly
overseas for growth opportunities, particularly because there was no other global competitor in the industry. In the early 21st century, the
company was likely to continue its expansion of its main brands--especially Lay's, Ruffles, Chee-tos, and Doritos--into new markets and to seek
additional acquisitions and joint ventures in order to add more brands to its non-U.S. portfolio, which featured Walker's in the United Kingdom and
Sabritas in Mexico.
Principal Divisions:Frito-Lay North America; Frito-Lay International.
Principal Competitors:Borden, Inc.; Campbell Soup Company; ConAgra, Inc.; General Mills, Inc.; Golden Enterprises, Inc.; International Home
Foods, Inc.; Keebler Foods Company; Lance, Inc.; Nabisco Holdings Corp.; Poore Brothers, Inc.; The Procter & Gamble Company.

Kellogg Company
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One Kellogg Square
Battle Creek, Michigan 49016-3599

Telephone: (616) 961-2000

Fax: (616) 961-2871

Public Company
Incorporated: 1906 as Battle Creek Toasted Corn Flake Company
Stock Exchanges: New York
Ticker Symbol: K
NAIC: 311230 Breakfast Cereal Manufacturing; 311412 Frozen Specialty Food Manufacturing; 311812 Commercial Bakeries; 311999 All Other Food

Company Perspectives:
Kellogg is a global company committed to building long-term growth in volume and profit and to enhancing its worldwide leadership position by
providing nutritious food products of superior value.

Key Dates:
1894: The wheat flake is first produced by Dr. John Harvey Kellogg and Will Keith Kellogg at the Sanitas Food Company.
1898: Kellogg's corn flake is introduced.
1905: Granose (corn) flakes begin commercial production.
1906: Battle Creek Toasted Corn Flake Company is founded in Battle Creek, Michigan, by Will Keith Kellogg.
1907: The company is renamed Toasted Corn Flake Company; the main factory building is destroyed by fire.
1909: Company is renamed the Kellogg Toasted Corn Flake Company.
1914: International expansion begins in Canada.
1915: Bran Flakes cereal is introduced.
1916: All-Bran cereal is introduced.
1922: Company is incorporated as the Kellogg Company.
1924: Kellogg opens overseas plant in Sydney, Australia.
1928: Rice Krispies are introduced.
1930: The W.K. Kellogg Foundation is established.
1938: International expansion begins in the United Kingdom.
1939: Watson H. Vanderploeg becomes president of Kellogg.
1964: The Pop-Tart is introduced.
1969: Kellogg acquires a tea company, Salada Foods.
1970: Kellogg acquires Fearn International.
1976: Kellogg acquires Mrs. Smith's Pie Company.
1977: Pure Packed Foods is acquired.
1979: William E. LaMothe becomes CEO.
1982: Nutri-Grain cereals are marketed.
1988: Kellogg sells its U.S. and Canadian tea operations.
1992: Arnold G. Langbo replaces LaMothe as chairman and CEO.
1993: Kellogg sells Mrs. Smith's Frozen Foods, Cereal Packaging, Ltd., and its Argentine shack food business; Kellogg opens a plant in Riga, Latvia.
1994: Kellogg teams with ConAgra to create a cereal line sold under the Healthy Choice label; Kellogg opens a plant in Taloja, India.
1995: Kellogg opens a plant in Guangzhou, China.
1999: Carlos Gutierrez becomes CEO; Kellogg sells the Lender's division to Aurora Foods and acquires Worthington Foods.
2000: Kellogg acquires convenience food maker Kashi Company; Kellogg reorganizes its operations into two divisions (USA and International).
2001: General Mills passes Kellogg as the number one cereal maker; Kellogg acquires Keebler Foods.

Company History:

Will Keith Kellogg once estimated that 42 cereal companies were launched in the breakfast-food boom during the early years of the 20th century.
His own venture, founded as the Battle Creek Toasted Corn Flake Company, was among the last, but it outlasted most of its early competitors and
has dominated the ready-to-eat cereal industry. The Kellogg Company, as it was ultimately named, followed a straight and profitable path,
avoiding takeovers and diversification, relying heavily on advertising and promotion, and posting profits nearly every year of its existence.
Kellogg's Corn Flakes Are Born
By the time Kellogg launched his cereal company in 1906, he had already been in the cereal business for more than ten years as an employee of the
Adventist Battle Creek Sanitarium run by his brother, Dr. John Harvey Kellogg. Dr. Kellogg, a strict vegetarian and the sanitarium's internationally
celebrated director, also invented and marketed various health foods. One of the foods sold by Dr. Kellogg's Sanitas Food Company was called
Granose, a wheat flake the Kellogg brothers had stumbled upon while trying to develop a more digestible form of bread. The wheat flake was
produced one night in 1894 following a long series of unsuccessful experiments. The men were running boiled wheat dough through a pair of rollers
in the sanitarium basement. The dough had always come out sticky and gummy, until by accident the experiments were interrupted long enough for
the boiled dough to dry out. When the dry dough was run through the rollers, it broke into thin flakes, one for each wheat berry, and flaked cereals
were born.
Commercial production of the Granose flakes began in 1895 with improvised machinery in a barn on the sanitarium grounds. The factory was soon in
continuous production, turning out more than 100,000 pounds of flakes in its first year. A ten-ounce box sold for 15 cents, which meant that the
Kelloggs collected $12 for each 60-cent bushel of wheat processed, a feat that did not go unnoticed around Battle Creek, Michigan.
In 1900 production was moved to a new $50,000 facility. When the new factory building was completed, Dr. Kellogg insisted that he had not
authorized it, forcing W.K. to pay for it himself.
Meanwhile, other companies were growing quickly, but Dr. Kellogg refused to invest in the company's expansion. Its most notable competitor was
the Postum Cereal Company, launched by a former sanitarium patient, C.W. Post. Post added Grape-Nuts to his line in 1898 and by 1900 was
netting $3 million a year, an accomplishment that inspired dozens of imitators and turned Battle Creek into the cereal-making capital of the United
In 1902 Sanitas improved the corn flake it had first introduced in 1898. The new product had better flavor and a longer shelf life than the 1898
version. By the following year the company was advertising in newspapers and on billboards, sending salesmen into the wholesale market, and
introducing an ambitious door-to-door sampling program. By late 1905, Sanitas was producing 150 cases of corn flakes a day with sales of $100,000
a year.
Battle Creek Toasted Corn Flake Company Is Launched
The next year W.K. Kellogg launched the Battle Creek Toasted Corn Flake Company with the help of another enthusiastic former sanitarium
patient. Kellogg recognized that advertising and promotion were the keys to success in a market flooded with look-alike products--the company
spent a third of its initial working capital on an ad in Ladies Home Journal.
Orders, fueled by early advertising efforts, continually outstripped production, even after the company leased factory space at two additional
locations. In 1907 output had reached 2,900 cases a day, with a net profit of about a dollar per case. In May 1907 the company became the Toasted
Corn Flake Company. That July a fire destroyed the main factory building. On the spot, W.K. Kellogg began making plans for a new fireproof
factory, and within a week he had purchased land at a site strategically located between two competing railroad lines. Kellogg had the new plant,
with a capacity of 4,200 cases a day, in full operation six months after the fire. "That's all the business I ever want," he is said to have told his son,
John L. Kellogg, at the time.
By the time of the fire, the company had already spent $300,000 on advertising but the advertising barrage continued. One anonymous campaign
told newspaper readers to "wink at your grocer and see what your get." Winkers got a free sample of Kellogg's Corn Flakes. In New York City, the ad
helped boost Corn Flake sales fifteen fold. In 1911 the advertising budget reached $1 million.
By that time, W.K. Kellogg had finally managed to buy out the last of his brother's share of the company, giving him more than 50 percent of its
stock. W.K. Kellogg's company had become the Kellogg Toasted Corn Flake Company in 1909, but Dr. Kellogg's Sanitas Food Company had been
renamed the Kellogg Food Company and used similar slogans and packaging. W.K. sued his brother for rights to the family name and was finally
successful in 1921.
Company Is Reincorporated as the Kellogg Company
In 1922 the company reincorporated as the Kellogg Company because it had lost its trademark claim to the name "Toasted Corn Flakes," and had
expanded its product line so much that the name no longer accurately described the company. Kellogg had introduced Krumbles in 1912, followed
by 40% Bran Flakes in 1915, and All-Bran in 1916.
Kellogg also made other changes, improving his product, packaging, and processing methods. Many of those developments came from W.K.'s son
John L. Kellogg, who began working for the company in its earliest days. J.L. Kellogg developed a malting process to give the corn flakes a more
nut-like flavor, saved $250,000 a year by switching from a waxed paper wrapper on the outside of the box to a waxed paper liner inside, and
invented All-Bran by adding a malt flavoring to the bran cereal. His father credited him with more than 200 patents and trademarks.
Kellogg Expands into Canada
Sales and profits continued to climb, financing several additions to the Battle Creek plant and the addition of a plant in Canada, opened in 1914, as
well as an ever-increasing advertising budget. The one exception came just after World War I, when shortages of raw materials and railcars crippled
the once-thriving business. W.K. Kellogg returned from a world tour and canceled advertising contracts and sampling operations, and, for six
months, he and his son worked without pay. The company issued $500,000 in gold notes in 1919, and in 1920 posted the only loss in its history. Still,
Kellogg rejected a competitor's buyout offer.
At that point the Battle Creek plant had 15 acres of floor space, production capacity of 30,000 cases a day, and a shipping capacity of 50 railcars a
day. Each day it converted 15,000 bushels of white southern corn into Corn Flakes. The company had 20 branch offices and employed as many as
400 salesmen. During the next decade the Kellogg Company more than doubled the floor space at its Battle Creek factory and opened another
overseas plant in Sydney, Australia, in 1924.
Also during that period, W.K. Kellogg began looking for a successor since in 1925 he had forced his son, who had served briefly as president, out of
the company after J.L. had bought an oat-milling plant and divorced his wife to marry an office employee. W.K. Kellogg objected both to his son's
moral lapse and to his preference for oats. Several other presidents followed, but none could manage well enough to keep W.K. Kellogg away.
During the Great Depression the company's directors decided to cut advertising, premiums, and other expenses. When Kellogg heard of it, he
returned from his California home, called a meeting, and told the officers to press ahead. They voted again, this time adding $1 million to the
advertising budget. The company's upward sales curve continued right through the Depression, and profits improved from around $4.3 million a year
in the late 1920s to $5.7 million in the early 1930s.
In 1930 W.K. Kellogg established the W.K. Kellogg Foundation to support agricultural, health, and educational institutions. Kellogg eventually gave
the foundation his majority interest in Kellogg Company. The company, under W.K.'s control, also did its part to fight unemployment, hiring a crew
to landscape a ten-acre park on the Battle Creek plant grounds and introducing a six-hour, four-shift day.
Vanderploeg is named President of Kellogg Company
In 1939 Kellogg finally found a permanent president, Watson H. Vanderploeg, who was hired away from a Chicago bank. Vanderploeg led the
company from 1939 until his death in 1957. Vanderploeg expanded Kellogg's successful advertise-and-grow policy, adding new products and taking
them into new markets. In 1941 the company began a $1 million modernization program, updating old steam-generation equipment and adding new
bins and processing equipment. The company also added new plants in the United States and abroad. Domestic plants were established in Omaha,
Nebraska; Lockport, Illinois; San Leandro, California; and Memphis, Tennessee. Additional foreign operations were established in Manchester,
England, in 1938, followed by plants in South Africa, Mexico, Ireland, Sweden, the Netherlands, Denmark, New Zealand, Norway, Venezuela,
Colombia, Brazil, Switzerland, and Finland. During the five years after World War II, Kellogg expanded net fixed assets from $6.6 million to $20.6
million. As always, this expansion was financed entirely out of earnings.
The company also continued to add new products, but it never strayed far from the ready-to-eat cereal business. In 1952 more than 85 percent of
sales came from ten breakfast cereals, although the company also sold a line of dog food, some poultry and animal feeds, and Gold Medal
pasta. Barron's noted that Kellogg's profit margins, consistently between 6 and 7 percent of sales, were more than double those of other food
companies. The company produced 35 percent of the nation's ready-to-eat cereal and was the world's largest manufacturer of cold cereal. Kellogg's
success came from its emphasis on quality products; high-speed automated equipment, which kept labor costs to about 15 percent of sales; and
substantial foreign earnings that were exempt from the excess-profits tax. Dividends tended to be generous and had been paid every year since
1908; sales, which had been $33 million in 1939, began to top $100 million in 1948. By the early 1950s an estimated one-third of those sales were
outside the United States.
Kellogg's Begins Television Advertising
In the early 1950s Kellogg's continued success was tied to two outside developments: the postwar baby boom and television advertising. To appeal
to the new younger market, Kellogg and other cereal makers brought out new lines of presweetened cereals and unabashedly made the key
ingredient part of the name. Kellogg's entries included Sugar Frosted Flakes, Sugar Smacks, Sugar Corn Pops, Sugar All-Stars, and Cocoa Crispies.
The company created cartoon pitchmen to sell the products on Saturday morning television. Tony the Tiger was introduced in 1953 following a
contest to name the spokesperson for the new cereal, Kellogg's Sugar Frosted Flakes of Corn. Sales and profits doubled over the decade and in 1960
Kellogg earned $21.5 million on sales of $256.2 million and boosted its market share to 40 percent.
The company continued adding new cereals, aiming some at adolescent baby boomers and others, like Special K and Product 19, at their parents.
Kellogg's Corn Flakes still led the cereal market and got more advertising support than any other cereal on grocers' shelves. Kellogg poured nearly
$10 million into Corn Flakes advertising in both 1964 and 1965, putting more than two-thirds of those dollars into television.
In 1969 Kellogg finally made a significant move away from the ready-to-eat breakfast-food business, acquiring Salada Foods, a tea company. The
following year Kellogg bought Fearn International, which sold soups, sauces, and desserts to restaurants. Kellogg added Mrs. Smith's Pie Company in
1976 and Pure Packed Foods, a maker of nondairy frozen foods for institutional customers, in 1977. Kellogg also bought several small foreign food
The diversification may have been motivated in part by increasing attacks on Kellogg's cereal business. Criticism boiled over in 1972 when the
Federal Trade Commission (FTC) accused Kellogg and its leading rivals General Mills and General Foods of holding a shared monopoly and
overcharging consumers more than $1 billion during the previous 15 years. The FTC said the companies used massive advertising (12 percent of
sales), brand proliferation, and allocation of shelf space to keep out competitors and maintain high prices and profit margins. There was no
disputing the profit margins, but the companies argued that the advertising and product proliferation were the result of competition, not
monopoly. The cereal companies won their point following a lengthy hearing. During the same period, the industry's presweetened cereals and
related advertising also took a beating. The American Dental Association accused the industry of obscuring the sugar content of those cereals, and
Action for Children's Television lodged a complaint with the FTC, saying that the mostly sugar cereals were equivalent to candy. Kellogg flooded
consumer groups and the FTC with data playing down the sugar content by showing that only three percent of a child's sugar consumption comes
from presweetened cereals. This publicity caused sugared-cereal sales to fall 5 percent in 1978, the first decline since their introduction in the
The biggest threat to Kellogg's continued growth wasn't criticism, but rather the aging of its market. By the end of the 1970s growth slowed
dramatically as the baby boom generation passed from the under-25 age group, which consumes an average of 11 pounds of cereal a year, to the 25
to 50 age group, which eats less than half as much cereal. Cereal-market growth dropped, and Kellogg lost the most. Its market share fell from 43
percent in 1972 to 37 percent in 1983.
New Chairman LaMothe Continues to Push Cereal Business
While Wall Street urged the company to shift its growth targets into anything but the stagnating cereal market, Kellogg continued to put its biggest
efforts into its cereal business, emphasizing some of the same nutritional concepts that had given birth to the ready-to-eat breakfast business. And
Kellogg was less unwilling than unable to diversify. It made three unsuccessful bids for the Tropicana Products orange juice company and another
for Binney & Smith, makers of Crayola crayons. Despite its problems, Kellogg believed the cereal business still represented its best investment
opportunity. "When you average 28 percent return on equity in your own business, it's pretty hard to find impressive acquisitions," said Chairman
William E. LaMothe, a onetime salesman who became CEO in 1979.
In 1984 Kellogg bought about 20 percent of its own stock back from the W.K. Kellogg Foundation, a move that increased profits and helped defend
the company against future takeover attempts, while satisfying a legal requirement limiting the holdings of foundations without giving potential
raiders access to the stock.
Meanwhile, the company's response to generally sagging markets in the late 1970s was much like W.K. Kellogg's during the Depression: more
advertising. Kellogg also boosted product research and stepped up new-product introductions. In 1979 the company rolled out five new products
and had three more in test markets. By 1983 Kellogg's research-and-development budget was $20 million, triple the 1978 allotment. Targeting a
more health-conscious market, Kellogg spent $50 million to bring three varieties of Nutri-Grain cereal to market in 1982. Kellogg added almost as
many products in the next two years as it had in the previous four. And in 1984 Kellogg sparked a fiber fad when it began adding a health message
from the National Cancer Institute to its All-Bran cereal.
By the mid-1980s the results of Kellogg's renewed assault on the cereal market were mixed. The company's hopes of raising per capita cereal
consumption to 12 pounds by 1985 fell flat. But Kellogg did regain much of its lost market share, claiming 40 percent in 1985, and it continued to
outperform itself year after year. In 1986 Kellogg posted its 30th consecutive dividend increase, its 35th consecutive earnings increase, and its 42nd
consecutive sales increase.
Kellogg Sells Tea Companies
In 1988 the company sold its U.S. and Canadian tea operations, in a demonstration of Kellogg's renewed commitment to the cereal market. In the
early 1990s, however, Kellogg failed to move fast enough to profit from the oat bran craze and lost market share in the United States, primarily to
General Mills, Inc.'s oat-heavy brands such as Cheerios and Honey Nut Cheerios. Further erosion resulted from an upsurge in sales of private-label
store brands, notably those produced by Ralston Purina Company spinoff Ralcorp Holdings Inc.. By developing knockoffs of such Kellogg standbys as
Corn Flakes and Apple Jacks and selling them for as much as a dollar less per box, Ralcorp and other companies increased private-label cereal
market share to 6 percent by 1994 at the expense of Kellogg and other makers of brand-name cereals. Sales of branded cereals increased only 3
percent in 1994 over 1993; in this flat market, Kellogg's U.S. market share fell to as low as 33.8 percent in 1994.
In order to hold on to as much of its market share as it could, Kellogg management once again turned to increased marketing and advertising in
1990. Even in the face of the pressure from lower-priced private-label products, the company also continued to raise its prices in the early 1990s to
generate sufficient revenue. This trend was finally reversed in 1994, however, when General Mills lowered its prices, forcing Kellogg to do the
In the midst of these difficulties, LaMothe retired in 1992 and was replaced as chairman and CEO by the president of Kellogg, Arnold G. Langbo.
Under Langbo's direction, the company underwent a reengineering effort in 1993 that committed the company to concentrate its efforts on its core
business of breakfast cereal. That year and the next, Kellogg divested itself of such noncore assets as its Mrs. Smith's Frozen Foods pie business,
Cereal Packaging, Ltd., based in England, and its Argentine snack food business.
Its emphasis on its core business was also extended to its operations outside the United States, where company officials saw the greatest potential
for future growth. By 1991 Kellogg held 50 percent of the non-U.S. cereal market, and 34 percent of its profits were generated outside the United
States. In most of the markets in which it operated, it had at least six of the top ten cereal brands. Looking to the future, Kellogg's primary target
markets of Europe, Asia, and Latin America had not yet reached the more mature levels of the United States. While per capita cereal consumption
in the United States was ten pounds per year, in most other markets it was less than two pounds. After expanding into Italy in the early 1990s,
Kellogg became the first major cereal company to open plants in three markets: the former Soviet Union with a plant in Riga, Latvia, in 1993; India
with a plant in Taloja, in 1994; and China with a plant in Guangzhou, in 1995. With these new operations, Kellogg had 29 plants operating in 19
countries and could reach consumers in almost 160 countries.
Kellogg Competes with General Mills for Market Share
Although Kellogg had a commanding position internationally, it faced a new and more formidable international competitor starting in 1989. General
Mills and the Swiss food titan Nestlé S.A. established a joint venture called Cereal Partners Worldwide (CPW), which essentially combined General
Mills' cereal brands and cereal-making equipment with Nestlé's name recognition in numerous markets and vast experience with retailers there. By
1994, CPW was already beginning to eat into Kellogg's market share in various countries.
Overall, Kellogg's 1990s difficulties had only slowed--not stopped--the firm's tradition of continual growth. Net sales increased at the modest rates
of 7 percent, 2 percent, and 4 percent in 1992, 1993, and 1994, respectively (1994 was Kellogg's 50th consecutive year of sales growth). With U.S.
sales still accounting for 59 percent of the overall total, however, and competition heating up overseas, Kellogg faced its most challenging
environment since the early 1920s. In addition to its aggressive expansion into overseas markets with huge potential for growth, another promising
sign for a bright future for Kellogg was a revitalized new product development program. More disciplined than the scattershot approach of the
1980s, the program was beginning to produce such winners as Low Fat Granola, Rice Krispies Treats, and a line of cereal developed as a result of
the 1994 partnership with ConAgra, Inc., under the food conglomerate's Healthy Choice brand.
In 1997 and 1998 operations were expanded in Australia, the United Kingdom, Asia, and Latin America, but extremely competitive market
conditions resulted in declines in sales and earnings in 1998. The result was a refocusing in two key areas: new product development and the
complete overhaul of corporate headquarters and the North American organization structure. Product development included the addition of new
cereals, innovative convenience foods, and new grain-based products; product improvement measures added to the nutritional value of all
products. The Ensemble line of heart-healthy foods was introduced in November 1998 and included frozen entrees, bread, dry pasta, baked potato
crisps, frozen miniloaves, cookies, and a ready-to-eat cereal similar to General Mills' Cheerios line.
An increase in overall marketing investments was targeted for the seven largest cereal markets: the United States, the United Kingdom, Mexico,
Canada, Australia, Germany, and France. In response to the growth of "on-the-go" convenience foods, geographic distribution was expanded for
such products as Nutri-Grain bars, Rice Krispies Treats squares, and Pop-Tarts toaster pastries.
New Chairman Gutierrez Reorganizes Company
In an effort to reduce costs and create a more focused and accountable workforce, about 25 percent of its North American workforce was let go
and steps were taken toward the reorganization of the corporate structure. As a result, several top officers left in 1998 and 1999. In April 1999,
Cuban-born and 25-year veteran of the company Carlos M. Gutierrez became CEO. Gutierrez's vision for Kellogg was "to begin a process of renewal
designed to strengthen significantly the ability of the Kellogg Company to compete and prosper in the 21st century." His new team included eight
new top executives, including four who joined the company in 1999 and 2000.
Gutierrez took many bolds steps to hold on to the company's position as the world's leading producer of ready-to-eat cereal in spite of declining
stock value, including selling the Lender's bagel division to Aurora Foods and shutting down the Ensemble line of cholesterol-reducing foods. Despite
protestations from the community and workforce, the historic hometown plant in Battle Creek was closed and 550 jobs were eliminated. In late
1999, Kellogg acquired Worthington Foods, Inc., manufacturer of meat alternatives, frozen egg substitutes, and other healthy food products, under
the brands of Morningstar Farms, Natural Touch, Worthington, and Loma Linda.
As in 1999, Kellogg continued the process of renewal in 2000, with its second consecutive year of earnings growth. Sales, however, declined by 0.4
percent and share performance was again disappointing. With sales falling or remaining stagnant in the ready-to-eat cereal business, the strategy of
the company involved allocating resources first to the United States' markets, and then to other core markets in the United Kingdom/Republic of
Ireland, Mexico, Canada, and Australia/New Zealand; setting targets for long-term growth; and executing a sound business plan.
To strengthen their competitive position, in 2000 Kellogg acquired Kashi Company, a natural cereal company in the United States; two convenience
food businesses in Australia; and the Mondo Baking Company, a manufacturer of convenience foods in Rome, Georgia. On October 26, the company
announced that an agreement had been reached to acquire Keebler Foods Company, the largest acquisition in the 95-year history of the company.
The acquisition, completed in March 2001, brought to Kellogg not only Keebler's cookie and cracker business, but also their direct store door (DSD)
delivery system, which was expected to increase the growth potential of snack foods such as Kellogg's Nutri-Grain bars and Rice Krispies Treats
In the fourth quarter of 2000, Kellogg's operations were restructured into two major divisions--USA and International--to streamline operations and
reduce costs. Kellogg International was further delineated into Europe, Latin America, Canada, Australia, and Asia. In U.S. operations, Kellogg's
Raisin Bran Crunch cereal remained the most successful new U.S. cereal product since the mid-1990s, with a 0.9 percent market share. Consumer
promotions included American Airlines frequent flyer miles, and affiliations with NASCAR, the Olympics, and Major League Soccer. Other advertising
connections were made with the movie How the Grinch Stole Christmas and Pokemon. Kellogg also launched Eet & Ern, an Internet-based consumer
loyalty program.
The Kellogg International division had responsibility for all markets outside the United States, providing products to more than 160 countries on six
continents worldwide. The four largest Kellogg International markets were the United Kingdom/Republic of Ireland, Mexico, Canada, and
Australia/New Zealand. The United Kingdom/Republic of Ireland remained Kellogg's largest market outside the United States, and experienced a 3
percent increase in cereal sales during 2000. The fastest growing international market was Mexico, where the direct store delivery system was
effectively implemented.
Cereal competitor General Mills had closed the gap in the U.S. market share, and passed Kellogg in 2001 as the number one cereal maker.
According to Kellogg CEO Gutierrez, "after a year of change, a stronger Kellogg is emerging." The change marked the building of a better business
model in which "short-term sales and earnings growth were sacrificed to lay the foundation for great value creation in the future." In Kellogg USA,
the acquisition of Keebler was completed in 2001 resulting in a more profitable sales mix. Advertising through brand-building was increased with
tie-ins with Disney, American Airlines, and the Cartoon Network. In the cereal category, Special K Red Berries cereal was launched in March and
proved to be the most successful new product in this category since the 1998 introduction of Raisin Bran Crunch. Pop-Tarts increased its sales and
category share and benefited from the introduction of Chocolate Chip Pop-Tarts. A number of products in the snacks category benefited from the
inclusion in Keebler's direct store delivery system. Growth was also evident in the natural and frozen foods category, with Kashi proving to be the
fastest growing brand in the natural cereals category.
Like Kellogg USA, Kellogg International's focus on "volume to value" in 2001 was applied to sales, marketing, and new-product initiatives. In the
United Kingdom, the most important brands and innovation projects were prioritized. Successful product campaigns were launched for Crunchy Nut
Red cereal and Special K bars. Kellogg India Ltd. was permitted by the Foreign Investment Promotion Board to launch new products, Cheez-It
Crackers, Keebler Cookiers, and Special K cereal. In other parts of Europe, Kellogg pulled back on investments in smaller markets and attempted to
bring prices in line in preparation of the launch of the Euro currency.
By 2002 the Kellogg team, headed by Chairman Gutierrez, remained optimistic for the future of the Kellogg Company. After a year of significant
changes, the company emerged "a stronger organization, (with) a tighter focus and revitalized employees whose determination is greater than
ever." The year 2002 indicated progress in the form of sustainable, reliable sales and earnings growth. With products manufactured in 19 countries
and marketed in more than 160 countries worldwide, Kellogg showed more focus than ever to regain and retain its position as the world's leading
producer of cereal and a leading producer of convenience foods.
Principal Subsidiaries:Kellogg USA Inc.; Kellogg Company Argentina S.A.C.I.F.; Kellogg (Aust.) Proprietary Ltd. (Australia); Kellogg Brasil & CIA;
Kellogg Canada Inc.; Kellogg de Colombia S.A.; Nordisk Kelloggs A/S (Denmark); Kellogg's Produits Alimentaires, S.A. (France); Kellogg
(Deutschland) Gesellschaft mit beschrankter Haftung (GmbH); Kellogg de Centro America S.A. (Guatemala); Kellogg (Japan) K.K.; Nhong Shim
Kellogg Co. Ltd. (Korea); Kellogg de Mexico S.A. de C.V.; Kellogg Company of South Africa (Proprietary) Limited; Kellogg Espana, S.A.; Kellogg
Company of Great Britain, Ltd.; Alimentos Kellogg S.A. (Venezuela); Kellogg India Ltd.
Principal Competit

17600 Newhope Street
Fountain Valley, California 92708

Telephone: (714) 435-2600

Fax: (714) 438-2720

Private Subsidiary
Founded: 1987
Employees: 450
Sales: $1.3 billion (1996)
SICs: 3572 Computer Storage Devices

P.O. Box 32070
Louisville, Kentucky 40232

Telephone: (502) 456-8300

Fax: (502) 454-2195

Wholly Owned Subsidiary of PepsiCo, Inc.
Incorporated: 1955 as Kentucky Fried Chicken
Employees: 160,000
Sales: $6.4 billion (1996)
SICs: 5812 Eating Places

Company History:
KFC Corporation is the largest fast-food chicken operator, developer, and franchiser in the world. KFC, a wholly owned subsidiary of PepsiCo, Inc.
until late 1997, operates over 5,000 units in the United States, approximately 60 percent of which are franchises. Internationally, KFC has more
than 3,700 units, of which two-thirds are also franchised. In addition to direct franchising and wholly owned operations, the company participates
in joint ventures, and continues investigating alternative venues to gain market share in the increasingly competitive fast-food market. In late 1997
the company expected to become a wholly owned subsidiary of Tricon Global Restaurants, Inc., to be formed from the spin off of PepsiCo's
restaurant holdings.
The Early Life of Colonel Sanders
Kentucky Fried Chicken was founded by Harland Sanders in Corbin, Kentucky. Sanders was born on a small farm in Henryville, Indiana, in 1890.
Following the death of Sanders's father in 1896, Sanders's mother worked two jobs to support the family. The young Sanders learned to cook for his
younger brother and sister by age six. When Mrs. Sanders remarried, her new husband didn't tolerate Harland. Sanders left home and school when
he was 12 years old to work as a farm hand for four dollars a month. At age 15 he left that job to work at a variety of jobs, including painter,
railroad fireman, plowman, streetcar conductor, ferryboat operator, insurance salesman, justice of the peace, and service-station operator.
In 1929 Sanders opened a gas station in Corbin, Kentucky, and cooked for his family and an occasional customer in the back room. Sanders enjoyed
cooking the food his mother had taught him to make: pan-fried chicken, country ham, fresh vegetables, and homemade biscuits. Demand for
Sanders's cooking rose; eventually he moved across the street to a facility with a 142-seat restaurant, a motel, and a gas station.
During the 1930s an image that would become known throughout the world began to develop. First, Sanders was named an honorary Kentucky
Colonel by the state's governor; second, he developed a unique, quick method of spicing and pressure-frying chicken. Due to his regional popularity,
the Harland Sanders Court and Cafe received an endorsement by Duncan Hines'sAdventures in Good Eating in 1939.
Sanders Court and Cafe was Kentucky's first motel, but the Colonel was forced to close it when gas rationing during World War II cut tourism.
Reopening the motel after the war, Sanders's hand was once again forced: in the early 1950s, planned Interstate 75 would bypass Corbin entirely.
Though Sanders Cafe was valued at $165,000, the owner could only get $75,000 for it at auction, just enough to pay his debts.
Sanders' First Franchise in 1952
However, in 1952 the Colonel signed on his first franchise to Pete Harman, who owned a hamburger restaurant in Salt Lake City, Utah. Throughout
the next four years, he convinced several other restaurant owners to add his Kentucky Fried Chicken to their menus.
Therefore, rather than struggle to live on his savings and Social Security, in 1955 Sanders incorporated and the following year took his chicken
recipe to the road, doing demonstrations on-site to sell his method. Clad in a white suit, white shirt, and black string tie, sporting a white
mustache and goatee, and carrying a cane, Sanders dressed in a way that expressed his energy and enthusiasm. In 1956 Sanders moved the business
to Shelbyville, Kentucky, 30 miles east of Louisville, to more easily ship his spices, pressure cookers, carryout cartons, and advertising material.
And by 1963 Sanders's recipe was franchised to more than 600 outlets in the United States and Canada. Sanders had 17 employees and travelled
more than 200,000 miles in one year promoting Kentucky Fried Chicken. He was clearing $300,000 before taxes, and the business was getting too
large for Sanders to handle.
New Management for Kentucky Fried Chicken
In 1964 Sanders sold Kentucky Fried Chicken for $2 million and a per-year salary of $40,000 for public appearances; that salary later rose to
$200,000. The offer came from an investor group headed by John Y. Brown, Jr. a 29-year-old graduate of the University of Kentucky law school,
and Nashville financier John (Jack) Massey. A notable member of the investor group was Pete Harman, who had been the first to purchase Sanders's
recipe 12 years earlier.
Under the agreement, Brown and Massey owned national and international franchise rights, excluding England, Florida, Utah, and Montana, which
Sanders had already apportioned. Sanders would also maintain ownership of the Canadian franchises. The company subsequently acquired the rights
to operations in England, Canada, and Florida. As chairman and CEO, Massey trained Brown for the job; meanwhile, Harland Sanders enjoyed his
less hectic role as roving ambassador. In Business Week, Massey remarked: "He's the greatest PR man I have ever known."
Within three years, Brown and Massey had transformed the "loosely knit, one-man show ... into a smoothly run corporation with all the trappings of
modern management," according to Business Week. Retail outlets reached all 50 states, plus Puerto Rico, Mexico, Japan, Jamaica, and the
Bahamas. With 1,500 take-out stores and restaurants, Kentucky Fried Chicken ranked sixth in volume among food-service companies; it trailed such
giants as Howard Johnson, but was ahead of McDonald's Corporation and International Dairy Queen.
In 1967, franchising remained the foundation of the business. For an initial $3,000 fee, a franchisee went to "KFC University" to learn all the basics.
While typical costs for a complete Kentucky Fried Chicken start-up ran close to $65,000, some franchisees had already become millionaires. Tying
together a national image, the company began developing pre-fabricated red-and-white striped buildings to appeal to tourists and residents in the
United States.
The revolutionary choice Massey and Brown made was to change the Colonel's concept of a sit-down Kentucky Fried Chicken dinner to a stand-up,
take-out store emphasizing fast service and low labor costs. This idea created, by 1970, 130 millionaires, all from selling the Colonel's famous
pressure-cooked chicken. But such unprecedented growth came with its cost, as Brown remarked in Business Week: "At one time, I had 21
millionaires reporting to me at eight o'clock every morning. It could drive you crazy." Despite the number of vocal franchisees, the corporation
lacked management depth. Brown tried to use successful franchisees as managers, but their commitment rarely lasted more than a year or two.
There was too much money to be made as entrepreneurs.
Stock Plummets in 1970
Several observations about franchise arrangements noted by stock market analysts and accountants in the late 1960s became widespread news by
1970. First, Wall Street noticed that profits for many successful franchisers came from company-owned stores, not from the independent shops--
though this was not the case with Kentucky Fried Chicken. This fact tied in with a memorandum circulated at Peat, Marwick, Mitchell & Company,
and an article published by Archibald MacKay in the Journal of Accountancy stating that income labeled "initial franchise fees" was added when a
franchise agreement was signed, regardless of whether the store ever opened or fees were collected. Such loose accounting practices caused a Wall
Street reaction: franchisers, enjoying the reputation as "glamour stocks" through the 1960s, were no longer so highly regarded. Kentucky Fried
Chicken stock hit a high of $55.50 in 1969, then fell to as low as $10 per share within a year.
In early 1970, following a number of disagreements with Brown, Massey resigned. When several other key leaders departed the company, Brown
found the housecleaning he planned already in progress. A number of food and finance specialists joined Kentucky Fried Chicken, including R. C.
Beeson as chief operational officer and Joseph Kesselman as chief financial officer. Kesselman brought in new marketing, controlling, and computer
experts; he also obtained the company's first large-scale loan package ($30 million plus a $20 million credit line). By August 1970 the shake-up was
clear: Colonel Harland Sanders, his grandson Harland Adams, and George Baker, who had run company operations, resigned from the board of
directors. Colonel Sanders, at 80, knew his limits. In a 1970 New York Times article, Sanders stated, "[I] realized that I was someplace I had no
place being.... Everything that a board of a big corporation does is over my head and I'm confused by the talk and high finance discussed at these
CEO Brown spent the rough year of 1970 shoring up his company's base of operations. By September, Kentucky Fried Chicken operated a total of
3,400 fast-food outlets; the company owned 823 of these units. The company, once too large for the Colonel to handle, grew too mammoth for
John Y. Brown as well. In July 1971 Kentucky Fried Chicken merged with Connecticut-based Heublein Inc., a specialty food and alcoholic beverage
corporation. Sales for Kentucky Fried Chicken had reached $700 million, and Brown, at age 37, left the company with a personal net worth of $35
million. Interviewed for the Wall Street Journal regarding the company's 1970 financial overhaul, Brown commented, "You never saw a more
negative bunch.... If I'd have listened to them in the first place, we'd never have started Kentucky Fried Chicken." Article author Frederick C. Klein
included closing parenthetical remarks in which observers close to the company noted that "in engineering Kentucky Fried Chicken's explosive
growth, Mr. Brown neglected to install needed financial controls and food-research facilities, and had let relations with some franchise holders go
Heublein Makes Changes in 1970s
Heublein planned to increase Kentucky Fried Chicken's volume with its marketing know-how. Through the 1970s the company introduced some new
products to compete with other fast-food markets. The popularity of barbecued spare ribs, introduced in 1975, kept the numbers for Kentucky
Fried Chicken looking better than they really were. As management concentrated on overall store sales, they failed to notice that the basic chicken
business was slacking off. Competitors' sales increased as Kentucky Fried Chicken's dropped.
For Heublein, acquisitions were doing more harm than good: Kentucky Fried Chicken was stumbling just when the parent company had managed to
get United Vintners, bought in 1969, on its feet. In 1977 the company appointed Michael Miles, who was formerly responsible for the Kentucky Fried
Chicken ad campaign at Leo Burnett and had joined Heublein's marketing team in 1971, to chair the ailing Kentucky Fried Chicken. Richard Mayer,
vice-president of marketing and strategic planning for Heublein's grocery products, took charge of the Kentucky Fried Chicken U.S. division.
Mayer found that the product mainstay, fried chicken, wasn't up to the high quality Colonel Harland Sanders would expect. Miles and Mayer also
faced the same problem John Y. Brown had not managed to surmount: relations with franchisees were sour. In the mid-1970s, the franchisees sold
more per store than company-owned stores. Faring better without Heublein's help, they resented paying royalty fees to the ineffective corporate
parent. To top that off, the stores were looking out of date.
Having unloaded well over 300 company-owned stores in the early 1970s, by the end of the decade Heublein began to buy some back from the
franchisees. Renovation of the original red-and-white striped buildings began in earnest, with Heublein putting $35 million into the project. On the
outside, Kentucky Fried Chicken facades were updated, while on the inside, cooking methods veered back to the Colonel's basics. Sticking to a
limited menu kept Kentucky Fried Chicken's costs down, allowing the company time to recoup. Timing was fortunate on Kentucky Fried Chicken's
turn-around; it happened just in time for Colonel Sanders to witness. After fighting leukemia for seven months, Harland Sanders died on December
16, 1980.
The 1980s: Profits and Expansion
Miles and Mayer's work culminated with the highly successful 1981 ad campaign, "We Do Chicken Right." A year later, in step with the fast-paced
1980s, R.J. Reynolds Industries Inc. acquired Heublein, giving Kentucky Fried Chicken another lift; the company had expansionary vision, capital,
and the international presence to tie it all together. Kentucky Fried Chicken sales that year reached $2.4 billion. By 1983 the company had made
impressive progress. With 4,500 stores in the United States and 1,400 units in 54 foreign countries, no other fast-food chain except McDonald's could
compete. But while many industry insiders were crediting the team with victory, Mayer wasn't so quick to join in. As he noted in Nation's
Restaurant News, "People keep talking about the turn-around at KFC. I'd really rather not talk about it. The turn-around is only halfway over."
With the entrance of R. J. Reynolds came the exit of Michael Miles, who resigned to become CEO of Kraft Foods; Mayer took over as chairman and
CEO. Mayer continued on a cautious line for the next several years, refusing to introduce new products as obsessively as its competitors. "In the
past two years," Mayer said in a KFC company profile in Nation's Restaurant News,"people have gone absolutely schizoid.... A lot of chains have
blurred their image by adding so many new menu items." In further commentary, he added, "We don't roll out a flavor-of-the-month."
PepsiCo Buys Company in 1986
Mayer's conservatism gained him the respect of Wall Street and his peers in the fast-food industry. In 1986 soft-drink giant PepsiCo, Inc., bought
Kentucky Fried Chicken for $840 million. Reasons cited were KFC's superior performance and its 1980--85 increase in worldwide revenue and
earnings. The successful operator of the Pizza Hut and Taco Bell chains, PepsiCo did quite well introducing new products through those restaurants.
It was just a matter of time before Kentucky Fried Chicken would be expected to create new products.
To foster new product introduction, in 1986 Kentucky Fried Chicken opened the $23 million, 2,000,000-square-foot Colonel Sanders Technical
Center. In addition, the company began testing oven-roasted chicken through multiple-franchisee Collins Foods; further test-marketing of home
delivery was undertaken using PepsiCo's successful Pizza Hut delivery system as an example. By late 1986 Donald E. Doyle, succeeding Mayer in the
post of Kentucky Fried Chicken's U.S. president, inherited the task of developing new menu items.
The overall market for fast food seemed glutted by the late 1980s. PepsiCo CEO D. Wayne Calloway saw Kentucky Fried Chicken's national niche as
secure for two reasons: first, with competition spurred by the large number of fast-food suppliers, weaker chains would inevitably leave the
market; second, Kentucky Fried Chicken still had room to grow in the Northeast and Mid-Atlantic regions. Internationally, the company planned 150
overseas openings in 1987. Japan, a major market, had 520 stores, Great Britain had 300, and South Africa had 160. KFC International, headed by
Steven V. Fellingham, planned to concentrate on opening units in a handful of countries where its presence was limited. The People's Republic of
China was the most notable new market secured in 1987; KFC was the first American fast-food chain to open there.
Franchisee Problems with New Parent Company
Imperative to the success of Kentucky Fried Chicken was the establishment of successful relations with the numerous franchisees. Most of them
lauded parent PepsiCo's international strength and food-service experience; KFC had its own inherent strength, however, according to franchisees,
which the parent company would do well to handle with care. That strength was the sharing of decision-making.
In 1966, for instance, the Kentucky Fried Chicken Advertising Co-Op was established, giving franchisees ten votes and the company three when
determining advertising budgets and campaigns. As a result of an antitrust suit with franchisees, in 1972 the corporation organized a National
Franchisee Advisory Council. By 1976, the company worked with franchisees to improve upon contracts made when Brown and Massey took over.
Some contracts even dated back to when Colonel Sanders had sealed them with a handshake. The National Purchasing Co-Op, formed in 1979,
ensured franchisees a cut of intercompany equipment and supply sales. All of these councils had created a democratic organization that not only
served the franchisees well, but helped keep operations running smoothly as Kentucky Fried Chicken was shifted from one corporate parent to
another. As time passed, however, PepsiCo's corporate hand seemed to come down too heavily for franchisee comfort.
In July 1989, CEO and Chairman Richard Mayer resigned to return as president to General Foods USA. Mayer, who together with Mike Miles was
credited for bringing Kentucky Fried Chicken out of the 1970s slump, departed as the company battled over contract rights with franchisees. John
M. Cranor, an executive who had joined PepsiCo 12 years earlier, took over as CEO. Kyle Craig, formerly with Burger King, Steak & Ale, and
Bennigan's, began in an advisory role, later stepping up to become president of KFC-USA.
Within months Cranor was meeting with franchisee leaders in Louisville to defend parent PepsiCo's contract renewal. Among the issues debated was
PepsiCo's plan to revise the franchisee-renewal policy, which guaranteed operators the right to sell the business, and an automatic ten-year
extension on existing contracts with reasonable upgrading required. It was in KFC's long-term interest to settle the dispute without litigation,
Cranor believed--and with good reason. In August of 1989 franchisees had established a $3.6 million legal fund, averaging $1,000 per unit, to fight
the battle in court if necessary. Cranor remained optimistic, relying on the history of positive relations with franchisees.
Despite contract battles and communication troubles, in the fall of 1990 Kentucky Fried Chicken called a one-day truce to celebrate in honor of
Colonel Sanders's 100th birthday. Meanwhile, fast-food competitors with stricter organization were keeping up with changes in consumer demand
and introducing new products at a dizzying rate. KFC, in contrast, had difficulty in creating new products linked to the cornerstone fried chicken
concept, as well as in getting them out quickly through franchisee stores. Hot Wings, brought out in 1990, were KFC's only hit in a number of
attempts, including broiled, oven-roasted, skinless, and sandwich-style chicken.
In late September 1990, Kentucky Fried Chicken increased its holding of company-owned stores by buying 209 U.S. units from Collins Foods
International Inc.; Collins retained its interest in the Australian KFC market. The acquisition boosted Kentucky Fried Chicken's control of total
operating units to 32 percent. The corporation also added Canada's Scott's Hospitality franchises to its fold, an increase of 182 units.
To update its down-home image and respond to growing concerns about the health risks associated with fried foods, in February 1991 Kentucky
Fried Chicken changed its name to KFC. New packaging still sported the classic red-and-white stripes, but this time wider and on an angle, implying
movement and rapid service. While the Colonel's image was retained, packaging was in modern graphics and bolder colors. New menu introductions
were postponed, as KFC once again went back to the basics to tighten up store operations and modernize units. A new $20 million computer system
not only controlled fryer cooking times, it linked front counters with the kitchen, drive-thru window, manager's office, and company headquarters.
International Success in 1990s
Though KFC may have had problems competing in the domestic fast-food market, those same problems did not seem to trouble them in their
international markets. In 1992 pretax profits were $92 million from international operations, as opposed to $86 million from the U.S. units. Also, in
the five-year span from 1988 through 1992, sales and profits for the international business nearly doubled. In addition, franchise relations, always
troublesome in the domestic business, ran smoothly in KFC's international markets. To continue capitalizing on their success abroad, KFC undertook
an aggressive construction plan that called for an average of one non-U.S. unit to be built per day, with the expectation that by 1995 the number of
international units would exceed those in the United States.
International sales, particularly in Asia, continued to bolster company profits. In 1993, sales and profits of KFC outlets in Asia were growing at 30
percent a year. Average per store sales in Asia were $1.2 million, significantly higher than in the United States, where per store sales stood at
$750,000. In addition, profit margins in Asia were double those in the United States. KFC enjoyed many advantages in Asia: fast food's association
with the West made it a status symbol; the restaurants were generally more hygienic than vendor stalls; and chicken was a familiar taste to Asian
palates. The company saw great potential in the region and stepped up construction of new outlets there. It planned to open 1,000 restaurants
between 1993 and 1998.
Non-traditional service, often stemming from successful innovations instituted in the company's international operations, was seen as a way for KFC
to enter new markets. Delivery, drive-thru, carry-out, and supermarket kiosks were up and running. Other outlets in testing were mall and office-
building snack shops, mobile trailer units, satellite units, and self-contained kiosks designed for universities, stadiums, airports, and amusement
parks. To move toward the twenty-first century, executives believed KFC had to change its image. "We want to be the chicken store," Cranor
stressed in a 1991 Nation's Restaurant News. Cranor's goal was total concept transformation, moving KFC to a more contemporary role.
New product introductions were part of the company's plan to keep up with competitors. Having allowed Boston Market to grab a significant portion
of the chicken market, KFC tried to catch up with the introduction of Rotisserie Gold Chicken. The company's new CEO, David Novak, also decided
to test Colonel's Kitchen, a clear imitation of the Boston Market format. To counter McDonald's and Burger King's "value meals," KFC brought out the
"Mega-Meal dinner": an entire rotisserie chicken, chicken nuggets, mashed potatoes, macaroni, cole slaw, biscuits, and a chocolate chip cake for
$14.99. In 1995, KFC expanded the idea to "Mega-Meal-For-One," and decided to test chicken pot pie and chicken salad.
These moves gave a small boost to KFC's image, which had grown somewhat out-of-date, and to its bottom line. However, problems with the
franchisees continued, and PepsiCo was not seeing the return on its assets that it saw with its beverage and snack food divisions. PepsiCo was
having similar problems with its other restaurant subsidiaries, Taco Bell and Pizza Hut, and decided the drain of capital expenditure was not worth
In 1996 the company prepared to rid itself of its restaurant division by drawing together Pizza Hut, Taco Bell, and KFC. All operations were now
overseen by a single senior manager, and most back office operations, including payroll, data processing, and accounts payable, were combined. In
January 1997 the company announced plans to spin off this restaurant division, creating an independent publicly traded company called Tricon
Global Restaurants, Inc. The formal plan, approved by the PepsiCo board of directors in August 1997, stipulated that each PepsiCo shareholder
would receive one share of Tricon stock for every ten shares of PepsiCo stock owned. The plan also required Tricon to pay a one-time distribution
of $4.5 billion at the time of the spinoff. If approved by the Securities and Exchange Commission, the spinoff would take place on October 6, 1997.
PepsiCo CEO Roger Enrico explained the move: "Our goal in taking these steps is to dramatically sharpen PepsiCo's focus. Our restaurant business
has tremendous financial strength and a very bright future. However, given the distinctly different dynamics of restaurants and packaged goods, we
believe all our businesses can better flourish with two separate and distinct managements and corporate structures." KFC and its franchisees did
settle their contract disputes; according to a press release, "the crux of the agreement revolves around KFC franchisees receiving permanent
territorial protection. In turn, KFC Corporation will have more direct influence over certain national advertising and public relations activities." Still
KFC faced the need to rennovate its restaurant buildings, and also faced stiff competition from Boston Market, Burger King, and McDonald's, so it
remained to be seen if the new parent company would refresh KFC's image and profits.
Company Perspectives:

The BOC Group is built around its customers. Whatever the industry or interest, our goal is to respond to their needs as quickly and

effectively as possible. Their ever-changing requirements are the driving force behind the development of all our products, technologies and

support services. We recognize that BOC people are our most important asset, and through them we ensure that we play a full and active role

in communities around the world and are committed to the highest standards of safety and environmental practice. At the same time, we

believe that the best way we can assist any of the communities in which we operate is to build a successful business. That's why, as the BOC

Group continues to expand and develop, one thing will never change. We will always remain built around our customers.

Company History:
BOC Group plc is one of the world's largest producers of industrial gases essential to almost every manufacturing process. It supplies a variety
of gases to the petroleum, electronic, steel manufacturing, metal producing and fabricating, construction, ceramic, and food and beverage
industries. Its principal related companies operate in over 60 countries across the globe. The company also owns subsidiaries that provide
vacuum technology and distribution services.
Company Origins
Although oxygen had been used in an extremely limited capacity since the late 18th century as a respiratory agent, the development of
chemically produced oxygen was hampered by costly methods, yielding only small amounts of relatively impure gases. Commercially
produced oxygen was largely confined to "limelight," used to illuminate the stages of theaters and music halls, and that popular means of
entertainment and enlightenment, the lantern lecture.
In 1885 two French brothers and chemists, Arthur and Leon Quentin Brin, traveled to the Inventions Exhibition in South Kensington, London,
and erected a demonstration of their recently patented method of making oxygen by heating barium oxide, with a view to attracting financial
support. They found it in Henry Sharp, an English stoneware manufacturer. In January of 1886 the brothers established Brin's Oxygen
Company Limited.
In the spring of 1886 the fledgling company hired its first foreman, a young Scotsman by the name of Kenneth Sutherland Murray. A man of
remarkable mechanical ingenuity, Murray redesigned the plant in his first year on the job. In 1888 the new plant went into operation and
production increased from nearly 145,000 to 690,000 cubic feet of oxygen. One year later the plant installed an automatic gear, invented by
Murray, and improved Brin's production to nearly a million cubic feet of oxygen a year.
From the beginning, however, limelight was a limited market, and so the company board members searched for new ideas to develop oxygen
sales. They promoted the use of oxygen in preserving milk, bleaching sugar, manufacturing saccharine, vinegar and linoleum, maturing
whisky, and in the production of iron and steel. They hired a horse and carriage for the express purpose of "pushing business."
As a result, sales of oxygenated water in any form, flavored or not, increased dramatically. Moreover, the beverage found favor among
temperance groups. The company published signed physicians' testimonials extolling the virtues of this new "health" drink, prescribing it as a
sort of universal remedy.
The company then turned its attention to the means of gas containment and distribution. The early method of storing and distributing gas,
the gas bag, was an inefficient method which resulted in a significant loss of both gas and profit, and was soon replaced by the sturdier iron
cylinder. However, even with this vast improvement over the gas bag, the new method of containment was cumbersome and costly. The
cylinder itself weighed and cost more than the gas it held, making the product economically impractical to distribute over a large
geographical area.
Consequently, in 1887, under the guiding hand of Henry Sharp, Brin's began granting licenses to a handful of independent companies
throughout Great Britain to produce oxygen under the patented Brin process. In 1890 Brin's introduced another improvement in
containment, a steel cylinder, which soon became the standard of gas containment worldwide, and expanded its production to related
products, such as valves and fittings.
At the same time, in a move that marked the beginning of the company's international growth, Brin's began exporting oxygen in cylinders to
Australia for medical use, and developed plants in France, Germany and the United States, granting them sole rights to operate under the
Brin process.
In the decade that followed, Brin's did little more than consolidate its operations and improve its market share. The company took over two
of the British companies which had been granted licenses earlier to produce its product. The company also elected its second chairman,
Edward Badouin Ellice-Clark. After several years into his chairmanship, Ellice-Clark expressed some regret that the industry had produced no
advances in the application of industrial oxygen.
By 1900, however, a new method of producing oxygen by converting air to liquid had been devised independently in Britain, the United
States and Germany. The German scientist reached a patent office first, and the patent went to Dr. Carl von Linde. Brin's almost immediately
negotiated an agreement to use the Linde patents and within several years abandoned both its now dated barium oxide method of oxygen
production and the company name. In 1906 Brin's Oxygen Company Limited became the British Oxygen Company Limited, or BOC.
Early Twentieth Century Expansion
There followed steady expansion spurred by development of new technologies using oxygen in metal cutting and welding. In 1914 Britain
declared war on Germany, and business increased significantly. No previous war had equaled the output of munitions, and the essential
element of oxygen was apparent in almost every aspect of munitions production. Every means of transport, including ships, tanks and trucks,
involved either metal cutting or welding, usually both.
BOC continued to grow in the immediate post-World War I years through acquisitions and through development in the commercial use of
products such as acetylene and the rare gases. These various gases, with their exotic sounding names of argon, krypton, helium, neon and
xenon, were developed and marketed for use in such products as the neon light, fog lamps, miner's lamps, respiratory gas in obstetric
analgesia, and as protection for divers against the "bends."
In 1920 BOC acquired a London company called Sparklets Ltd. A major producer of small arms munitions during World War I, Sparklets had
originally formed for the purpose of manufacturing small bulbs of carbon dioxide for carbonated drinks. Ten years later, BOC merged with
Allen-Liversidge Ltd., a South African company with whom BOC had collaborated throughout the 1920s in further developing the acetylene
welding process. In 1925 Kenneth Sutherland Murray, the company's first foreman, was appointed chairman.
Technological Advances in the mid-1900s
As an adjunct to its admittedly limited production of medical oxygen, and in response to a request by the National Birthday Trust Fund, BOC
designed a machine for use by midwives in 1935 called the "Queen Charlotte's Gas-Air Analgesia Apparatus." Soon afterwards, BOC introduced
an improved anesthetic gas, called "Entonox," used extensively to ease pain in childbirth and which was available in ambulances for use
during emergencies.
That same year, in a pioneering accomplishment, the company set up a separate medical division equipped to install oxygen which would be
available "on tap" by means of an extensive circuit of copper pipes connecting hospital wards and operating theaters to a battery of cylinders
usually located in the basement of a hospital. Four years later, the company developed a machine which was the forerunner of surgical
anesthetic equipment in use today. In an effort to further increase its welding interests, during 1936 BOC acquired the Quasi-Arc Company, a
British company which had a refined welding electrode instrument that improved the process of arc welding.
With the onset of World War II, BOC produced gases for munitions and for medical needs. The Air Ministry enlisted the assistance of the
company to produce oxygen and equipment designed to withstand high pressures for the Royal and allied Air Forces. Sparklets again began
producing a variety of its unique bulbs, including bulbs used to inflate lifejackets; bulbs filled with insecticide, used to protect soldiers
against malaria; bulbs used to lower landing gear in emergencies; and larger bulbs filled with ether, enabling engines to quick-start in the
below-freezing Russian temperatures.
By 1950 BOC had formed subsidiary companies in over 20 countries. It was a decade that brought with it a revolution in the manufacture of
steel as an increased demand for automobiles also led to increased productivity in both the steel and the gases industries. The common
method of tanking liquid oxygen to various industries to be evaporated, pressurized and then fed to furnaces proved inadequate to the new
demands of steel-making. The search for a new method gave rise to the production of "tonnage" oxygen.
A variation of medical oxygen on tap, tonnage oxygen is, as the name suggests, the production of oxygen by the ton. Rather than tank in the
oxygen, and then have it converted, tonnage plants were built on or near the customer site to pump in the already converted oxygen by
pipeline. Toward the end of the 1950s BOC was supplying tonnage oxygen to Wimpey for use in rocket motor testing and liquid oxygen for the
launching sites of the Thor and Blue Streak missiles. For use in manufacturing semiconductor devices, BOC began supplying argon to Texas
In 1957 the British Monopolies and Restrictive Practices Commission published a report stating that the company's prices for oxygen and
dissolved acetylene were "unjustifiably high" and operated "against the public interest." According to the report, BOC had deliberately set out
to build a monopoly. Successfully so, it would seem, as by this time the company had managed to secure 98 percent of the British market.
The commission disclosed BOC's practice of providing plant equipment under highly restrictive conditions, and stated that BOC had concealed
ownership of several of its subsidiaries while at the same time pretending to be in competition with them in a deliberate effort to drive up
The report was the most scathing ever produced by the commission, according to one reporter. However, at the same time, the commission
admitted there was nothing to suggest that BOC was operating under substandard levels of efficiency in any area, as might otherwise be
expected in a company of similar standing and resources. The commission also noted that not one of the company's customers had actually
complained about the high prices.
BOC drew criticism again in 1962 when the Board of Trade released the company from some of its obligations to the Monopolies and
Restrictive Practices Commission. In response to the board's action, and immediately following a recent 6 percent price raise, the British
division of Air Products of America noted that BOC still controlled 95 percent of the British market and argued that the action would restore
the company to a monopoly.
Diversification in the 1960s and 1970s
New applications for liquid nitrogen prompted the company to develop new markets in refrigeration, food preservation and packaging,
preserving medical tissues, and storing and transporting bull semen for artificial insemination. Along these lines, BOC set up BOC-Linde
Refrigeration Ltd., with Linde A.G. of Germany in 1968, acquired Ace Refrigeration Ltd., and J. Muirhead Ltd., quick frozen food suppliers, in
1969, and held Batchelors Ltd., Ireland, a food processor, from 1969 to 1973.
The 1960s and 1970s were marked by an accelerated program of diversification at BOC. Under Chairman Leslie Smith, the company began
planning for the 1980s, particularly with an eye to expansion in the Far East, by setting up British Oxygen (Far East) Ltd., in Tokyo.
Diversification took BOC even farther afield into such areas as fatty acids, resins, and additives produced for paints, inks, and adhesives. In
1970 the company began producing cutting and welding machines which incorporated sophisticated techniques using lasers and electron
The company also began developmental work on underwater welding techniques, producing DriWeld, a system that made structural welds
possible at depths of 600 feet. Factories, joint ventures and new holdings were established in Jamaica, Holland, South Africa, Sweden and
Spain for a variety of products, including transformers, magnetizing equipment, frozen foods, stable isotopes and radioactively labeled
compounds and cryogenic systems. Furthermore, in 1971 the company installed the largest mainframe computer in Britain, linking a network
of computers throughout the country. In a move characteristic of BOC, the company sold computer time to outside customers and, as a
result, BOC found itself suddenly in the computer business.
In the wake of the 1973-74 oil crisis, BOC reassessed its portfolio and decided to divest itself of its more peripheral interests in order to
concentrate on its primary business, especially the gases and health care markets. This was done with the intention of expanding production
in these areas, particularly in Europe, the Americas and the Far East.
Perhaps the most important and far-reaching move in the history of BOC involved the acquisition of one of America's major industrial
corporations, Airco, a company whose history, in terms of products and growth, nearly mirrored that of BOC. It was an acquisition that came
after 11 years of litigation in which the U.S. Federal Trade Commission instigated antitrust proceedings against BOC in order to force the
company to divest itself of all Airco stock. The decision was appealed and then delayed, but in 1978 Airco became a wholly owned subsidiary
of BOC. This doubled the size of the company, and consequently the British oxygen company changed its name to the BOC Group.
Expansion into Home Health Care
Although secondary to its gas production, BOC's health care division was a world leader in the 1980s in researching and manufacturing
completely integrated anesthesia systems, including the Modulus II Anesthesia System, one of the most technologically sophisticated
anesthesia devices ever produced. Indeed, the bulk of the group's health care effort was concentrated in its anesthetic pharmaceuticals and
equipment and in critical care and patient monitoring. The group's health care market was largely concentrated in the United States.
Encouraged by the U.S. government's determination to contain hospital costs, the company was aggressively promoting home health care
In 1982 BOC acquired a U.S. company called Glasrock Home Health Care, which provided oxygen therapy and medical equipment to
chronically ill and elderly patients at home. In 1986 Glasrock became the exclusive national distributor of the first portable defibrillator
designed for home use and of the Alexis computer-controlled, omnidirectional wheelchair. And the company anticipated a growing need for
long-range in-home care for AIDS patients, whom hospitals were often not equipped to handle.
BOC's chairman and chief executive officer, Richard Giordano, who came to the Group along with the acquisition of Airco, noted in 1987 that
the likely future markets for further development in health care services would be in wealthier countries, such as the United States and
Germany, followed by Sweden and Switzerland. In the United Kingdom, he stated, home health care was "in the hands of the politicians," and
he complained that "the health service is absolutely Neanderthal." Japan was an additional possibility for the expansion in health care
services, according to Giordano, since it was a country burdened with an aging population.
The group's third important area of business in the 1980s, the graphite division, which principally made graphite electrodes for furnaces, was
described as a "slow leak in BOC's earnings performance." This was a business that, like Giordano, came to BOC along with the Airco
acquisition. During 1980, in an act that was described as a fit of misguided loyalty, Giordano invested in two new U.S. graphite plants; in
1985 the group experienced a loss of six million British pounds.
Under the leadership of Giordano, the BOC Group streamlined its portfolio through divestments and liquidations, concentrating on its two
strongest businesses of gases and health care. Thirty of the companies acquired during the 1960s and 1970s diversification program had been
sold by the late 1980s, and the work force trimmed by about 20,000.
Expansion in the Early 1990s
Having divested numerous unrelated subsidiaries in the 1980s, BOC resumed its expansion efforts, this time focusing on adding to its principal
business units. Although this new direction was initiated under the leadership of Giordano, it was primarily executed by Patrick Rich, who
became chief executive officer in 1991 and chairman in 1992.
In particular, the company invested in the first half of the 1990s in numerous gas companies. In 1990 BOC purchased the remaining shares of
Commonwealth Industrial Gases in Australia, and the following year doubled its investment in the Nigerian company Industrial Gases Lagos,
bringing its stake to 60 percent. In 1992 BOC formed a gases joint venture with Hua Bei Oxygen in northern China and in 1993 purchased Huls
A.G., a German hydrogen business, as well as a 70 percent stake in one sector of Poland's state industrial gases business. The company spent
$50 million in 1995 to purchase a 41 percent stake in Chile's leading industrial gases company, Indura SA Industria Y Commercio.
BOC made similar investments in its health care unit in the early 1990s. The company initiated a medical equipment joint venture with
Japan's NEC San-ei and purchased the home medical businesses of Healthdyne Inc., both in 1990. The following year, BOC purchased Delta
Biotechnology Ltd. for $23 million. In 1993 BOC combined its health care businesses, giving them the name Ohmeda. Acquisitions continued
in 1994 with the purchase of the Calumatic Group, a Dutch manufacturer of filling, sterilizing, and packaging equipment for injectable
BOC also expanded into the distribution business in the 1990s, becoming one of Britain's largest logistics operations. In 1990 the company
purchased the U.K. distribution facilities of SmithKline Beecham consumer brands, and in 1993 acquired the Dutch distribution company
Kroeze and the distribution operations of Gaymer Group. The following year BOC purchased the French distribution company TLO and the
London Cargo Group, an airside cargo-handling specialist based in Heathrow.
BOC's finances in 1996 seemed strong, despite a slide in the performance of its health care business Ohmeda. Overall, the company reported
record profits, up 11 percent from the previous year to $745 million. Sales had also risen, up 7 percent to $2.5 billion. In 1997, Ohmeda
revenues were again down, this time by 6 percent. Profits declined even further, to 16 percent below 1996 levels. Overall, BOC revenues
increased somewhat, to £4.0 billion from £3.75 billion in 1996. Profits also rose slightly, to £288 million.
In the late 1990s BOC increased its focus on its core gas business, both by expanding investment in that area and divesting other areas of the
company. The first business to go was the underperforming health care subsidiary Ohmeda. In January 1998 the company announced it had
reached an agreement to sell Ohmeda to a group of companies that comprised the Finnish business Instrumentarium Corporation and the U.S.
businesses Becton, Dickinson & Company and Baxter International Inc. The $1050 million cash sale was due to be completed by April 4, 1998.
In mid-1998 BOC announced its intention to exit the carbide industry by selling Odda Smelteverk A/S. The company was to be sold to Philipp
Brothers Chemicals, Inc., for £11.5 million cash.
BOC's core gas business was performing strongly in the late 1990s, with growth in each major region of the world. The company
commissioned ten new plants in the United States in 1997 to meet its long-term contracts and began construction on several large plants in
Europe in 1998. In a joint venture with Foster Wheeler, BOC built the largest hydrogen plant in South America, which began operation in late
1997. Several other new plants were either under construction or began operations in the late 1990s in Africa and the Asia-Pacific region;
both regions saw double digit rates of growth in their profits in 1997.
Principal Subsidiaries: BOC Gases Australia Ltd.; BOC Cylinder Gas NV (Belgium); BOC Canada Ltd.; BOC Distribution Services Ltd.; BOC Ltd.;
BOC Overseas Finance Ltd.; BOC Technologies Ltd.; Edwards High Vacuum International Ltd.; BOC Gaz SA (France); BOC Group Ltd. (Hong
Kong); BOC Japan Ltd.; BOC Gases Ireland Ltd.; BOC AG (Switzerland); The BOC Group, Inc.

United Breweries Group or UB Group, based in Bangalore, is a conglomerate of different companies with a major focus on the brewery(beer) and

alcoholic beverages industry. The company markets of its beer under the Kingfisher brand and has also launched Kingfisher Airlines, an airline service

in India, with international flights operating recently. United Breweries is India's largest producer of beer with amarket share of around 48% by volume.

Its owned by Vijay Mallya who is also a member of the Indian Parliament. United Breweries now has greater than a 40% share of the Indian brewing

market with 79 distilleries and bottling units across the world.. Recently UB financed a takeover of the spirits business of the rival Shaw-

Wallace company giving it a majority share of India's spirits business. The group owns theMendocino Brewing Company in the United States.


The UB Group was founded by a Scotsman, Thomas Leishman, in 1857. The Group took its initial lessons in manufacturing beer from South

India based British breweries. At the age of 22, Vittal Mallya was elected as the company's first Indian director in 1977. After a year, he replaced R G N

Price as the chairman of the company.

UB Group's headquarters in Bangalore, India

United Breweries made its initial impact by manufacturing bulk beer for the British troops, which was transported in huge barrels or "Hogsheads".

Kingfisher, the group's most visible and profitable brand, made a modest entry in the sixties. During the 1950s and 60s, the company expanded greatly

by acquiring other breweries. First was the addition of McDowell as one of the Group subsidiaries, a move which helped United Breweries to extend its

portfolio to wines and spirits business. Strategically, the Group moved into agro-based industries and medicines when Mallya acquired Kissan Products

and formed a long-term relationship with Hoechst AG of Germany to create the Indian pharmaceutical company now known as Aventis Pharma, the

Indian subsidiary of the global pharma major Sanofi-Aventis.

[edit]The logo

The Pegasus, which is the symbol of the United Breweries, first found its place as the Group logo in 1940. Then, the Helladic horse – associated

with beer and nectar in Greek mythology – carried a beer cask between the wings, ostensibly because beer formed the core operations of the Group.

Later, the beer cask was removed to represent the Group's multifaceted operations. Now, it is just the Pegasus.

[edit]Present history

Sales of United Spirits Ltd [3] products are expected to exceed 60 million cases during the fiscal year 2005–06, making the Group the third-largest

manufacturer of spirits products in the world,[2] only after Diageo PLC and Pernod Ricard. In addition, USL is one of only three in the world to own

seven millionaire brands and at least five brands rated by Drinks International, UK, to be amongst the ten fastest growing brands in the world in their

respective categories. The market share of the Spirits Division in India is currently 60% and exports to the Middle East, Africa and Asian countries are

growing rapidly.

The UB Group's brewing entity – called United Breweries Limited (UBL) - has also assumed undisputed market leadership with a national market share

in excess of 50%. Through a process of aggressive acquisition and market penetration, The UB Group today controls 60% of the total manufacturing

capacity for beer in India. The flagship brand, Kingfisher, is now sold in over 52 countries worldwide, having received many accolades for its quality.

With plans to become a global player, United Spirits Ltd. (USL), the flagship of the UB group, purchased the Scottish distiller Whyte and Mackay in May

2007 for £595 million (Rs. 4,800 crore).[3] This would bring the brands of W&M like The Dalmore, Isle of Jura, Glayva, Fettercairn, Vladivar Vodka, and

Whyte & Mackay Scotch under its portfolio.

The UB group is also into manufacture of fertilizers. The group company Mangalore Chemicals and Fertilizers (MCF) has a factory

atPanambur in Dakshina Kannada district of Karnataka.

UB Engineering Limited is the group's engineering business arm. It undertakes EPC Projects, Infrastructure, on-site fabrication of structures,

installation, testing and Commissioning of Electrical and Mechanical Equipments, Piping etc. for large industrial projects such as Power, Refineries,

Steel, Cement, Fertilizer, Petrochemical and Desalination Projects. The company was initially established as Western India Erectors in 1963 and came

under the UB Group in 1988.

The group entrance to the IT sector had also been marked by the formation of UBICS, Inc. The company provides IT consulting, services and

professional IT products to business companies.

In August 2007, the group made a first-of-its-kind media alliance for the promotion of NDTV Good Times, a lifestyle television channel run by NDTV.

United Spirits Limited has 144 brands under its umbrella, including White Mischief vodka, the market leading brand in India.

800 Long Ridge Road

Stamford, Connecticut 06904

Telephone: (203) 968-3000

Toll Free: 800-828-6396
Fax: (203) 968-4312

Public Company
Incorporated: 1906 as The Haloid Company
Employees: 91,400
Sales: $18.17 billion (1997)
Stock Exchanges: New York Midwest Boston Cincinnati Pacific Philadelphia London Basel Berne Geneva Lausanne Zürich
Ticker Symbol: XRX
SICs: 3577 Computer Peripheral Equipment, Not Elsewhere Classified; 3579 Office Machines, Not Elsewhere Classified; 5044 Office Equipment; 7374
Computer Processing & Processing & Data Preparation Services; 7375 Information Retrieval Services; 7379 Computer Related Services, Not
Elsewhere Classified

Company Perspectives:

Our strategic intent is to be the leader in the global document market, providing document solutions that enhance business productivity. Since our
inception, we have operated under the guidance of six core values: we succeed through satisfied customers; we aspire to deliver quality and
excellence in all that we do; we require premium returns on assets; we use technology to deliver market leadership; we value our employees; we
behave responsibly as a corporate citizen.

Company History:
Xerox Corporation, virtually synonymous with photocopying, now touts itself as The Document Company. In addition to its flagship copiers, Xerox
also makes production publishers, electronic printers, fax machines, scanners, networks, software, and supplies. The company is also a market
leader in the area of document outsourcing services. Xerox markets its products in more than 130 countries. Its Xerox Limited subsidiary (formerly
Rank Xerox, a joint venture with the Rank Organisation Plc of the United Kingdom) distributes Xerox products in Europe, Africa, the Middle East,
and parts of Asia (including Hong Kong, India, and China). Xerox Co., Limited--a joint venture with Photo Film Company Limited--develops,
manufactures, and distributes document processing products in Japan and the Pacific Rim (including Australia, New Zealand, Singapore, and
Origins As The Haloid Company in 1906
Xerox can trace its roots to 1906, when a photography-paper business named the Haloid Company was established in Rochester, New York. Its
neighbor, Kodak, ignored the company, and Haloid managed to build a business on the fringe of the photography market. In 1912 control of the
company was sold for $50,000 to Rochester businessman Gilbert E. Mosher, who became president but left the day-to-day running of the company
to its founders.
Mosher kept Haloid profitable and opened sales offices in Chicago, Boston, and New York City. To broaden the company's market share, Haloid's
board decided to develop a better paper. It took several years, but when Haloid Record finally came out in 1933 it was so successful that it saved
the company from the worst of the Great Depression. By 1934 Haloid's sales were approaching $1 million. In 1935 Joseph R. Wilson, the son of one
of the founders, decided that Haloid should buy the Rectigraph Company, a photocopying machine manufacturer that used Haloid's paper. Haloid
went public to raise the money, and selling Rectigraphs became an important part of Haloid's business.
In 1936 Haloid's 120 employees went on strike for benefits and higher wages. When Mosher proved intransigent, Wilson stepped in and offered
concessions. Tension and resentment between labor and management persisted until World War II. During the war the Armed Forces needed high-
quality photographic paper for reconnaissance, and business boomed. When the war ended Haloid faced stiff competition from new paper
Amidst this, Haloid needed to come up with new products, particularly following a showdown between Mosher, who wanted to sell Haloid off, and
Wilson, who did not. Wilson won, and in 1947 Haloid entered into an agreement with Battelle Memorial Institute, a nonprofit research organization
in Columbus, Ohio, to produce a machine based on a new process called xerography.
Xerography, a word derived from the Greek words for "dry" and "writing," was the invention of Chester Carlson. Carlson was born in Seattle,
Washington, in 1906 and became a patent lawyer employed by a New York electronics firm. Frustrated by the difficulty and expense of copying
documents, Carlson in 1938 invented a method of transferring images from one piece of paper to another using static electricity. In 1944 Battelle
signed a royalty-sharing agreement with Carlson and began to develop commercial applications for xerography.
The XeroX Copier Debuts in 1949
In 1949, two years after Haloid signed its agreement with Battelle, Haloid introduced the XeroX Copier, initially spelled with a capital X at the end.
The machine, which required much of the processing to be done manually, was difficult and messy to use and made errors frequently. Many in the
financial community thought that Haloid's large investment in xerography was a big mistake, but Battelle engineers discovered that the XeroX made
excellent masters for offset printing--an unforeseen quality that sold many machines. Haloid invested earnings from these sales in research on a
second-generation xerographic copier.
In 1950 Battelle made Haloid the sole licensing agency for all patents based on xerography, but Battelle owned the basic patents until 1955. Haloid
licensed the patents liberally to spread the usage of xerography to such corporations as RCA, IBM, and General Electric. In 1950 Haloid sold its first
commercial contract for a xerographic copier to the State of Michigan. Meanwhile, Haloid's other products were again highly profitable, with paper
sales increasing and several successful new office photocopying machines selling well.
In 1953 Carlson received the Edward Longstreth Medal of Merit for the invention of xerography from the Franklin Institute. In 1955 Haloid revamped
its 18 regional offices into showrooms for its Xerox machines instead of photo-paper warehouses, hired 200 sales and service people, began building
the first Xerox factory in Webster, New York, and introduced three new types of photography paper. Haloid also introduced the Copyflo, Haloid's
semiautomatic copying machine. In 1956 Haloid president Joe Wilson, Joseph R. Wilson's son, formed an overseas affiliate called Rank Xerox with
the Rank Organisation, a British film company seeking to diversify. This arrangement paved the way for Xerox factories in Great Britain and a sales
and distribution system that brought Xerox machines to the European market.
1960: The Xerox 914 Copier Becomes an Instant Hit
In 1958 Haloid changed its name to Haloid Xerox, reflecting its belief that the company's future lay with xerography, although photography products
were still more profitable. That balance quickly changed with the success of the Xerox 914 copier. Introduced in 1960, it was the first automatic
Xerox copier, and the first marketable plain-paper copier. The company could not afford a blanket advertising campaign, so it placed ads in
magazines and on television programs where it hoped business owners would see them. The company also offered the machines for monthly lease
to make xerography affordable for smaller businesses.
Demand for the 650-pound 914 model exceeded Haloid-Xerox's most optimistic projections, despite its large size. Fortune later called the copier
"the most successful product ever marketed in America." Sales and rental of xerographic products doubled in 1961 and kept growing. In 1961 the
company was listed on the New York Stock Exchange and changed its name to the Xerox Corporation; photography operations were placed under
the newly created Haloid photo division. In 1962 Xerox formed Xerox in Japan with Photo Film Company. Also during the 1960s Xerox opened
subsidiaries in Australia, Mexico, and continental Europe. The company had sunk $12.5 million into developing the 914 copier, more than Haloid's
total earnings from 1950 to 1959, and the 914 had led the company to more than $1 billion in sales by 1968. In 1963 Xerox introduced a desktop
version of the 914; although this machine sold well, it was not very profitable, and Xerox depended on its larger machines thereafter.
With its suddenly large profits, Xerox began a string of acquisitions, purchasing University Microfilms in 1962 and Electro-Optical Systems in 1963.
The market for copiers continued to expand at such a rate that they remained Xerox's chief source of revenue. The 1960s were a tremendously
successful time for Xerox, which became one of the 100 largest corporations in the United States and, in 1969, moved its headquarters to Stamford,
In the late 1960s Xerox began to focus its efforts on the concept of an electronic office that would not use paper. With this end in mind the
corporation bought a computer company, Scientific Data Systems, in 1969, for nearly $1 billion in stock, only to have it fail and close down in 1975.
Xerox also formed Xerox Computer Services in 1970, bought several small computer firms in the next few years, and opened the Xerox Palo Alto
Research Center (PARC) in California.
Scientists at PARC invented what may have been the world's first personal computer. So innovative was the work of the PARC scientists that many
features they invented later appeared on Apple Macintosh computers. In fact, in December 1989 Xerox would sue Apple Computer for $150 million,
alleging that Apple had stolen the technology that helped make its computers so successful. Apple cofounder Steven Jobs, who later hired some
researchers from PARC, claimed that his company had refined Xerox's work, and thus made it original.
PARC's innovations were largely overlooked by Xerox; the computer division and the copier division competed for resources and failed to
communicate. Products were released by the office products division in Dallas, Texas, that PARC had never seen before. Disagreements broke out
at Xerox headquarters at the suggestion of change, which further stifled innovation.
Struggling Through the 1970s and 1980s
In April 1970 IBM introduced an office copying machine, giving Xerox its first real competition. IBM's machine was not as fast or as sophisticated as
the Xerox copiers, but it was well built and was backed by IBM's reputation. Xerox responded with a suit charging IBM with patent infringement. The
dispute was settled in 1978 when IBM paid Xerox $25 million. Meanwhile, Xerox itself became a defendant in several antitrust violation
investigations, including a lawsuit by the Federal Trade Commission. Distracted from its market by legal battles, Xerox lost its lead in the industry
when Kodak came out with a more sophisticated copier. IBM and Kodak followed a strategy similar to that of Xerox, leasing their machines and
attracting many large accounts on which Xerox depended.
According to most critics, Xerox had become inefficient during this time, as its executives had concentrated too heavily on growth during the
1960s. Xerox had spent hundreds of millions of dollars on product development but introduced few new products. Engineers and designers were
divided into small groups that fought over details as they missed deadlines. While the company sought to perfect the copying machine, it failed to
challenge the new products on the market, and Xerox's market share dropped.
By 1985 Xerox's worldwide plain-paper copier share had dropped to 40 percent, from 85 percent in 1974. Yet Xerox's revenues grew from $1.6
billion in 1970 to $8 billion in 1980, partially because Xerox began to sell the machines it had been renting, thus depleting its lease base.
Beginning in the mid-1970s, Japanese products emerged as an even more dangerous threat. Xerox machines were big and complex and averaged
three breakdowns per month. The Japanese company Ricoh, however, introduced a less expensive, smaller machine that broke down less often.
The Japanese strategy was to capture the low end of the market and move up. By 1980 another Japanese competitor, Canon, was challenging
Xerox's market share in higher-end machines.
In the late 1970s Xerox began reorganizing, making market share its goal and learning some lessons about quality control and low-end copiers from
its Japanese subsidiary. The company also cut manufacturing costs drastically. Xerox regained copier market share but intense price competition
kept copier revenues around $8 billion for most of the 1980s.
In 1981 Xerox finally began releasing new products, beginning with the Memorywriter typewriter. This typewriter soon outsold IBM's and captured
over 20 percent of the electric typewriter market. By January 1983 Xerox had unveiled a Memorywriter that could store large amounts of data
internally. In 1982 the 10-Series copiers, the first truly new line since the 1960s, was introduced. These machines used microprocessors to regulate
internal functions and were able to perform a variety of complicated tasks on different types of paper. They were also smaller and far less likely to
break down than earlier Xerox copiers. The 10-Series machines used technology developed at PARC, which was becoming more integrated with the
company. Xerox began gaining market share for the first time in years, and morale improved.
Xerox also released computer workstations and software and built a $1 billion business in laser printers. The workstations proved an expensive flop,
however, and by 1989 the company planned to close its workstation hardware business. Xerox also moved to protect its 50 percent share of the
high-end market in the United States with machines that made 70 or more copies per minute. The major high-end competition was Kodak, but the
Japanese--led by Ricoh--were again launching a drive for this market.
During the 1970s Xerox had also diversified into financial services. In 1983 it bought Crum and Forster, a property casualty insurer, and in 1984 it
formed Xerox Financial Services (XFS), which bought two investment-banking firms in the next few years. By 1988 XFS supplied nearly 50 percent of
Xerox's income--$315 million of the $632 million total. XFS performed well, able to raise funds at a low cost because it was backed by the Xerox "A"
credit rating.
Xerox spent more than $3 billion on research and development in the 1980s looking for new technologies, such as those for digital and color
copying, to promote growth. Xerox was a leader in developing technologies, but often had trouble creating and marketing products based on them,
particularly computers.
A Late 1980s Comeback
In 1988 Xerox underwent a $275 million restructuring, cutting 2,000 jobs, shrinking its electronic typewriter output, dropping its medical systems
business, and creating a new marketing organization, Integrated Systems Operations, to get new technologies into the marketplace more
effectively. Xerox's comeback was so impressive that in 1989 its Business Products & Systems unit won Congress's Malcolm Baldridge National Quality
Award for regaining its lead in copier quality. Xerox had demonstrated its ability to change in the late 1970s when it responded to the first wave of
Japanese competition.
In 1990 when David T. Kearns, CEO since 1932, retired to become U.S. Deputy Secretary of Education, and Paul A. Allaire, a career Xerox man, was
named to replace him, industry analysts speculated that Allaire would have to repeat the feats of the 1970s if Xerox was to survive as an
independent corporation. A restructuring of company management occurred almost immediately. The office of the president was transformed into
a document processing corporate office led by Allaire and including executive vice-presidents A. Barry Rand and Vittorio Cassoni, and senior vice-
presidents Mark B. Myers and Allan E. Dugan. Two years later, Xerox announced plans to restructure the company as well. Three customer service
operations units were created in Connecticut, New York, and England. In addition, nine document processing business units were established, each
of which was headed by a president responsible for the profitability of the unit.
During the seven-month period from September 1990 to March 1991, Xerox introduced five new types of computer printers: the Xerox 4350, Xerox
4197, Xerox 4135, Xerox 4235, and Xerox 4213. These printers were designed to handle a wide variety of office needs from two-color printing to
desktop laser printing. In October 1990 the Docu-Tech Production Publisher signaled Xerox's intent to take advantage of what the company foresaw
as an industry move from offset printing to electronic printing and copying.
The introduction of the Xerox 5775 Digital Color Copier was met with great fanfare and was expected to rejuvenate sales. Xerox also continued to
update and improve its facsimile machines by developing a personal-sized model that could be used as a copier as well as a telephone, and by
developing thermal, recyclable fax paper. In May 1992 Xerox introduced Paperworks, software making it possible to send documents to a fax
machine directly from a PC.
Despite these new products, financial and legal woes continued to plague Xerox in the early 1990s as American economic conditions worsened.
After earnings of $235 million in the fourth quarter of 1990, Xerox reported only $91 million in profits for the same period the following year.
Earlier in 1990, just four months after the creation of the X-Soft division, which was to develop and market the company's software products, Xerox
announced that it would lay off ten percent of X-Soft's employees. In February 1992 the company offered severance pay to 6,000 of its American
employees in an attempt to reduce the workforce by 2,500 by July.
By the end of 1991, Xerox was announcing the sale of three of its insurance wholesalers. Crum and Forster sold Floyd West & Co. and Floyd West of
Louisiana to Burns & Wilcox Ltd. London Brokers Ltd. was sold to Crump E & S. Moreover, several lawsuits resulted in losses for Xerox during this
time. In February 1992 Xerox was ordered to pay Gradco Systems, Inc. $2.5 million to settle a patent dispute; and a suit settled in favor of
Monsanto a month later was expected to cost Xerox $142 million to clean up a hazardous waste dump site.
The Document Company Emerges in the Mid-1990s
With its core office products businesses on the upswing, Xerox announced in January 1993 that it intended to exit from insurance and its other
financial services businesses. Later that year Crum and Forster was renamed Talegen Holdings Inc. and was restructured into seven stand-alone
operating groups in order to facilitate their piecemeal sale. This exit took several years, however, and was delayed when a 1996 deal to sell several
units to Kohlberg Kravis Roberts & Company for $2.36 billion collapsed. During 1995 two of the groups were sold for a total of $524 million in cash.
In 1997 three more were sold for a total of $890 million in cash and the assumption of $154 million in debt. Then in January 1998 Xerox completed
the sale of Westchester Specialty Group, Inc. to Bermuda-based ACE Limited for $338 million, less $70 million in transaction-related costs. Finally,
Xerox in August 1998 sold its last remaining insurance unit, Crum & Forster Holdings, Inc., to Fairfax Financial Holdings Limited of Toronto for $680
As it was exiting from financial services, Xerox was also beginning to shed its image as a copier company. In 1994 Xerox began calling itself The
Document Company to emphasize the wide range of document processing products it produced. A new logo included a red "X" that was partially
digitized, representing the company's shift from analog technologies to digital ones. A number of new digital products were developed over the
next several years, including digital copiers that also served as printers, fax machines, and scanners (so-called multifunction devices). From 1995 to
1997 revenue from analog copiers was virtually stagnant, even falling slightly, whereas revenue from digital products enjoyed double-digit growth,
increasing to $6.7 billion by 1997.
Xerox also shifted focus from black-and-white to highly sought-after color machines, with revenues from color copying and printing increasing 46
percent to $1.5 billion in 1997. The most notable introduction here was the DocuColor 40, launched in 1996, which captured more than 50 percent
of the high-speed color copier market based on its ability to print 40 full-color pages per minute. Revitalized new product development at Xerox
resulted in the introduction of 80 new products in 1997 alone, the most in company history and twice the number of the previous year. More Xerox
products were being developed for the small office/home office market, with prices low enough that the company increasingly marketed its
products via such retailers as CompUSA, Office Depot, OfficeMax, and Staples.
However, the new Xerox was about more than just office products. The company introduced DocuShare document-management software in 1997,
providing a system for users to post, manage, and share information on company intranets. Xerox also gained the leading market share position in
the burgeoning document outsourcing services sector through the 1997-created Document Services Group. This group offered such services as the
creation of digital libraries, the design of electronic-commerce systems for Internet-based transactions, as well as professional document consulting
services. In May 1998 Xerox bolstered its Document Services Group through the $413 million acquisition of XLConnect Solutions Inc. (renamed Xerox
Connect) and its parent Intelligent Electronics, Inc. XLConnect specialized in the design, building, and support of networks for companywide
document solutions.
The mid-1990s also saw Xerox launch a restructuring in 1994, leading to 10,000 job cuts over a three-year period. In February 1995 the company
paid The Rank Organisation about $972 million to increase its stake in Rank Xerox to 80 percent. Then in June 1997 Xerox spent an additional $1.5
billion to buy Rank out entirely. With full control of the unit, Xerox renamed it Xerox Limited. That same month G. Richard Thoman, who had been
senior vice-president and chief financial officer at IBM, was named president and chief operating officer of Xerox, with Allaire remaining chairman
and CEO.
In April 1998 Xerox announced yet another major restructuring, as its shift to the digital world led it to spend more on overhead than its
competitors. The company planned to eliminate 9,000 jobs over two years, taking a $1.11 billion after-tax charge in 1998's second quarter in the
process. The cuts came at a time when Xerox was enjoying record sales and earnings as well as a surging stock price, so the company was clearly
proactive in maintaining the momentum it had gained through its impressive 1990s resurgence.
Principal Subsidiaries: Xerox Financial Services, Inc.; Xerox Credit Corporation; Xerox Realty Corporation; Xerox (UK) Limited; Fuji Xerox Co., Ltd.
(Japan; 50%); Xerox Canada Inc. The company also lists some 275 additional subsidiaries in the United States, United Kingdom, Canada, Japan,
Peru, Venezuela, Colombia, Netherlands Antilles, Panama, Brazil, Barbados, Chile, Mexico, Dominican Republic, Hong Kong, China, Egypt,
Singapore, Australia, New Zealand, Taiwan, Belgium, Russia, Germany, Sweden, Switzerland, Denmark, Norway, Austria, Spain, Poland, Finland,
Portugal, Italy, France, and elsewhere.

700 Anderson Hill Road
Purchase, New York 10577-1444

Telephone: (914) 253-2000

Fax: (914) 253-2070

Public Company
Incorporated: 1965
Employees: 118,000
Sales: $20.37 billion (1999)
Stock Exchanges: New York Chicago Swiss Amsterdam Tokyo
Ticker Symbol: PEP
NAIC: 311411 Frozen Fruit, Juice, and Vegetable Manufacturing; 311919 Other Snack Food Manufacturing; 311821 Cookie and Cracker
Manufacturing; 311930 Flavoring Syrup and Concentrate Manufacturing; 312111 Soft Drink Manufacturing; 312112 Bottled Water Manufacturing

Company Perspectives:

PepsiCo's overall mission is to increase the value of our shareholder's investment. We do this through sales growth, cost controls and wise
investment of resources. We believe our commercial success depends upon offering quality and value to our consumers and customers; providing
products that are safe, wholesome, economically efficient and environmentally sound; and providing a fair return to our investors while adhering to
the highest standards of integrity.

Key Dates:

1898: Pharmacist Caleb D. Bradham begins selling a cola beverage called Pepsi-Cola.
1905: Bradham begins establishing a network of bottling franchises.
1923: Bradham's company goes bankrupt.
1928: Roy C. Megargel reorganizes the firm as the National Pepsi-Cola Company.
1931: Company again goes bankrupt and is resurrected by the president of Loft Inc., Charles G. Guth.
1933: The size of Pepsi bottles is doubled, increasing sales dramatically.
1936: Pepsi-Cola Company becomes a subsidiary of Loft.
1939: First national radio advertising of the Pepsi brand.
1941: Loft and Pepsi-Cola merge, the new firm using the name Pepsi-Cola Company.
1964: Diet Pepsi debuts; Mountain Dew is acquired from Tip Corporation.
1965: Pepsi-Cola merges with Frito-Lay to form PepsiCo, Inc., with the two predecessors becoming divisions.
1967: Frito-Lay introduces Doritos tortilla chips to the national U.S. market.
1977: PepsiCo acquires Taco Bell.
1978: PepsiCo acquires Pizza Hut.
1981: Frito-Lay introduces Tostitos tortilla chips.
1986: The Kentucky Fried Chicken (KFC) chain is acquired.
1997: Taco Bell, Pizza Hut, and KFC are spun off into a new company called Tricon Global Restaurants.
1998: PepsiCo acquires Tropicana Products for $3.3 billion.
1999: Pepsi Bottling Group is spun off to the public, with PepsiCo retaining a 35 percent stake.
2000: PepsiCo reaches an agreement to acquire the Quaker Oats Company for $13.4 billion.

Company History:
PepsiCo, Inc. is one of the world's top consumer product companies with many of the world's most important and valuable trademarks. Its Pepsi-
Cola Company division is the second largest soft drink business in the world, with a 21 percent share of the carbonated soft drink market worldwide
and 29 percent in the United States. Three of its brands--Pepsi-Cola, Mountain Dew, and Diet Pepsi&mdashe among the top ten soft drinks in the
U.S. market. The Frito-Lay Company division is by far the world leader in salty snacks, holding a 40 percent market share and an even more
staggering 56 percent share of the U.S. market. In the United States, Frito-Lay is nine times the size of its nearest competitor and sells nine of the
top ten snack chip brands in the supermarket channel, including Lay's, Doritos, Tostitos, Ruffles, Fritos, and Chee-tos. Frito-Lay generates more
than 60 percent of PepsiCo's net sales and more than two-thirds of the parent company's operating profits. The company's third division, Tropicana
Products, Inc., is the world leader in juice sales and holds a dominant 41 percent of the U.S. chilled orange juice market. On a worldwide basis,
PepsiCo's product portfolio includes 16 brands that generate more than $500 million in sales each year, ten of which generate more than $1 billion
annually. Overall, PepsiCo garners about 35 percent of its retail sales outside the United States, with Pepsi-Cola brands marketed in about 160
countries, Frito-Lay in more than 40, and Tropicana in approximately 50. As 2001 began, PepsiCo was on the verge of adding to its food and drink
empire the brands of the Quaker Oats Company, which include Gatorade sports drink, Quaker oatmeal, and Cap'n Crunch, Life, and other ready-to-
eat cereals.
When Caleb D. Bradham concocted a new cola drink in the 1890s, his friends' enthusiastic response convinced him that he had created a
commercially viable product. For 20 years, 'Doc' Bradham prospered from his Pepsi-Cola sales. Eventually, he was faced with a dilemma; the crucial
decision he made turned out to be the wrong one and he was forced to sell. But his successors fared no better and it was not until the end of the
1930s that Pepsi-Cola again became profitable. Seventy years later, PepsiCo, Inc. was a mammoth multinational supplier of soft drinks, juices, and
snack food. PepsiCo's advance to that level was almost entirely the result of its management style and the phenomenal success of its television
Ups and Downs in the Early Years
Doc Bradham, like countless other entrepreneurs across the United States, was trying to create a cola drink similar in taste to Coca-Cola, which by
1895 was selling well in every state of the union. On August 28, 1898, at his pharmacy in New Bern, North Carolina, Bradham gave the name Pepsi-
Cola to his most popular flavored soda. Formerly known as Brad's Drink, the new cola beverage was a syrup of sugar, vanilla, oils, cola nuts, and
other flavorings diluted in carbonated water. The enterprising pharmacist followed Coca-Cola's method of selling the concentrate to soda fountains;
he mixed the syrup in his drugstore, then shipped it in barrels to the contracted fountain operators who added the soda water. He also bottled and
sold the drink himself.
In 1902 Doc Bradham closed his drugstore to devote his attention to the thriving new business. The next year, he patented the Pepsi-Cola
trademark, ran his first advertisement in a local paper, and moved the bottling and syrup-making operations to a custom-built factory. Almost
20,000 gallons of Pepsi-Cola syrup were produced in 1904.
Again following the successful methods of the Coca-Cola Company, Bradham began to establish a network of bottling franchises. Entrepreneurs
anxious to enter the increasingly popular soft drink business set themselves up as bottlers and contracted with Bradham to buy his syrup and sell
nothing but Pepsi. With little cash outlay, Pepsi-Cola reached a much wider market. Bradham's first two bottling franchises, both in North Carolina,
commenced operation in 1905. By 1907, Pepsi-Cola had signed agreements with 40 bottlers; over the next three years, the number grew to 250 and
annual production of the syrup exceeded one million gallons.
Pepsi-Cola's growth continued until World War I, when sugar, then the main ingredient of all flavored sodas, was rationed. Soft drink producers
were forced to cut back until sugar rationing ended. The wartime set price of sugar--5.5 cents per pound--rocketed after controls were lifted to as
much as 26.5 cents per pound in 1920. Bradham, like his rivals, had to decide whether to halt production and sit tight in the hope that prices would
soon drop, or stockpile the precious commodity as a precaution against even higher prices; he chose the latter course. But unfortunately for him
the market was saturated by the end of 1920 and sugar prices plunged to a low of two cents per pound.
Bradham never recovered. After several abortive attempts to reorganize, only two of the bottling plants remained open. In a last ditch effort, he
enlisted the help of Roy C. Megargel, a Wall Street investment banker. Very few people, however, were willing to invest in the business and it went
bankrupt in 1923. The assets were sold and Megargel purchased the company trademark, giving him the rights to the Pepsi-Cola formula. Doc
Bradham went back to his drug dispensary and died 11 years later.
Megargel reorganized the firm as the National Pepsi-Cola Company in 1928, but after three years of continuous losses he had to declare bankruptcy.
That same year, 1931, Megargel met Charles G. Guth, a somewhat autocratic businessman who had recently taken over as president of Loft Inc., a
New York-based candy and fountain store concern. Guth had fallen out with Coca-Cola for refusing the company a wholesaler discount and he was
on the lookout for a new soft drink. He signed an agreement with Megargel to resurrect the Pepsi-Cola company, and acquired 80 percent of the
new shares, ostensibly for himself. Then, having modified the syrup formula, he canceled Loft's contract with Coca-Cola and introduced Pepsi-Cola,
whose name was often shortened to Pepsi.
Loft's customers were wary of the brand switch and in the first year of Pepsi sales the company's soft drink turnover was down by a third. By the
end of 1933, Guth bought out Megargel and owned 91 percent of the insolvent company. Resistance to Pepsi in the Loft stores tailed off in 1934,
and Guth decided to further improve sales by offering 12-ounce bottles of Pepsi for a nickel--the same price as six ounces of Coke. The Depression-
weary people of Baltimore--where the 12-ounce bottles were first introduced--were ready for a bargain and Pepsi-Cola sales increased
Guth soon took steps to internationalize Pepsi-Cola, establishing the Pepsi-Cola Company of Canada in 1934 and in the following year forming
Compania Pepsi-Cola de Cuba. He also moved the entire American operation to Long Island City, New York, and set up national territorial
boundaries for the bottling franchises. In 1936, Pepsi-Cola Ltd. of London commenced business.
Guth's ownership of the Pepsi-Cola Company was challenged that same year by Loft Inc. In a complex arrangement, Guth had organized Pepsi-Cola
as an independent corporation, but he had run it with Loft's employees and money. After three years of litigation, the court upheld Loft's
contention and Guth had to step down, although he was retained as an adviser. James W. Carkner was elected president of the company, now a
subsidiary of Loft Inc., but Carkner was soon replaced by Walter S. Mack, Jr., an executive from the Phoenix Securities Corporation.
Mack established a board of directors with real voting powers to ensure that no one person would be able to wield control as Guth had done. From
the start, Mack's aim was to promote Pepsi to the hilt so that it might replace Coca-Cola as the world's best-selling soft drink. The advertising
agency Mack hired worked wonders. In 1939, a Pepsi radio jingle--the first one to be aired nationally--caught the public's attention: 'Pepsi-Cola hits
the spot. Twelve full ounces, that's a lot. Twice as much for a nickel, too. Pepsi-Cola is the drink for you.' The jingle, sung to the tune of the old
British hunting song 'D'Ye Ken John Peel,' became an advertising hallmark; no one was more impressed, or concerned, than the executives at Coca-
In 1940, with foreign expansion continuing strongly, Loft Inc. made plans to merge with its Pepsi-Cola subsidiary. The new firm, formed in 1941,
used the name Pepsi-Cola Company since it was so well-known. Pepsi's stock was listed on the New York Stock Exchange for the first time.
Sugar rationing was even more severe during World War II, but this time the company fared better; indeed, the sugar plantation Pepsi-Cola
acquired in Cuba became a most successful investment. But as inflation spiraled in the postwar U.S. economy, sales of soft drinks fell. The public
needed time to get used to paying six or seven cents for a bottle of Pepsi which, as they remembered from the jingle, had always been a nickel.
Profits in 1948 were down $3.6 million from the year before.
In other respects, 1948 was a notable year. Pepsi moved its corporate headquarters across the East River to midtown Manhattan, and for the first
time the drink was sold in cans. The decision to start canning, while absolutely right for Pepsi-Cola and other soft drink companies, upset the
franchised bottlers, who had invested heavily in equipment. However, another decision at Pepsi-Cola&mdashø ignore the burgeoning vending
machine market because of the necessarily large capital outlay&mdash′oved to be a costly mistake. The company had to learn the hard way that as
canned drinks gained a larger share of the market, vending machine sales would become increasingly important.
1950s: The Steele and Crawford Era
Walter Mack was appointed company chairman in 1950, and a former Coca-Cola vice-president of sales, Alfred N. Steele, took over as president and
chief executive officer, bringing 15 other Coke executives with him. Steele continued the policy of management decentralization by giving broader
powers to regional vice-presidents, and he placed Herbert Barnet in charge of Pepsi's financial operations. Steele's outstanding contribution,
however, was in marketing. He launched an extensive advertising campaign with the slogan 'Be Sociable, Have a Pepsi.' The new television medium
provided a perfect forum; Pepsi advertisements presented young Americans drinking 'The Light Refreshment' and having fun.
By the time Alfred Steele married movie star Joan Crawford in 1954, a transformation of the company was well underway. Crawford's adopted
daughter, Christina, noted in her best-seller Mommie Dearest: '[Steele had] driven Pepsi into national prominence and distribution, second only to
his former employer, Coca-Cola. Pepsi was giving Coke a run for its money in every nook and hamlet of America. Al Steele welded a national
network of bottlers together, standardized the syrup formula ..., brought the distinctive logo into mass consciousness, and was on the brink of
going international.' In fact, Pepsi-Cola International Ltd. was formed shortly after Steele's marriage.
Joan Crawford became the personification of Pepsi's new and glamorous image. She invariably kept a bottle of Pepsi at hand during press
conferences and mentioned the product at interviews and on talk shows; on occasion she even arranged for Pepsi trucks and vending machines to
feature in background shots of her movies. The actress also worked hard to spread the Pepsi word overseas and accompanied her husband, now
chairman of the board, on his 1957 tour of Europe and Africa, where bottling plants were being established.
Steele died suddenly of a heart attack in the spring of 1959. Herbert Barnet succeeded him as chairman and Joan Crawford was elected a board
member. Pepsi-Cola profits had fallen to a postwar low of $1.3 million in 1950 when Steele joined the company, but with the proliferation of
supermarkets during the decade and the developments in overseas business, profits reached $14.2 million in 1960. By that time, young adults had
become a major target of soft drink manufacturers and Pepsi's advertisements were aimed at 'Those who think young.'
Al Steele and Joan Crawford had been superb cheerleaders, but a stunt pulled in 1959 by Donald M. Kendall, head of Pepsi-Cola International, is
still regarded as one of the great coups in the annals of advertising. Kendall attended the Moscow Trade Fair that year and persuaded U.S. Vice-
President Richard Nixon to stop by the Pepsi booth with Nikita Khrushchev, the Soviet premier. As the cameras flashed, Khrushchev quenched his
thirst with Pepsi and the grinning U.S. Vice-President stood in attendance. The next day, newspapers around the world featured photographs of the
happy couple, complete with Pepsi bottle.
1960s and 1970s: The Pepsi Generation, Diversification
By 1963, Kendall was presiding over the Pepsi empire. His rise to the top of the company was legendary. He had been an amateur boxing champion
in his youth and joined the company as a production line worker in 1947 after a stint in the U.S. Navy. He was later promoted to syrup sales where
it quickly became apparent that he was destined for higher office. Ever pugnacious, Kendall has been described as abrasive and ruthlessly
ambitious; beleaguered Pepsi executives secretly referred to him as White Fang. Under his long reign, the company's fortunes skyrocketed.
Pepsi-Cola's remarkable successes in the 1960s and 1970s were the result of five distinct policies, all of which Kendall and his crew pursued
diligently: advertising on a massive, unprecedented scale; introducing new brands of soft drinks; leading the industry in packaging innovations;
expanding overseas; and, through acquisitions, diversifying their product line.
The postwar baby-boomers were in their mid- to late teens by the time Kendall came to power. 'Pepsi was there,' states a recent company flyer, 'to
claim these kids for our own.' These 'kids' became the 'Pepsi Generation.' In the late 1960s Pepsi was the 'Taste that beats the others cold.' Viewers
were advised 'You've got a lot to live. Pepsi's got a lot to give.' By the early 1970s, the appeal was to 'Join the Pepsi people, feelin' free.' In mid-
decade an American catchphrase was given a company twist with 'Have a Pepsi Day,' and the 1970s ended on the note 'Catch the Pepsi Spirit!'
The Pepsi Generation wanted variety and Pepsi was happy to oblige. Company brands introduced in the 1960s included Patio soft drinks, Teem,
Tropic Surf, Diet Pepsi--the first nationally distributed diet soda, introduced in 1964--and Mountain Dew, acquired from the Tip Corporation, also in
1964. Pepsi Light, a diet cola with a hint of lemon, made its debut in 1975, and a few years later Pepsi tested the market with Aspen apple soda
and On-Tap root beer. The company also introduced greater variety into the packaging of its products. Soon after Kendall's accession, the 12-ounce
bottle was phased out in favor of the 16-ounce size, and in the 1970s Pepsi-Cola became the first American company to introduce one-and-a-half
and two-liter bottles; it also began to package its sodas in sturdy, lightweight plastic bottles. By the end of the decade, Pepsi had added 12-pack
cans to its growing array of packaging options.
The company's expansion beyond the soft drink market began in 1965 when Kendall met Herman Lay, the owner of Frito-Lay, at a grocer's
convention. Kendall arranged a merger with this Dallas-based snack food manufacturer and formed PepsiCo, Inc. Herman Lay retired soon
thereafter but retained his substantial PepsiCo shareholding. The value of this stock increased dramatically as Frito-Lay products were introduced
to Pepsi's nationwide market. At the time of the merger, key Frito-Lay brands included Fritos corn chips (created in 1932), Lay's potato chips
(1938), Chee-tos cheese-flavored snacks (1948), Ruffles potato chips (1958), and Rold Gold pretzels (acquired by Frito-Lay in 1961). Doritos tortilla
chips were introduced nationally in 1967. The addition of Frito-Lay helped PepsiCo achieve $1 billion in sales for the first time in 1970. That same
year, the corporation moved into its new world headquarters in Purchase, New York.
During the 1970s, Kendall acquired two well-known fast-food restaurant chains, Taco Bell, in 1977, and Pizza Hut, in 1978; naturally, these new
subsidiaries became major outlets for Pepsi products. But Kendall also diversified outside the food and drink industry, bringing North American Van
Lines (acquired in 1968), Lee Way Motor Freight, and Wilson Sporting Goods into the PepsiCo empire.
Overseas developments continued apace throughout Kendall's tenure. Building on his famous Soviet achievement, he negotiated a trade agreement
with the U.S.S.R. in 1972; the first Pepsi plant opened there two years later. Gains were also made in the Middle East and Latin America, but Coca-
Cola, the major rival, retained its dominant position in Europe and throughout much of Asia.
1980s Highlighted by the Cola Wars
By the time PepsiCo greeted the 1980s with the slogan 'Pepsi's got your taste for life!,' Kendall was busy arranging for China to get that taste too;
production began there in 1983. Kendall put his seal of approval on several other major developments in the early 1980s, including the introduction
of Pepsi Free, a non-caffeine cola, and Slice, the first widely distributed soft drink to contain real fruit juice (lemon and lime). The latter drink was
aimed at the growing 7-Up and Sprite market. Additionally, Diet Pepsi was reformulated using a blend of saccharin and aspartame (NutraSweet).
'Pepsi Now!' was the cry of company commercials, and this was interspersed with 'Taste, Improved by Diet Pepsi.' On the Frito-Lay side, meantime,
the Tostitos brand of crispy round tortilla chips was introduced in 1981.
In 1983 the company claimed a significant share of the fast-food soft drink market when Burger King began selling Pepsi products. A year later,
mindful of the industry axiom that there is virtually no limit to the amount a consumer will buy once the decision to buy has been made, PepsiCo
introduced the 3-liter container.
By the mid-1980s, the Pepsi Generation was over the hill. Kendall's ad agency spared no expense in heralding Pepsi as 'The Choice of a New
Generation,' using the talents of superstar Michael Jackson, singer Lionel Richie, and the Puerto Rican teenage group Menudo. Michael Jackson's ads
were smash hits and enjoyed the highest exposure of any American television commercial to date. The company's high profile and powerful
presence in all of the soft drink markets--direct results of Kendall's strategies--helped it to weather the somewhat uncertain economic situation of
the time.
On only one front had Kendall's efforts failed to produce satisfactory results. Experience showed that for all its expertise, PepsiCo simply did not
have the managerial experience required to run its subsidiaries outside the food and drink industries. A van line, a motor freight concern, and a
sporting goods firm were indeed odd companies for a soft drink enterprise; and Kendall auctioned off these strange and ailing bedfellows, vowing
never again to go courting in unfamiliar territories.
With his house in excellent order, the PepsiCo mogul began to prepare for his retirement. He had bullied and cajoled a generation of Pepsi
executives and guided them ever upward on the steep slopes of Pepsi profits. But he had one last task: to lead PepsiCo to victory in the Cola Wars.
Hostilities commenced soon after the Coca-Cola Company changed its syrup recipe in the summer of 1985 and with much fanfare introduced New
Coke. Pepsi, caught napping, claimed that Coca-Cola's reformulated drink failed to meet with consumer approval and pointed to their own
flourishing sales. But serious fans of the original Coke were not about to switch to Pepsi and demanded that their favorite refreshment be restored.
When blindfolded, however, it became manifestly apparent that these diehards could rarely tell the difference between Old Coke, New Coke, and
Pepsi; indeed, more often than not, they got it wrong. In any event, the Coca-Cola Company acceded to the public clamor for the original Coke and
remarketed it as Coca-Cola Classic alongside its new cola.
Some advertising analysts believed that the entire 'conflict' was a clever publicity ploy on the part of Coca-Cola to demonstrate the preeminence of
its original concoction ('It's the Real Thing!'), while introducing a new cola--allegedly a Pepsi taste-alike&mdashø win the hearts of waverers. More
interesting perhaps than the possible differences between the colas were the very real differences in people's reactions. Four discrete fields were
identified by Roger Enrico and Jesse Kornbluth in their book, The Other Guy Blinked: How Pepsi Won the Cola Wars: the totally wowed (possibly
caffeine-induced); the rather amused; the slightly irritated; and the distinctly bored.
The latter group must have nodded off in front of their television sets when Pepsi took the Cola Wars beyond the firmament. 'One Giant Sip for
Mankind,' proclaimed the ads as a Pepsi 'space can' was opened up aboard the U.S. space shuttle Challengerin 1985. Presumably, had a regular can
been used, Pepsi-Cola would have sloshed aimlessly around the gravity-free cabin. This scientific breakthrough, together with the almost obligatory
hype and hoopla, and more mundane factors such as the continued expansion in PepsiCo's outlets, boosted sales to new heights, and Pepsi's ad
agency glittered with accolades. The debate persisted, at least within Coke and Pepsi corporate offices, as to who won the Cola Wars. The answer
appeared to be that there were no losers, only winners; but skirmishes would inevitably continue.
Late 1980s and Early 1990s: Focusing on International Growth and Diversification
D. Wayne Calloway replaced Donald M. Kendall as chairman and chief executive officer in 1986. Calloway had been instrumental in the success of
Frito-Lay, helping it to become PepsiCo's most profitable division. The new chairman realized that his flagship Pepsi brand was not likely to win
additional market share from Coca-Cola, and focused his efforts on international growth and diversification.
Calloway hoped to build on the phenomenal success of the Slice line of fruit juice beverages, which achieved $1 billion in sales and created a new
beverage category within just two years of its 1984 introduction. From 1985 to 1993, PepsiCo introduced, acquired, or formed joint ventures to
distribute nine beverages, including Lipton Original Iced Teas, Ocean Spray juices, All Sport drink, H2Oh! sparkling water, Avalon bottled water,
and Mug root beer. Many of these products had a 'New Age' light and healthy positioning, in line with consumer tastes, and higher net prices. In
1992, PepsiCo introduced Crystal Pepsi, a clear cola that, while still a traditional soda, also tried to capture the momentum of the 'New Age'
beverage trend.
In the restaurant segment, PepsiCo's 1986 purchase of Kentucky Fried Chicken (KFC) and 1990 acquisition of the Hot 'n Now hamburger chain
continued its emphasis on value-priced fast foods. But the company strayed slightly from that formula with the 1992 and 1993 purchases of such
full-service restaurants as California Pizza Kitchen, which specialized in creative wood-fired pizzas, Chevys, a Mexican-style chain, East Side Mario's
Italian-style offerings, and D'Angelo Sandwich Shops.
Pepsi lost a powerful marketing tool in 1992, when Michael Jackson was accused of child molestation. Although the case was settled out of court,
Pepsi dropped its contract with the entertainer. The firm launched its largest promotion ever in May 1992 with the 'Gotta Have It' card, which
offered discounts on the products of marketing partners Reebok sporting goods, Continental Airlines, and the MCI telephone long distance company.
The company also launched a new marketing (or, as the company phrased it, 'product quality') initiative early in 1994, when it announced that
packaged carbonated soft drink products sold in the United States would voluntarily be marked with a 'Best if Consumed By' date.
Although Pepsi had commenced international expansion during the 1950s, it had long trailed Coca-Cola's dramatic and overwhelming conquest of
international markets. In 1990, CEO Calloway pledged up to $1 billion for overseas development, with the goal of increasing international volume
150 percent by 1995. At that time, Coke held 50 percent of the European soft drink market, while Pepsi claimed a meager ten percent. But Pepsi's
advantage was that it could compete in other, less saturated segments. The company's biggest challenge to expanding its restaurant division was
affordability. PepsiCo noted that, while it took the average U.S. worker just 15 minutes to earn enough to enjoy a meal in one of the firm's
restaurants, it would take an Australian 25 minutes to achieve a similar goal. Pepsi still had other options, however. In 1992, for example, the
company forged a joint venture with General Mills called Snack Ventures Europe which emerged as the largest firm in the $17 billion market. By
1993, PepsiCo had invested over $5 billion in international businesses, and its international sales comprised 27 percent, or $6.71 billion, of total
annual sales.
In January 1992, Calloway was credited by Business Week magazine with emerging from the long shadow cast by his predecessor 'to put together
five impressive years of 20 percent compound earnings growth, doubling sales and nearly tripling the company's value on the stock market.'
Calloway also worked to reshape PepsiCo's corporate culture by fostering personal responsibility and a decentralized, flexible management style.
Mid-to-Late 1990s: The Enrico Restructuring
Calloway, who was battling prostate cancer, retired as CEO in April 1996 and was replaced by Roger A. Enrico, who became chairman as well later
in the year (Calloway died in July 1998). Since joining Frito-Lay's marketing department in 1971, Enrico had stints heading up both Pepsi-Cola and
Frito-Lay before becoming head of the restaurants division in 1994. He engineered a quick turnaround of the struggling chains by changing the
overall strategy, for example adopting more franchising of units rather than company ownership. Under Enrico, the marketing of new concepts was
also emphasized, with one notable success being the introduction of stuffed-crust pizza at Pizza Hut.
After taking over leadership of PepsiCo, Enrico quickly faced major problems in the overseas beverages operations, including big losses that were
posted by its large Latin American bottler and the defection of its Venezuelan partner to Coca-Cola. PepsiCo ended up taking $576 million in special
charges related to international writeoffs and restructuring, and its international arm posted a huge operating loss of $846 million, depressing 1996
profits. Among the moves initiated to turn around the international beverage operations, which faced brutal competition from the entrenched and
better organized Coca-Cola, was to increase emphasis on emerging markets, such as India, China, Eastern Europe, and Russia, where Coke had a
less formidable presence, and to rely less on bottling joint ventures and more on Pepsi- or franchise-owned bottling operations.
Another area of concern was the restaurant division, which had consistently been the PepsiCo laggard in terms of performance. Enrico concluded
that in order to revitalize the beverage division and to take advantage of the surging Frito-Lay, which already accounted for 43 percent of PepsiCo's
operating profits, the restaurants had to go. Hot 'n Now and the casual dining chains were soon sold off, and in January 1997 PepsiCo announced
that it would spin off its three fast-food chains into a separate publicly traded company. The spinoff was completed in October 1997 with the
formation of Tricon Global Restaurants, Inc., consisting of the Taco Bell, Pizza Hut, and KFC chains. The exit from restaurants removed one
obstacle facing Pepsi in its battle with Coke: that most large fast-food chains had been reluctant to carry Pepsi beverages, not wanting to support
the parent of a major competitor. Consequently, Coke held a huge market share advantage over Pepsi in the fast-food channel. Pepsi subsequently
made some inroads, for example, in 1999 sealing a ten-year deal with the 11,500-plus-outlet Subway chain.
Enrico placed more emphasis, however, on building sales of Pepsi in its core supermarket channel. In this regard, he launched an initiative called
'Power of One' that aimed to take advantage of the synergies between Frito-Lay's salty snacks and the beverages of Pepsi-Cola. This strategy
involved persuading grocery retailers to move soft drinks next to snacks, the pitch being that such a placement would increase supermarket sales.
In the process, PepsiCo would gain sales of both snacks and beverages while Coca-Cola could only benefit in the latter area. Power of One harkened
back to the original rationale for the merger of Pepsi-Cola and Frito-Lay. At the time, the head of Pepsi, Kendall, had told Frito-Lay's leader,
Herman W. Lay: 'You make them thirsty, and I'll give them something to drink.' The promise of this seemingly ideal marriage had never really been
achieved, however, until the Power of One campaign, which in 1999 helped increase Frito-Lay's market share by two percentage points and boosted
Pepsi's volume by 0.6 percent.
In the meantime, Enrico was active on a number of other fronts. The company in 1997 nationally launched the Aquafina bottled water brand, which
quickly gained the number one position in a fast-growing sector. In a move into the nonsalty snack category, Frito-Lay acquired the venerable
Cracker Jack brand that year, and subsequently bolstered the brand through renewed advertising, a new four-ounce-bag package, the addition of
more peanuts, the inclusion of better prizes, and the strength of Frito-Lay's vast distribution network. In August 1998 PepsiCo opened up another
front in its ongoing war with Coca-Cola by acquiring juice-maker Tropicana Products, Inc. from the Seagram Company, Ltd. for $3.3 billion in cash--
the largest acquisition in PepsiCo history. Coca-Cola had been the owner of Tropicana's arch-rival, Minute Maid, since 1960, but Tropicana was the
clear world juice leader, led by the flagship Tropicana Pure Premium brand. Tropicana had a dominating 41 percent share of the fast-growing
chilled orange juice market in the United States. The brand was also attractive for its growth potential; not only were sales of juice growing at a
much faster rate than the stagnating carbonated beverage sector, there was also great potential for brand growth overseas. Psychologically, the
acquisition also provided PepsiCo with something it very much needed: it could boast of holding at least dominant position over Coca-Cola.
In 1999 PepsiCo divested itself of another low-margin, capital-intensive business when it spun off Pepsi Bottling Group, the largest Pepsi bottler in
the world, to the public in a $2.3 billion IPO. PepsiCo retained a 35 percent stake. PepsiCo was now focused exclusively on the less capital-intensive
businesses of beverages and snack foods.
On the beverage side, Enrico, who had gained a reputation as a master marketer, spearheaded a bolder advertising strategy for the flagship Pepsi
brand. In 1999, Pepsi-Cola was the exclusive global beverage partner for the movie blockbuster Star Wars, Episode 1: The Phantom Menace. The
company also revived the old 'Pepsi Challenge' campaign of the 1970s with the new Pepsi One diet drink facing off against Diet Coke. Pepsi's 'Joy of
Cola' advertising campaign was gaining accolades and in 2000 captured renewed attention following the signing of a string of celebrities to
endorsement deals, including singer Faith Hill and baseball stars Sammy Sosa and Ken Griffey, Jr. Pepsi also greatly increased the number of
vending machines it had planted around the United States, making a renewed push to gain on Coke in another area where the arch-enemy had long
By the end of 1999, after three and one-half years at the helm, Enrico had clearly turned PepsiCo into a stronger, much more focused, and better
performing firm. Although revenues were more than one-third lower due to the divestments, earnings were higher by more than $100 million.
Operating margins had increased from ten percent to 15 percent, while return on invested capital grew from 15 percent to 20 percent. Net debt
had been slashed from $8 billion to $2 billion. During 1999, Steve Reinemund was named president and COO of PepsiCo. Reinemund had headed up
Pizza Hut from 1986 to 1992 then was placed in charge of Frito-Lay. In the latter position, he oversaw a division whose sales increased ten percent
per year on average and whose profits doubled. During his tenure, Frito-Lay's share of the U.S. salty snack sector jumped from 40 to 60 percent.
Turning Acquisitive in the Early 21st Century
In October 2000 Enrico announced that he intended to vacate his position as CEO by the end of 2001 and his position as chairman by year-end 2002.
Reinemund was named the heir apparent. Also that month, PepsiCo reached an agreement to acquire a majority stake in South Beach Beverage
Company, maker of the SoBe brand. Popular with young consumers, the SoBe drink line featured herbal ingredients and was the fastest growing
brand in the burgeoning noncarbonated alternative beverage sector.
An even more tempting target soon attracted PepsiCo's attention: the powerhouse Gatorade brand owned by the Quaker Oats Company. Gatorade
held an astounding 83.6 percent of the U.S. retail market for sports drinks and was the world leader in that segment with annual sales of about $2
billion. PepsiCo entered into talks with Quaker about acquiring the company for about $14 billion in stock, but by early November the two sides had
failed to reach an agreement. Coca-Cola and Groupe Danone quickly came forward to discuss acquiring Quaker. Coke came exceedingly close to
signing a $15.75 billion takeover agreement, but the company's board pulled the plug on the deal at the last minute. Danone soon bowed out as
well. At that point, PepsiCo reentered the picture, and in early December the firm announced that it agreed to acquire Quaker Oats for $13.4
billion in stock. This appeared to be quite a coup for PepsiCo as it would not only bring on board the valuable Gatorade brand and make PepsiCo
the clear leader in the fast-growing noncarbonated beverage category, it would also add Quaker's small but growing snack business, which included
granola and other bars as well as rice cakes. Quaker's non-snack food brands--which included the flagship Quaker oatmeal, Life and Cap'n Crunch
cereals, Rice a Roni, and Aunt Jemima syrup--did not fit as neatly into the PepsiCo portfolio but were highly profitable and could eventually be
divested if desired. In conjunction with the acquisition announcement, Enrico said that upon completion of the merger, he and the head of Quaker,
Robert S. Morrison, would become vice-chairmen of PepsiCo, Morrison would also remain chairman, president, and CEO of Quaker, and Reinemund
would become chairman and CEO of PepsiCo, thereby accelerating the management transition. At that same time, PepsiCo's CFO, Indra Nooyi, who
was the highest ranking Indian-born woman in corporate America, would become president and CFO. It seemed likely that this new management
team would take PepsiCo to new heights in the early 21st century and that the company would continue to be a more and more formidable
challenger to arch-rival Coca-Cola.
Principal Divisions: Frito-Lay Company; Pepsi-Cola Company; Tropicana Products, Inc.
Principal Competitors: Borden, Inc.; Cadbury Schweppes plc; Campbell Soup Company; Chiquita Brands International, Inc.; The Coca-Cola
Company; ConAgra Foods, Inc.; Cott Corporation; Groupe Danone; General Mills, Inc.; Golden Enterprises, Inc.; Keebler Foods Company; Kraft
Foods, Inc.; Nestlé S.A.; Ocean Spray Cranberries, Inc.; The Procter & Gamble Company.
4660 Hacienda Drive
Pleasanton, California 94588-8618

Telephone: (925) 225-3000

Fax: (925) 694-4444

Public Company
Incorporated: 1987
Employees: 7000
Sales: $1.4 billion (1999)
Stock Exchanges: NASDAQ
Ticker Symbol: PSFT
NAIC: 51121 Software Publishers

Company Perspectives:

Increasingly we have found that our customers don't choose a software product. They choose a software company. Our customers select PeopleSoft
because they like us and because they trust us. Along with product quality and service excellence, we have always put a premium on integrity--it's
part of who we are and how we do business.

Key Dates:

1987: David Duffield leaves Integral Corp. and founds PeopleSoft Inc.
1992: PeopleSoft makes its initial public stock offering.
1996: Company acquires Red Pepper Software Company.
1999: Craig A. Conway replaces Duffield as PeopleSoft CEO; company acquires Vantive Corp.

Company History:
PeopleSoft Inc. is a global leader in enterprise application software, serving more than 4,000 customers in the fields of customer relations
management, human resources management, financial management, and supply chain management, along with a slew of industry-specific
concerns. Clients include small- and medium-sized businesses as well as some of the largest companies in the world. After enjoying explosive
growth during its first decade of existence, PeopleSoft's pace of expansion slowed over the last two years of the 20th century, as increased
competition and Y2K concerns reduced demand for its products. During that period, however, the company rededicated itself to providing cutting-
edge, Internet-based software applications in an effort to recapture market share and reignite growth.
The Origins of PeopleSoft
Dave Duffield and Ken Morris are the progenitors of PeopleSoft. Both software developers had been working at Integral Corp. before jumping ship to
start their own company. In fact, Duffield had founded Integral in 1982 and served as its chief executive until 1984. Integral started out providing
consulting services but later moved into the lucrative market of mainframe computer software. Duffield was credited with helping to grow Integral
into a $40 million (in sales) producer of human resources applications for use on mainframes.
By the mid-1980s, after taking Integral public, Duffield had effectively lost control of the company that he had founded. That loss of authority
ultimately would cause Duffield to jump ship. The conflict arose when Duffield took an interest in the burgeoning personal computer networking
industry. At the time, mainframes were still the dominant platform for large and mid-sized companies, and Integral had profited handsomely by
chasing that big market. But early on Duffield recognized the potential of personal computer networks (dubbed client/server systems because the
PCs were linked to a server system). He believed that Integral should shift its focus away from mainframes and toward client/servers, which he
viewed as the wave of the future.
Integral's board of directors disagreed with Duffield, so he decided to leave the organization. He even offered to sign a no-compete agreement with
Integral in return for one year's salary, which would have kept him from competing with Integral in the human resources software industry.
Integral's board foolishly rejected the offer, and Duffield started a new company that he called PeopleSoft. Duffield took fellow Integral employee
Ken Morris with him, and together they began designing human resources software geared for client/server systems. In 1988 Morris and Duffield
introduced the first high-end human resources software application ever designed for a client/server system.
Although PeopleSoft's first program was greeted by a willing market, the tiny firm was strapped for cash. To fund the start-up, Duffield took out a
mortgage on his home; he and Morris tapped the nest egg to fund the development of their first program. That effort generated revenues of about
$200,000 in 1988, the company's first year of sales. Significantly, the company scored a major coup in 1988 when it landed Eastman Kodak as its
major customer. That gave a much-needed boost to PeopleSoft's bottom line.
Kodak, like many other corporations in the late 1980s, was beginning to realize the advantage of the client/server approach. A company could
purchase a number of relatively inexpensive PCs, network them through a more expensive server, and have a system with capabilities similar to a
mainframe. The obvious advantages were much lower costs and, in many cases, increased flexibility. At the same time, PeopleSoft's human
resources software became a valuable tool for companies that were reorganizing and cutting costs during the recession of the early 1990s. Thus, as
the client/server industry took off and PeopleSoft's innovative human resources program became known, sales shot up. In 1989 PeopleSoft
generated an impressive $1.9 million in sales. That figure exploded to $6.1 million in 1990, about $420,000 of which was netted as income.
Funding Woes Lead to IPO
Despite big sales and profit gains, cash was short. PeopleSoft was trying to hire new staff, buy new computer systems, market its existing software,
and develop new products--all on a shoestring budget. To make matters worse, Integral Corp. (where PeopleSoft's success had not gone unnoticed)
was forcing PeopleSoft to spend money in court. In 1990 Integral and a San Francisco-based company called Tesseract Inc. filed separate lawsuits
against PeopleSoft, claiming it had obtained proprietary trade information from them. They even sought injunctions to halt the sale of PeopleSoft
products. A San Francisco judge denied the injunction requests and PeopleSoft was able to settle out of court in 1991, but only after expending
significant legal fees from its tight budget.
Duffield, despite the cash drain, was not about to give up control of his company again to outside financiers, and he was able to secure a $1 million
line of credit from a bank. That helped to offset some costs, but he needed more. In 1991 Duffield sold 11 percent of his company for $5 million to
Norwest Partners, a venture capital firm. He used much of that cash to update the company's systems and also to help fund development of a new
client/server program for financial management applications. In addition to the $5 million, PeopleSoft enjoyed net earnings in 1991 of $1.9 million
from sales of $17.1 million.
By 1992 PeopleSoft was growing at a seemingly exponential pace. Its human resources applications were selling like hotcakes and it was gearing up
to launch its awaited financial management programs. To fund the growth, Duffield finally decided to take the company public. In November 1992
PeopleSoft made its initial public offering, which brought $36 million into its coffers. Investor enthusiasm sent the stock's price cruising 64 percent
higher than the original offer price on the same day. Six months later PeopleSoft netted a fat $50.4 million with a second offering. The wary
Duffield still managed to keep about 50 percent ownership in the company. 'We waited four years,' Duffield said in the April 1993 issue of Diablo
Business, adding, 'We didn't want to give away a big part of the company, and we didn't.'
By 1992 PeopleSoft was controlling about 40 percent of the entire high-end market for human resources programs--some of PeopleSoft's human
resources applications priced out at $600,000 or more. Because a plethora of companies were hopping into the client/server game by that time,
however, the enterprise was banking on its freshly introduced financial applications to help it sustain rapid growth. The financial software industry
was crowded with competitors, but PeopleSoft had staffed its programming department with some heavy hitters, and it believed that its
experience in the client/server industry gave it an edge. Although financial program sales contributed only a few million dollars to PeopleSoft's
revenue base in 1992, company sales and profits spiraled upward to $31.6 million and $4.8 million.
Duffield had hoped that his financial programs would eventually account for as much as one-half of company sales. The software was welcomed by
the market and seemed to be living up to Duffield's expectations by late 1993. The line of financial programs was expanded to include applications
for general ledger accounting, asset management, and accounts payable/receivable management. When sales from that line kicked in during 1993,
revenues and profits vaulted to about $58.2 million and $8.4 million. Interestingly, that sales figure approximated the 1992 revenues for Integral,
the company that Duffield had started and left six years earlier; soon, PeopleSoft would leave that mainframe software company in the dust.
An interesting sidebar to the PeopleSoft story during the late 1980s and early 1990s was the Raving Daves, a rock band made up of PeopleSoft
employees. Named after the company's chief executive and founder, the Raving Daves provided insight into the quirky but effective culture at
PeopleSoft. PeopleSoft was loosely structured and efficient. Employees were empowered to make important decisions and nobody had a secretary
or receptionist--even Duffield answered his own telephone. The environment was designed to spawn creativity and innovation, as evidenced by the
formation of the Raving Daves (a group of eight musicians and singers who were full-time PeopleSoft employees). The group became the
centerpiece of the company's image advertising campaign in 1995.
Expansion in the Mid-1990s
PeopleSoft's unique management formula combined with the growth in client/server systems in 1993 and 1994 and propelled the company to
prominence. The client/server market mushroomed, in fact, at a much greater rate than most analysts had predicted. PeopleSoft controlled a
whopping 50 percent share of the entire human resources software market by 1994. By that time a horde of former mainframe software developers
began leaping head first into the client/server market. But PeopleSoft benefited from what was known as 'clean technology,' meaning that its
applications had been written specifically for client/server and had not been converted from a mainframe environment.
By 1994 PeopleSoft's client base had broadened to include corporate giants like Hewlett-Packard, Advance Micro Devices, Rolm, and Pacific Bell,
among many others. Furthermore, overseas interest in the company's programs was proliferating. Exports jumped to about $1.6 million in 1993,
with customers buying from as far away as Australia, France, England, and South America. Buoyed by increasing demand at home and abroad for
PeopleSoft's human resources applications and, in particular, its financial applications, Duffield began considering new markets. He planned,
eventually, to lead PeopleSoft into client/server software markets in manufacturing, health care, education, and government, to name a few.
The first new market that Duffield tried to crack was the giant manufacturing sector. Specifically, PeopleSoft began chasing manufacturers of
automobiles, electronics, and consumer durables in 1995. The manufacturing market offered massive growth potential for the company, as
client/server software sales to that segment were then growing at a rate of 78 percent annually (compared with a still-healthy 38 percent for the
financial software market). Duffield believed that success with manufacturing software would allow PeopleSoft to quadruple its revenues within
two years. To meet that challenge, PeopleSoft brought on board leading manufacturing software veterans like Roger Bottarini and Chris Wong.
Because of its ambitious foray into manufacturing software, PeopleSoft again was looking for funds to fuel the growing enterprise. Rather than sell
off more of the company, Duffield cleverly arranged to have the project funded externally. PeopleSoft entered into a joint venture with its old
financier, Norwest Venture Capital. Norwest fronted the development capital and PeopleSoft contributed the intellectual property (such
arrangements had been pioneered in the capital-intensive biotechnology industry). As a result, PeopleSoft, which owned 49 percent of the venture,
was able to get the program up and running much faster at much reduced risk.
Growth Accelerates, Slows in the Mid- to Late 1990s
By the mid-1990s, PeopleSoft controlled roughly 20 percent of the U.S. client/server packaged software market and continued to enjoy tremendous
growth and profitability. From a respectable $175 million in 1992, PeopleSoft's sales more than tripled to $575 million by 1994. Net income rose
from $8.4 million to $14.55 million over the same period. By 1995, the company had offices throughout North America and Europe, as well as in
Singapore, South Africa, Brazil, and Australia.
PeopleSoft's expansion continued in 1996, when it purchased the Red Pepper Software Company, a provider of supply chain management programs.
PeopleSoft also was recognized by Fortune magazine that year as one of the fastest growing companies in America (as it had been in 1994 and 1995,
and as it would be again in 1997). Net income for 1996 jumped to $35.9 million.
Another banner year for the company was 1997. It formed two new independent business units (IBUs)--Service Industries and Communications,
Transport, and Utilities&mdashø complement its seven pre-existing ones (which focused on financial services; health care; higher education;
manufacturing; the public sector; retail; and the U.S. federal government). PeopleSoft also completed three strategic acquisitions--of Campus
Solutions, Inc., Salerno Manufacturing, Inc., and TeamOne, LLC--that bolstered its Student Administrative Application suite of software. In addition,
PeopleSoft launched an international version of its popular Human Resources Management Suite, as well as one of a widely used financial
application suite. These offerings were capable of supporting operations in French, German, Spanish, and Japanese, and English. Most important,
though, 1997 marked PeopleSoft's fledgling venture into cyberspace, when it inaugurated a pilot program to allow users to access several of the
company's popular software programs over the Internet (a venue that would become increasingly essential to the company's operations in the
coming years). PeopleSoft's total revenues that year exploded to nearly $816 million, and net income skyrocketed as well, to $108.2 million.
The year 1998, however, marked the end of PeopleSoft's streak of annual 80 to 90 percent growth increases that dated back virtually to the
company's inception. The shock waves generated by the Asian economic crisis of 1997, coupled with heightened competition in the industry and a
widespread shift in corporate procurement policies away from new software acquisition in favor of Y2K remediation measures, resulted in a
comparative slackening of demand for PeopleSoft's wares (although revenues increased nearly 61 percent in real terms, to $1.3 billion). Undaunted,
the company used the period as an occasion to streamline its operational structure, condensing its IBUs into three overarching divisions: the
Product Industries Division, which handled the company's manufacturing, retail, communications, transportation, and utility businesses; the
Services Industry Division, responsible for operations in the health care, financial services, and service industry sectors; and the Government and
Higher Education Division, which dealt with the academic, public sector, and federal government markets. In addition, PeopleSoft expanded its
eBusiness offerings in 1998 in anticipation of future market needs. The company also rolled out its Enterprise Performance Management product, an
integrated suite of analytic business software that distinguished PeopleSoft as the first entity able to provide such a wide array of analytic tools
across all industries. To cap off its busy year, the company moved into its new headquarters in Pleasanton, California.
Although many of the same factors that slowed revenue growth in 1998 persisted even more strongly in 1999 (the year even witnessed the first
layoffs in company history and revenues increased a comparatively paltry 25 to 30 percent), PeopleSoft made some important advances during the
course of the year. Early in the year, PeopleSoft introduced e7.5, a program designed to become the backbone of all of the company's subsequent
eBusiness initiatives. This was also the first program to bring real Internet functionality to PeopleSoft's software options. A few months later, the
company introduced PeopleSoft 8, software that offered 100 percent Internet-based technologies and applications. The year saw a significant
change in the company's management personnel as well. In May 1999, Craig A. Conway joined the company as president and chief operating officer.
In September, he was named chief executive officer, displacing company founder Duffield. Duffield, though, remained intimately involved with
PeopleSoft's operations in his continued capacity as company chairman. Conway quickly led PeopleSoft in its acquisition of Vantive Corporation, a
leading customer relations management (CRM) firm with a thriving Internet presence. This union positioned PeopleSoft as the only major enterprise
software company able to offer both CRM products and a full range of back-office applications, all with full Internet accessibility.
In early 2000, PeopleSoft moved to extend its Internet advantage when it launched PowerTools 8, the first server-centric platform released by a
major enterprise applications company. (A server-centric platform is one for which software need only be installed once on a central server to be
able to run on any linked network terminals. This affords a company a greater degree of flexibility in its utilization of a software product.) With
innovations such as this, PeopleSoft's prospects seemed promising as it moved into the 21st century.
Principal Competitors: Baan Company; Oracle Corporation; SAP AG.
303 Bryant Street
Mountain View, California 94041

Telephone: (650) 864-8000

Fax: (650) 864-8001

Wholly Owned Subsidiary of eBay, Inc.
Employees: 1,200
Sales: $236.6 million (2002)
NAIC: 51421 Data Processing Services, 541519 Other Computer Related Services

Company Perspectives:
PayPal enables any business or consumer with an email address to securely, conveniently, and cost-effectively send and receive payments online.
Our network builds on the existing financial infrastructure of bank accounts and credit cards to create a global, real-time payment solution. We
deliver a product ideally suited for small businesses, online merchants, individuals and others currently underserved by traditional payment

Key Dates:
1998: Peter Thiel and Max Levchin found Field Link, soon renamed Confinity.
1999: Confinity launches first version of the PayPal electronic payments system.
2000: Confinity is acquired by Corporation.
2001: makes initial offering of stock on NASDAQ; firm is renamed PayPal Inc.
2002: eBay Inc. acquires PayPal for $1.5 billion in stock.

Company History:
PayPal Inc., a subsidiary of online auctioneer eBay, Inc., provides users with a means of exchanging funds via the Internet, a revolutionary step in
the development of electronic commerce. By obtaining a PayPal account, consumers and businesses may send and receive payments vie e-mail.
PayPal users make payments securely online using credit cards or bank transfers, as well as by maintaining funds in personal interest-bearing PayPal
accounts. PayPal handled approximately $3.1 billion in payments in 2001, with an average daily volume of about 189,000 payments totaling $9.6
million. Its user base that year included 10.2 million personal accounts and 2.6 million business accounts in 39 countries.
Late 1990s Origins
The company which later became PayPal was founded by Max Levchin, an online security specialist, and Peter Thiel, a hedge fund manager. The
two met in 1998 when Levchin approached Thiel in New York for financial backing for a company that would develop a system for transferring
money using such wireless devices as cell phones and palm pilots. Levchin and Thiel joined forces, obtained $3 million in backing from the Nokia
Corporation, relocated to Silicon Valley, and opened Field Link, a firm which produced encryption software for handhelds. Unfortunately, what
seemed to be a good idea in theory evoked next to no response from consumers.
So Thiel and Levchin regrouped. The company was renamed Confinity, and in October 1999, with six employees and two computers, it launched
PayPal, a service by which money could be sent electronically by handheld devices. PayPal met with just as little interest as Field Link had.
The tide turned when the two partners realized that no means of electronic payment had been developed to handle the buying and selling that was
starting to boom on the Internet. Sales on eBay, the online auction site, to name one of the most successful examples, were being paid for by
checks and money orders sent through the regular U.S. mail. What electronic business lacked, according to Levchin and Thiel, was a simple,
convenient payment system tailored specifically for the World Wide Web, a system that would enable a person to email money to someone else.
Other companies--most notably and trying to establish themselves in the electronic payment field at the time,
launching new electronic currencies they hoped would replace the dollar as the medium payment on the Internet. However, despite costly
giveaway promotions, these e-currency companies encountered massive walls of resistance from both consumers and merchants. Merchants were
reluctant to accept a new, unproven currency; consumers hesitated to give up their tried and true dollars for currency no one might ever accept.
PayPal, on the other hand, relied on existing, universally accepted institutions. The U.S. dollar was PayPal's medium of exchange; email, which
virtually everyone shopping online used, along with banking networks, comprised its medium of transfer. The PayPal system was launched quickly
online. Potential buyers opened PayPal accounts which were linked to a credit card or a bank account; alternatively, money could be deposited in
the account, where it earned interest until it was needed for a purchase. Not much later, after it was discovered by online auction aficionados,
PayPal's fate was linked inextricably with eBay's.
In March 2000 Confinity was acquired by Corporation, a Silicon Valley firm involved in online banking projects, led by Elon Musk. Under Musk, took the PayPal corporate name and initiated aggressive marketing plans, including one promo offering $10 to new sign-ups for PayPal
In just eight months time, between January and August 2000, PayPal surged from 12,000 accounts to 2.7 million. The company's transaction process
helped tremendously to fuel the growth. Money could be transferred to anyone who had an email address, even those who did not have to have a
PayPal account. However, recipients did have to open a PayPal account in order to claim their money. The system's convenience and cost won over
eBay shoppers. They no longer needed a credit card to buy online, and the service cost them nothing. It was cheaper even than a postal money
order and stamp. Sellers were required to pay 1.9 percent of the sales price.
Success Through eBay
In June 2000, PayPal introduced a new type of account for businesses. PayPal business accounts were intended for high volume individual and
commercial accounts. These customers were required to pay a fee of 30 cents plus 2.9 percent for each transaction, significantly less than many
smaller stores pay to handle credit card sales. Business accounts could accept an unlimited number of credit card payments through PayPal every
month (consumer accounts were limited to $500 in credit card business every six months) and received access to PayPal's special e-commerce
features, such as Web Accept, with which PayPal payments could be processed directly from Web sites. By the end of 2001, more than one-fifth of
PayPal's 12.8 million accounts were business accounts.
EBay was the motor that drove PayPal's success. In July 2000 approximately 2 million eBay listings accepted PayPal payments--five times more than
BillPoint Inc., eBay's own payment service. By the following October, PayPal was being used to pay for 25 percent of all eBay transactions. The
company had grown to 500 employees who were processing over 120,000 transactions, worth in total about $6 million, every day. In the fall of 2001
PayPal also introduced its first consumer guarantee: consumers who failed to receive goods bought from verified PayPal sellers would be fully
reimbursed by the company.
PayPal's strong growth continued in 2001. Online auctions continued to account for a large percentage of the firm's annual revenues, over 60
percent. However, PayPal was also establishing a strong Internet presence among users of adult sites and online gambling. By summer 2001, its
customer accounts had swelled to over 9 million. With about 500,000 accounts outside the United States, the company was taking its first steps
toward establishing itself in the international online marketplace whose worth was expected to reach about $10 billion by 2005. Its great promise
was reflected in its roster of investors, including Spain's Bankinter, the Japanese Internet bank eBANK, ING Group, Providian Financial and Credit
Agricole, all of whom in spring 2001 put an additional $90 million into the company, slated for foreign expansion.
Other companies tried to challenge PayPal--unsuccessfully. Western Union launched MoneyZap in fall 2000 with a fee structure similar to PayPal's.
Around the same time Citibank introduced c2it. Partnered with giants AOL and Microsoft, c2it seemed to present a formidable threat. However,
c2it charged higher fees than PayPal--$2 per transaction--and it was not able to make significant inroads into PayPal's customer base. eBay had also
attempted to break PayPal's hold on its auction market with its own Billpoint Inc. However, by the end of 2001 PayPal seemed firmly lodged in front
of its competitors. It continued to hold a 65 percent share of the online payments market. "Big players tend to not be innovators," Peter Thiel
told Information Week in June 2001. "While Western Union and c2it have been adept at trying to copy what we do, thus far, they haven't gotten a
lot of traction. I'm much less scared than I was a year ago, when they were first announced."
When PayPal announced On September 28, 2001, that it would make an initial public stock offering (IPO), the investment community was stunned.
The move was unexpected for a number of reasons. First, as a result of the recession in the Internet economy that began in 2000, there had been
but a single Internet stock offering in all of 2001. Second, the terrorist attacks on the World Trade Center and Pentagon which had occurred less
than three weeks prior seemed to be fueling a general U.S. recession. Third, although PayPal had boosted its revenues from $5.6 million for the
first three quarters in 2000 to $64.4 million for the same period in 2001, its losses still totaled just under $90 million, and it had never had a
profitable quarter. Equally puzzling was the fact that, besides being leagues ahead of its competitors, the company did not seem to need money.
Thanks to hefty infusions of venture capital early in 2001, PayPal had sufficient operating funds for two more years. Some observers, like those
at Business Week, speculated that the company was still concerned about its powerful competitors and hoped the IPO would help secure its leading
market. A specific concern was that eBay would ban PayPal from its site to strengthen its Billpoint service. Analysts considered PayPal's
unsuccessful attempts to sell itself to eBay, Citibank, or other companies earlier in 2001 as another motivation for the offering. The IPO was seen
as an attempt to pressure potential buyers to meet PayPal's asking price.
Going Public and Gaining New Parentage
The IPO was first scheduled to take place in late January 2002, but events conspired to delay the stock offering. First, CertCo Inc. sued PayPal for
patent violation. More threatening, however, was that banking regulators in 13 states, including Louisiana, California, and New York, accused
PayPal of acting illegally as a bank in accepting deposits for the purpose of paying bills. PayPal was forced to suspended service in Louisiana
pending a resolution of the problem, and its status in the lucrative New York and California markets was cast into doubt. PayPal denied its status as
a bank in that it did not make loans; it termed itself a "money transmitter" on the order of Western Union. Although each state would have to rule
on the question individually, a February 15, 2002, ruling issued by the Federal Deposit Insurance Corporation (FDIC) stated that for purposes of the
Federal Deposit Insurance Act, PayPal was not a bank as long as it placed its customers' money in separate accounts in an outside bank. The ruling
was interpreted as a sign that PayPal would eventually be allowed to continue its business in most states.
These questions would not be resolved until after the IPO, however, and they were expected to hold down the price the company could ask for its
5.4 million shares. Despite PayPal's legal difficulties and the problematic experiences of Internet stocks in general, the first day of trading was
hugely successful. From an opening price of $13, PayPal shares rose to $21.61. Investors were apparently convinced of the company's potential to
become the Internet payment network of the future, one that might even challenge the big credit card companies. Unlike many earlier dot com
IPOs, PayPal's had gained the confidence of investors that it would eventually earn money.
More difficulties arose after PayPal went public. The company was targeted by a class action suit which charged it had illegally restricted customer
access to accounts. PayPal had a history of customer service woes, which arose in large measure from a fundamental dilemma inherent in the firm's
business model. PayPal was committed to having service that was as quick and uncomplicated to use as possible. However, because it enabled
virtually anonymous transfers of money, it was prey to fraud, which occurred when Russian criminals used PayPal accounts and stolen credit cards
to steal thousands of dollars. To the company's distress, PayPal, as a "card-not-present merchant" (it had neither signatures from the cardholders
nor face-to-face contact) was responsible for the stolen money, rather than the credit card company.
As a consequence, PayPal introduced a security system, which it dubbed Igor in honor of the unknown Russian thieves. Igor verified the existence of
bank accounts by sending small amounts of money to applicants. It also analyzed buying and selling patterns in PayPal accounts. If it noticed an
apparent irregularity--for example if an account that had previously made sales under $50 suddenly made a sale of $1,000--funds in the account
would be frozen. Igor worked. It cut fraud on PayPal to 0.85 percent compared to an Internet average of 2.64 percent. Unfortunately PayPal tended
to err on the side of caution and innocent buyers and sellers were too frequently denied access to the money in their PayPal accounts. To make
matters worse, once cut off, PayPal users found it extremely difficult to clear up misunderstandings with the company. PayPal continued to
struggle with consumer service woes in late summer 2002.
Rumors circulated in the summer of 2002 that PayPal would be the target of a buyout by a bank, a credit card company, or eBay, the operator of its
main competitor, Billpoint, since renamed eBay Payments. In July, the rumors came true. PayPal announced that it had agreed to be acquired by
eBay Inc. for $1.5 billion in eBay stock. EBay's strategy was clear. Try as it might, Billpoint had been unable to make up significant ground against
PayPal, even on its home eBay turf where, according to PayPal's statistics, 70 percent of sellers accepted PayPal compared to only 30 percent for
Billpoint. The acquisition was beneficial for both companies: it gave eBay full control over a significant portion of its payments and increased the
amount it took from each transaction from 7 to 10 percent. It also made it possible for eBay to shutter the unprofitable Billpoint operation, which it
did as soon as the PayPal acquisition was finalized. For PayPal, the merger signaled the end of a period of uncertainty about steps eBay might take
to cut it out of its auction market. While the company remained an independent entity under its former management team, its service was
integrated directly into eBay's online software, enabling sellers to offer it more easily and prominently.
Not everyone was pleased by the sale however. Some PayPal shareholders felt the company had been strong-armed by eBay into selling for only $19
a share, a price they considered low. As a result, at least four lawsuits were filed, in Delaware and California, in an attempt to block the deal. A
more likely explanation for the quick deal, in the view of the Wall Street Journal,was an awareness on the part of the PayPal board that several
venture capitalists with sizable holdings were likely to sell their stakes soon. EBay, with five times more outstanding shares, could absorb a large
volume of insider selling much better than PayPal could have on its own.
The sale had other disadvantages for PayPal as well. PayPal began, as one analyst told the New York Times, as "a unique payment platform on the
Internet and is ending up a company whose focus is a niche market"--namely the eBay auction market. EBay quickly announced that PayPal would
no longer be available for online gambling, a decision made after the attorney general of New York State subpoenaed PayPal for records of its
business with online casinos. Some major credit card companies, including Citibank, Bank of America, and Chase Manhattan Bank had already
agreed to block their customers from using cards for online gaming. Internet gambling accounted for $117 million of the company's $1.46 billion in
revenues, approximately 7 percent, during the first half of 2002. Nonetheless the company had once considered online gambling an important
enough revenue source to spend $80,000 in 2001 lobbying Congress to approve online gambling. EBay elected to let PayPal continue to operate in
the area of online pornography, which unlike gambling, was legal.
At the end of August 2002, regulators at the Department of Justice had decided there were no antitrust factors that would block the merger with
eBay. At the same time PayPal reached a formal agreement with the New York attorney general to pay a $200,000 fine for allowing its service to be
used in online gambling and to ban users from paying gambling debts with PayPal in the future. In addition, the company agreed to monitor users
and report possibly illegal activities to law enforcement agencies. A similar lawsuit, filed by the U.S. District Court in St. Louis, proved more costly
to PayPal and eBay, however. In August 2003, PayPal agreed to settle the suit, which alleged that it had violated offshore online gaming laws, for
$10 million. Also during this time, citing high fraud rates, PayPal discontinued the offer of its services on adult-content websites. Amidst the legal
wrangling and the constant efforts to maintain its security, PayPal was lauded by industry observers for successfully addressing its consumer service
Principal Competitors: Citigroup Inc.; Yahoo! Inc.; Western Union Financial Services Inc.

70432 Stuttgart

Telephone: 49-711-911-0
Fax: 49-711-911-5777

Public Company
Incorporated: 1931 as Dr. Ing. h. c. F. Porsche AG
Employees: 8,151
Sales: DM 4.9 billion (1998)
Stock Exchanges: Frankfurt
NAIC:: 336111 Automobile Manufacturing; 42111 Automobile and Other Motor Vehicle Wholesalers

Company Perspectives:

The first sports car bearing the Porsche name rolled out of a small test workshop in Gmund, Austria in June 1948. Back then, none of its founding
fathers could have imagined the success story that more than one million descendants of this 'Porsche Number One' have written in the five decades
since then. It is from this tradition that we draw the energy to face the challenges of the future. As we understand ourselves (and as countless
people throughout the world perceive us), today, Porsche is a mature and vigorous company. Over the past fifty years, it has become the absolute
definition of sports-car driving. What is more: despite the zeal for mergers that the large carmakers have displayed recently, we remain thoroughly
convinced that the world's smallest independent volume-production automobile manufacturer has the potency and skill to maintain its
independence in the future as well. This conviction is not mere hubris; it is based on the certainty that our company is distinguished by a different
and very special kind of logic. Porsche is a vital piece of counterevidence that disproves the commonly held theory that a small company can only
survive if carried along on the shoulders of a giant. We do not consider size alone, or size at any price, to be a desirable goal; our philosophy is
aimed at keeping the company efficient and flexible, both for today and for tomorrow, in all areas.

Key Dates:

1931: Dr. Ferdinand Porsche establishes his design firm; at the subsequent request of Hitler, Porsche designs the Volkswagen 'Beetle.'
1948: Manufacturing begins under Porsche nameplate.
1951: Death of Dr. Ferdinand Porsche; his son 'Ferry,' Jr., continues to run company.
1956: Porsche builds its 10,000th automobile.
1964: Introduction of the Model 911.
1973: Porsche goes public.
1992: Sales slowdown; company cuts costs under new CEO Wendelin Wiedeking.
1996: The lower-priced Boxster is introduced; demand outpaces production.
1998: Ferry Porsche dies; company celebrates 50th anniversary; joint SUV venture is announced.

Company History:
Porsche AG is legendary for its innovative and beautiful automobile designs. The Porsche 911, first manufactured in 1964, quickly became one of
the world's most famous and most recognizable automobiles. The company has also been on the cutting edge of automotive engineering and
technology, using the sports car racing circuit to develop and improve products renowned for their high performance and outstanding handling. It is
not surprising that Porsche has recorded more victories than any other automobile manufacturer in such classics as the 24-hour LeMans and the 24-
hour Daytona races. In 1997 the company successfully introduced the Boxster, a newly designed, lower priced sports car. Plans to design and
manufacture a suburban utility vehicle in conjunction with Volkswagen were announced in 1998.
Early Years
The founder of the company, Dr. Ferdinand Porsche, was born in Bohemia and studied mechanical engineering in Vienna. In 1923 he traveled to
Stuttgart, Germany, and by 1930 the ambitious young man had established his own engineering and design firm there under the name Dr. Ing. h. c.
F. Porsche KG. The new firm garnered a reputation for innovative car designs, and when Adolf Hitler came to power in Germany, he summoned
Ferdinand Porsche to meet with him, requesting that he find a solution to some of the technical difficulties that were delaying production of the
'Volkswagen,' or people's car. The famous Volkswagen design had been created in Porsche's office, and as early as 1935 Porsche had designed a
special sports version of the car. The Nazi regime initially rejected his application to produce the sporting version, but during the late 1930s Hitler
himself approved a contract with Porsche to design a car for the 1939 Auto-Union Grand Prix, a famous motor race from Berlin to Rome.
Porsche's idea for a racing car was based on expanding the capacity of the utilitarian Volkswagen engine by using different valves and cylinder
heads and by including a new system known as fuel injection. The car also included a significantly enlarged wheelbase and a unique aerodynamic
body design. Although three prototypes of the car were built in early 1939, the beginning of World War II in September of that year led to
cancellation of the race and halted further development of the Porsche car. During the war years, the well-known engineer remained in Germany
while continuing to work on Hitler's Volkswagen project. On various occasions, he also gave Hitler advice on how to increase the production of
military equipment used by the German armed services. At the end of the war, Dr. Porsche was imprisoned in France for a short time because of his
association with Adolf Hitler and the Nazi regime.
1948: First Production-Line Porsches
After World War II, the Porsche design firm relocated to Gmund in Kärnten, Austria, and survived primarily by repairing and servicing different kinds
of automobiles. By 1946, however, the Porsche design team was working on various sports and racing car designs. Ferdinand Porsche's son, Ferry
Porsche, Jr., insisted on conducting market research in order to determine whether people were willing to buy an expensive, handmade, high
performance sports car. Ferry approached a circle of well-to-do Swiss financiers who agreed to fund production. Working from the basic design
model of a Volkswagen Beetle, the company created a lightweight sports car, and the Porsche design office became an automobile factory. The
prototype of the Porsche sports car was on the road by March 1948, and small-scale production was initiated by the end of the year. The Gmund
plant manufactured five handmade Porsche cars a month, each with a single aluminum body hand-beaten for hours over a wooden rig by a master
craftsman of the art.
Also near the end of 1948, Porsche signed an important agreement with Volkswagenwerk which allowed Porsche to use the larger company's service
organization throughout Germany and Austria. In addition, a short time later Porsche moved its growing car production facilities from Gmund to
Stuttgart, and occupied the Zuffenhausen factory recently vacated by American occupation forces. This move provided the company with more
space and the ability to manufacture more cars. In early 1950 the first Porsche 356 rolled off the Stuttgart production line. By March 1951 the
company had manufactured its 500th car, and, a short six months later, the 1,000th Porsche sports car was delivered. Ferdinand Porsche died that
year, having seen his vision come to fruition. More than 200 workmen were hammering out handmade Porsche sports cars, and the company's
reputation was growing rapidly. Porsche customers included film and radio stars, as well as financiers and shipping magnates. In a tragic accident,
the American film idol James Dean was killed while driving a Porsche Spyder.
By 1952 customers and distributors were frequently requesting a trademark or symbol to adorn the hoods of their automobiles. Dr. Ferry Porsche
designed an emblem including both the coat of arms of Stuttgart and the coat of arms of Württemberg, along with the Porsche name. The emblem
first appeared in 1953 on the steering wheel hub of a Porsche 356 and has remained unchanged to the present time.
1956: 10,000th Porsche Built
The Porsche company celebrated its Silver Anniversary in March 1956 by unveiling the 10,000th Porsche car to leave the production line. In the mid-
and late 1950s, nearly 70 percent of all Porsche cars manufactured were exported to eager customers abroad, and between 1954 and 1956 Porsche
cars won over 400 international motor races. As the car's popularity continued to increase, different Porsche 356 models were developed, including
the 356A and 356B.
In 1960 the company expanded both its physical plant and the number of its employees: a new sales department, service shop, spare parts center,
and car delivery department were added, and more than 1,250 factory and office workers helped increase production. Porsche was determined to
guard its reputation for reliability and high performance, assigning nearly one of every five workers to quality control. In December 1960 the
company produced 39,774 cars, and each of them had earned four quality control certificates, including a certificate for the engine, transmission,
general vehicle examination, and measurements. For the fiscal year 1960, Porsche reported revenues totaling DM 108 million.
Introduction of the Porsche 911
During the early 1960s, the 356 Porsche remained similar in design to the Volkswagen Beetle and continued to incorporate many of its predecessor's
parts. Dr. Ferry Porsche and his management team decided that it was time for an entirely new Porsche design, one that did not rely heavily on the
Volkswagen Beetle. They considered designing a four-seat sedan, but ultimately decided to remain with a two-seat sports car. A low waistline and
expanded glass areas gave the new design a more elegant look, and the air-cooled flat engine remained situated in the rear of the car. With many
other additions, the unique Type 911 Porsche was introduced in 1964 at a list price of DM 21,000. One year later, the last Porsche 356 model left
the factory after almost 20 years of increasing sales. With a total production of 76,302, the Porsche 356 series had made the company famous
throughout the world. New Porsche models such as the 912, 924, and 928 soon followed.
Until the 1970s, Porsche KG was under the joint ownership of the Porsche and Piech families, headed by Dr. Ferry Porsche and his sister, Louise
Piech, who also owned Porsche Konstruktionen AG in Salzburg, Austria. Dr. Ferry Porsche was still head of the design office, while his two nephews,
Ferdinand and Michael Piech, worked in administration. In 1971 revenues reached DM 900 million, and the family decided that the company was
growing so rapidly that it needed a thorough reorganization. As a result, the family incorporated its holdings into a single organization with
administration centralized in Stuttgart. Dr. Ferry Porsche and his sister presided over an expanded board of directors, and Dr. Ernst Fuhrmann was
hired as president of the company. In 1973 the firm went public and became a joint stock company under the name Porsche AG.
During the mid- and late 1970s, Porsche AG committed itself to large-scale research and development in fields related to automotive design and
production. Prompted by requests from the German government and numerous private companies, Porsche technicians began expanding their
research in engine development to include metrology and vibrations, metal processing, plastics, and welding and bonding techniques. The company
opened a Development Center in Weissach, outside of Stuttgart, at a cost of DM 80 million, to test cars and different types of cross-country
vehicles. Nearly 4,000 employees worked directly on research and development projects, and data compiled by Porsche was used to fight air
pollution and improve auto safety. Porsche's Development Center garnered such a stellar reputation for its auto engineering design that even Rolls
Royce and competitor Mercedes-Benz contracted the company for design work.
The Growing Export Market: 1970s--80s
During the 1970s, Japan developed into one of Porsche's most important foreign markets. Although Porsche sold only 97 cars in Japan in 1970, the
repeal of Japanese import restrictions led to a significant sales increase, with sales of Porsche cars jumping from 122 in 1973 to nearly 500 in 1976.
By 1978 Porsche was selling more than 900 cars in Japan, nearly the same number sold in the United Kingdom and Switzerland. These sales figures
were even more impressive when the costs of transport and modifications required by Japanese import law were figured into the price of the cars.
A Porsche 930 Turbo, for example, which sold for DM 78,800 in Germany in 1980, was priced at DM 148,000 in Japan.
The 1980s were boom years for Porsche AG. Despite a change in management upon Ernst Fuhrmann's retirement, the company increased production
and revenues continued to soar: in fiscal 1981, revenues reached DM 1.5 billion. Of all the cars manufactured in Stuttgart, a total of 70 percent
were exported, with the United States accounting for nearly 40 percent of the company's total sales. This successful trend continued throughout
the decade: in 1986, for example, Porsche sold a total of 49,976 sports cars, including more than 60 percent to U.S. customers. Models such as the
924, 944, and 928 were introduced during the late 1980s and--along with the 911, perhaps the most popular sports car ever built--contributed to
Porsche's seemingly endless string of production successes. By the end of the decade, the United States had developed into Porsche's most
important market.
During the 1990s, however, the market collapsed. From its peak of 30,471 sports cars sold in the United States in 1986, Porsche's U.S. sales
amounted to only 4,400 by 1991. Unfortunately, the slide continued. One year later, worldwide sales for the company dropped to 23,060 units,
with only 4,133 cars sold in the United States. Some automotive industry analysts blamed a slowdown in the U.S. economy and its negative impact
on car imports, while others pointed to the ever increasing prices for Porsche cars, from $40,000 to $100,000, and growing competition from other
sports car manufacturers such as Mazda and Jaguar. A steady loss of top management in the early 1990s exacerbated a deteriorating situation.
The Mid-1990s: A New CEO and a Porsche Revival
In order to reduce costs and increase efficiency, in 1992 the Porsche and Piech families hired Wendelin Wiedeking, an engineering and
manufacturing expert, as chief executive. Wiedeking immediately eliminated overtime for company employees and convinced a majority of them to
reduce their daily working hours. He also brought in a team of Japanese consultants who greatly streamlined manufacturing operations and
implemented 'just in time' parts procurement. Addressing weaknesses in the company's product lineup, Wiedeking initiated an updated version of
the Porsche 911 and made plans to introduce a new two-seater sports car with a completely original design and shape. In order to make it more
attractive to U.S. customers, he promised that Porsche would sell the car at a list price of less than $40,000. The Boxster, as it was named, entered
production in 1996. The new mid-engine car was an instant success, with the entire first year's production run sold out in advance. Porsche, after
three years in the red, had broken even in 1995 and turned a profit in 1996. The company also discontinued production of its front-engine models
928, 944, and 968 during this recovery period.
In March 1998, at the age of 88, Ferry Porsche died, just two months before his company celebrated its golden anniversary. During this year Porsche
also announced it would be forming a joint venture with Volkswagen to build suburban utility vehicles (SUVs), with an anticipated production date
of 2002. Sales of the company's cars in the United States had climbed back to 18,200 for fiscal 1998, with total sales of vehicles worldwide topping
38,000. The company reported profits of DM 324.4 million on sales of DM 4.9 billion for the fiscal year. The popular Boxsters continued to be sold
out in advance, and the company announced the introduction of a more powerful 3.2 liter, 252 horsepower version for the fall of 1999.
As one of the few remaining small, independent automobile manufacturers, Porsche AG hoped to remain competitive in a volatile industry. The
Porsche and the Piech families had the financial resources to weather periods of economic difficulty, as well as an unwavering commitment to the
survival of Porsche AG as an independent sports car manufacturer.
Principal Subsidiaries: Karosseriewerk Porsche GmbH; Porsche Classic GmbH; Porsche Financial Services GmbH; Porsche Financial Services Japan
K.K. (Japan); Porsche Zentrum Hoppegarten GmbH; Porsche Consulting GmbH; Porsche Engineering Services GmbH; PIKS Porsche-Information-
Kommunikation-Services GmbH; Porsche Cars Great Britain, Ltd. (U.K.); Enfina S.p.A. (Italy); Porsche Italia S.p.A. (Italy; 60%); Porsche Cars
Australia Pty. Ltd. (Australia); Porsche International Financing plc. (Ireland); Porsche Financial Management Services Ltd. (Ireland); Porsche Japan
K.K. (Japan); PPF Holding AG (Switzerland); Porsche Enterprises, Inc. (96.3%); Porsche Espana S.A. (Spain).
Principal Competitors: Bayerische Motoren Werke AG; DaimlerChrysler AG; Fiat S.p.A.; Ford Motor Company; General Motors Corp.; Honda Motor
Co. Ltd.; Mazda Motor Corp.; Mitsubishi Group; Nissan Motor Co. Ltd.; PSA Peugeot Citroen S.A.; Renault S.A.; Saab Automobile AB; Volkswagen AG.
650 Madison Avenue
New York, New York 10022

Telephone: (212) 318-7000

Toll Free: 888-475-7674
Fax: (212) 888-5780

Public Company
Incorporated: 1968 as Polo Fashions, Inc.
Employees: 11,000
Sales: $2.44 billion (2003)
Stock Exchanges: New York
Ticker Symbol: RL
NAIC: 315 Apparel Manufacturing; 54149 Other Specialized Design Services

Company Perspectives:
Polo has become a brand with unmatched recognition in the marketplace, offering the best of menswear, womenswear, childrenswear and home
design. Polo's design excellence works in concert with its disciplined business approach, and these two traits together have allowed the Company to
set the standard for the industry.

Key Dates:
1968: Polo Fashions is created by tie salesman Ralph Lauren.
1974: The first ads appear in NYC newspapers.
1978: Polo cologne is introduced.
1983: An extensive, licensed home furnishings line debuts.
1986: The flagship store opens on Madison Avenue.
1997: Polo/Ralph Lauren goes public.
2003: The European headquarters moves from Paris to Geneva.
Company History:
The Polo/Ralph Lauren Corporation (RL) has become one of the best-known fashion design and licensing houses in the world. Founded by American
designer Ralph Lauren in the late 1960s, the company boomed in the 1980s as Lauren's designs came to be associated with a sophisticated and
distinctly American attitude. The company's first products were wide ties, but it soon designed and manufactured an entire line of menswear
before entering the more lucrative women's fashion market as a designer and licenser. By the 1980s, the Polo/Ralph Lauren name helped sell a
wide array of products, including fragrances and accessories for men and women, clothing for young boys and infants, and a variety of housewares,
shoes, furs, jewelry, leather goods, hats, and eyewear. Menswear accounted for 42 percent of 2003 sales of $2.44 billion. Womenswear was the
next largest segment (25 percent), followed by fragrances, accessories, children's, and home. Brands include Polo, Lauren, Chaps, and Club
Monaco. The company licenses nearly 300 manufacturers and 100 retail outlets around the world. RL also runs 240 of its own stores in the United
Origins in the 1960s
Ralph Lifshitz was born on October 14, 1939 in the Bronx to a middle class Jewish family. Somewhere along the way he had his surname legally
changed to "Lauren." His father was an artist and housepainter; his mother was reportedly disappointed Ralph did not become a rabbi.
The Polo empire began in the late 1960s, when Lauren, then a clothing salesman, got sick of selling other people's neckties and decided to design
and sell his own. Lauren had no experience in fashion design, but he had grown up in the New York fashion world, selling men's gloves, suits, and
ties. In 1967, he went to his employer, Abe Rivetz, with a proposal to design a line of ties, but Rivetz told him, "The world is not ready for Ralph
Lauren." Lauren decided that it was, and he convinced clothier Beau Brummel to manufacture his Polo line of neckwear. "I didn't know how to make
a tie," Lauren confessed to Vogue in 1982. "I didn't know fabric, I didn't know measurements. What did I know? That I was a salesman. That I was
honest. And that all I wanted was quality." Lauren's ties were wider and more colorful than other ties on the market and they soon found a niche,
first in small menswear stores and later in the fashionable Bloomingdale's department store.
Within a year, Lauren decided to form his own company with help from his brother Jerry and $50,000 in backing from Norman Hilton, a Manhattan
clothing manufacturer. The company, Polo Fashions, Inc. (which changed its name to Polo/Ralph Lauren Corporation in 1987), expanded the Polo
menswear collection to include shirts, suits, and sportswear, as well as the trademark ties. The company designed, manufactured, and distributed
the Polo collection, which met with the approval of both the department stores that featured the clothes and the fashion critics who praised their
style. Fashion critic Bernadine Morris was quoted in Time as saying, "He's acquired a certain reputation for clothes that are, you know, with it. But
not too with it. Not enough to shock the boys at the bank." In 1970, Lauren received the coveted Coty Award for menswear. In a rare move, Lauren
then began designing clothes for women as well as for men. His first designs--men's dress shirts cut for women--met with great success in 1971, and
soon sales topped $10 million.
The rapid growth of Polo Fashions, Inc. proved hard to manage for the young entrepreneur, who had succeeded in crafting a brand identity but not
in managing his business. By 1972, according to Time, "Lauren suddenly discovered that his enterprise was almost bankrupt because of poor
financial management and the costs of headlong expansion." "I almost blew my business," Lauren told Forbes. "I wasn't shipping on time and had
problems delivering." "It was probably ... one of the darkest moments in my life," he remembered in New York. Scrambling to survive, Lauren
invested $100,000 of his savings in the business and convinced Peter Strom to leave his job with Norman Hilton and become his partner. The
arrangement gave Lauren 90 percent and Strom 10 percent ownership. Strom described their duties to the New York Times Magazine: "We divide
the work this way: I do everything Ralph doesn't want to do; and I don't do anything he likes to do. He designs, he does advertising, public relations;
I do the rest." The Lauren brothers and Strom soon made changes in the structure of the company that set the stage for more than two decades of
unparalleled success.
During its first four years, Polo Fashions, Inc. had controlled each stage in the clothes making process, from design, to manufacture, to distribution.
Their first step in reorganization was to concentrate on what they did best--design--and leave the rest to other companies. With this in mind, Polo
Fashions, Inc. licensed the manufacture of Ralph Lauren brand womenswear to Stuart Kreisler, an experienced manufacturer who set out to build
the reputation of the Lauren brand name. Under licensing agreements, the designer got a cut of wholesale revenues--usually between 5 and 8
percent for Polo, according to Forbes--and shared in advertising costs. Such agreements would be the basis for Polo's future business. Moreover,
Strom insisted that those retailers who sold the company's clothes make a commitment to selling the entire line, which meant they had to carry the
$350 Polo suit. "That eliminated two-thirds of our accounts," Strom told Vogue. "But those who stayed with us experienced our commitment to
them, and it wasn't long before we felt their loyalty in return." With business once again secure, the company was able to turn its attention to
crafting a brand image as distinctive as any in America.
1980s: The Decade of Polo
Beginning in the mid 1970s, Polo Fashions, Inc. entered a period of phenomenal growth that carried it through the late 1980s. From being a
designer and licenser of limited lines of men's and women's clothing, the company expanded its products to include fragrances, eyewear, shoes,
accessories, housewares, and a range of other products. Yet even as the number of products bearing the brand names "Polo" or "Ralph Lauren"
expanded, the image of the company became more secure and more singular. Soon, people were speaking of the "Laurenification of America,"
crediting Ralph Lauren with creating a unique American aesthetic, and calling the 1980s the "decade of Ralph Lauren." The company's success in
this period can be credited to the design skills of Ralph Lauren and to the astute image-making and marketing skills of Lauren and his principal
partner, Peter Strom.
Fashion critics and journalists used words like integrity, elegance, tradition, sophistication, WASPy, mannered, pseudo-English, and sporty to
describe Lauren's many designs. Yet no single word could encompass the many themes--from the famous English Polo Club designs to the distinctly
American western designs--with which Lauren experimented. Some critics complained that Lauren was a relentless borrower, possessed of no
unique vision. Lauren himself stated in New York that he was interested in "style but not flamboyance, but sophistication, class, and an aristocratic
demeanor that you can see in people like Cary Grant and Fred Astaire." And, as Lauren pointed out, "The things I do are not about novelty. They're
things I love and can't get away from. There are some things in life that, no matter what the times are, keep getting better and better. That's really
my philosophy."
Polo excelled at getting Lauren's distinctive design image across to consumers. From its very first advertisements in New York City newspapers in
1974, the company attempted to portray its products as part of a complete lifestyle. Polo pioneered the multi-page lifestyle advertisement in
major magazines. These ads presented a world lifted out of time, where wealthy, attractive people relaxed in Polo products during a weekend at
their country estate or on safari in Africa. Vogue described the ads as a kind of "home movie," with a cast of "faintly sorrowful but wildly attractive
people. The women are always between childhood and thirty; the men are sometimes old." Polo lavished huge amounts of money on these ads, as
much as $15 and $20 million a year, though its licensees shared some of the cost by returning 2 to 3 percent of sales into the advertising budget. An
ad director for a major fashion magazine told Time: Polo "has some of the best advertising in the business because it sets a mood, it evokes a
Lauren's intuitive design sense and the company's ability to create an idealized image for its products provided the base for the company to expand
the variety of products it marketed and attain greater control over retailing. From its first product lines--Polo by Ralph Lauren menswear and Ralph
Lauren womenswear--the company introduced a variety of products: Polo by Ralph Lauren cologne and boys' clothing in 1978; a girlswear line in
1981; luggage and eyeglasses in 1982; home furnishings in 1983. Later brand extensions included shoes, furs, and underwear. The company
introduced its collection of apparel for newborns, infants, and toddlers in 1994. These new product lines were accompanied by continual updating
of the older brand names.
Although Polo retained control over the design and advertising of its products, the success or failure of Polo product expansion often depended
upon its licensees, as Polo's experience with fragrances and its home collection indicated. Polo's fragrances became a major income producer only
when it found a licensee who was willing to help develop and promote the products. Although Polo had marketed its fragrances--Polo by Ralph
Lauren for men and Lauren for women--since 1978, they were not major sellers until the mid-1980s, when the company licensed fragrance
production to Cosmair, Inc. In 1990, Cosmair introduced Polo Crest for men and Safari for women, made to accompany a new line of clothing also
bearing the Safari name.Cosmetic Insiders' Report called Safari the "Fragrance of the Year" after it recorded sales as high as $11,000 a day at
Bloomingdale's flagship stores. Cosmair hoped to sell between $25 and $30 million wholesale by the end of the fragrance's first year. Two years
later Polo and Cosmair launched Safari for Men, which they promoted in an uncharacteristic television commercial in which Ralph Lauren rode a
horse bareback on a beach. According to Women's Wear Daily, Cosmair hoped to sell $28 million in wholesale at the end of six months, and to top
$50 million by the end of two years.
Not all licensing arrangements worked so well. In 1983, Polo began to promote the introduction of its "Home Collection," a line of products that
Lauren had designed for the home. House & Garden called the collection, which numbered more than 2,500 items and included everything from
sheets to furniture to flatware, "the most complete of its kind conceived by a fashion designer." But the collection soon ran into serious trouble as
the licensee, the J.P. Stevens Company, experienced difficulties getting the products to retail outlets on time. J.P. Stevens also had trouble
maintaining quality control, having themselves licensed elements of the line to other companies. In addition, Stevens demanded that stores that
wanted to show the collection construct $250,000 free-standing, wood-paneled boutiques to display the items--and stores balked at the price tag.
Polo/Ralph Lauren Vice-Chairman Peter Strom told Time that the introduction was "A disaster! Disaster!" It took several years for Polo to get the
collection back on track.
Over the years, Polo used a number of techniques to exert control over the way its merchandise was distributed and sold. Early on, the company
insisted that retailers offer the entire product line instead of simply selecting items it wanted to carry, arguing that the lines had to stand as a
coherent whole. Beginning in 1971, the company began to offer franchises as well, and it has franchised more than 100 Polo/Ralph Lauren stores
worldwide since that time. Instead of charging a franchise fee, the company made money as the wholesaler for the clothing. These franchises
allowed an entire store to concentrate on the Polo image. In 1982, Polo opened the first of its 50 outlet stores in Lawrence, Kansas. The outlet
stores allowed the company to control the distribution of irregulars and items that had not sold by the end of each season, thereby preventing the
company's products from appearing in discount stores. These outlet stores were placed at a significant distance from the full-price retailers to
ensure that they did not steal business. Such expansion occurred not only in America but around the world, as Polo opened shops in London, Paris,
and Tokyo.
The flagship of the Polo/Ralph Lauren retail enterprise was the refurbished Rhinelander mansion on Madison Avenue in New York City. Opened in
1986, the 20,000-square-foot mansion featured mahogany woodwork, hand-carved balustrades lining marble staircases, and sumptuous carpeting.
"While men who look like lawyers search for your size shirt and ladies who belong at deb parties suggest complementary bags and shoes, you
experience the ultimate in lifestyle advertising," wrote Lenore Skenazy in Advertising Age. Naomi Leff, who designed the interior of the Polo
palace, called it "a marker in retailing history. It tells manufacturers that if they're willing to put out, they'll be able to make their own statement,
which is not being made in the department stores."
Establishing brand-focused retail outlets made perfect sense for Polo/Ralph Lauren, for it allowed the company to increase profits by eliminating
the middleman as well as to control the environment in which the products appeared. In fact, other designers have since followed Polo/Ralph
Lauren's lead, including Calvin Klein, Liz Claiborne, Adrienne Vittadini, and Anne Klein. But the move caused tension between the designer and his
traditional retailers, the large department stores. A Forbesfeature on Lauren's strategy claimed that "a lot of people in business think it is in bad
taste to compete with your own customers. Lauren clearly does not agree. And such is his pull at the cash register that he may get away with this
piece of business heresy."
Public in 1997
The Polo/Ralph Lauren Corporation rode its expertly crafted brand image and astute retailing strategies to remarkable heights in the 1980s, as
sustained economic growth and America's fascination with Lauren's image fueled an unparalleled expansion in products bearing the Ralph Lauren
name. But retail expansion slowed dramatically with the economic downturn in the early 1990s, and some stores that once thrived on the sales of
Ralph Lauren's high-priced products complained that the company was unable to adjust to changes in the market. Robert Parola, writing in
the Daily News Record in 1990, noted that many clothing manufacturers had lifted their designs from Ralph Lauren and begun selling them for less.
Polo/Ralph Lauren was hardly a company to be counted out in the 1990s, however. Successful fragrance introductions and the development of the
popular Polo Sport active-sportswear and Double RL jeanswear lines promised to keep money rolling into the company coffers. The 1994 sale of 28
percent of the company to a Goldman Sachs & Co. investment fund for $135 million prompted speculation about the future of the company. Wall
Street Journal reporter Teri Agins remarked that "the company is at a crossroads as it embarks on a strategy to improve its retail operations and
lure a younger generation" to its products. In the short term, industry observers expected the company to use the cash influx to expand its retail
stores. But observers also wondered whether this sale, the first in the company's history, indicated that the company would eventually go public or
that Ralph Lauren was beginning to look toward life after designing.
The company did, in fact, go public on the New York Stock Exchange, on June 13, 1997. Founder and Chairman Ralph Lauren sold nearly 18 million
of his own shares for $465.4 million. He retained 90 percent of voting rights, however, through his ownership of all outstanding class B stock.
Although the shares were trading at a premium, some analysts felt the stock had good growth potential due to relatively unexploited world markets
and an underdeveloped women's line; two years earlier, Polo had regained the rights to it from its licensee, Biderman USA.
Polo had then brought out a moderately priced women's collection in collaboration with licensee Jones Apparel Group in the fall of 1996. (The more
expensive Ralph line was then renamed "RL.") Within a couple of years, however, Polo would cancel the contract due to low sales volume, and
Jones would take its case to court.
Polo rolled out a plethora of other brand extensions in the late 1990s, including shoes from Reebok and Rockport and a line of Polo-brand jeans.
There was also more shifting of licensees: Corneliani S.p.A. of Italy won the right to produce RL's Blue Label clothing line for men. In 2001,
WestPoint Stevens, which already made RL sheets and towels, took over the bedding license from Pillowtex Corp. The total number of licensees
was soon approaching 300.
RL ended 1998 with announcements of 250 job cuts and nine store closings. At the same time, it was opening a flagship store in Chicago. An RL-
branded restaurant opened next door a few months later. The company had about 200 outlets, half of them operated by licensees.
New Frontiers for the New Millennium
In March 1999, RL paid $80 million (C $80 million) for Club Monaco Inc., a chain of trendy clothing stores based in Toronto. It had 56 stores in
Canada and 13 in the United States. Club Monaco attracted the younger, hipper clientele that Ralph Lauren had been unable to lure away from the
likes of Tommy Hilfiger.
In 2000 the company formed a multimedia marketing joint venture with NBC and affiliates NBCi, CNBC, and ValueVision (operator of the Home
Shopping Network). RL's first television advertising debuted soon after.
RL bought European licensee Poloco SA in 2000 for $230 million; Italian licensee PRL Fashions of Europe and a Belgian store were acquired in 2001.
RL was able to quadruple European sales between 1999 and 2002, noted Crain's New York Business, but expansion was expensive. In Europe,
clothing was typically sold in specialty shops, not giant department stores, such as the Big Three in the United States that made up more than a
half of RL's wholesale revenues. RL moved its European operations from Paris to Geneva in 2003.
In February 2003, RL paid ¥5.6 billion ($47.6 million) for a 50 percent interest in the master license of the Polo Ralph Lauren men's, women's, and
jeans business in Japan. Stores also were acquired from licensees in Germany and Argentina.
One employee at a San Francisco store sued RL for allegedly forcing its employees to buy its own pricey clothes to wear at work, and to update
their wardrobes every season. Polo denied having such a uniform requirement, reported the San Francisco Chronicle. Ironically, a general return to
dressier work clothes, a result of a tighter job market, was one good sign for the company entering 2004. RL assumed responsibility for its Lauren
line for women from its former licensee, Jones Apparel Group.
Principal Subsidiaries: Acqui Polo, C.V. (Netherlands); Fashions Outlet of America, Inc.; PRL USA Holdings, Inc.; PRL International, Inc.; Ralph
Lauren Media, LLC (50%).
Principal Operating Units: Polo Brands; Collection Brands.
Principal Competitors: Banana Republic; Liz Claiborne Inc.; Nautica Enterprises Inc.; Tommy Hilfiger Corporation.

680 N. Lake Shore Drive
Chicago, Illinois 60611

Telephone: (312) 751-8000

Fax: (312) 751-2818

Public Company
Incorporated: 1953
Employees: 583
Sales: $247.2 million (1995)
Stock Exchanges: New York
SICs: 2721 Periodicals Publishing & Printing; 4841 Cable & Other Pay Television Services; 6794 Patent Owners and Lessors

Company Perspectives:

Playboy magazine and the Company's powerful brand have been fixtures in popular culture for more than four decades. As we approach the
millenium, emerging communications technologies such as DTH, the Internet and digital compression will provide us with even more exciting new
opportunities for growth, both domestically and in new overseas markets. Playboy will continue to represent a high-quality adult lifestyle. We look
to the future with confidence that the power of the Playboy brand will drive the continued profitable worldwide expansion of our entertainment

Company History:
Playboy Enterprises, Inc. is an international powerhouse in the publishing, entertainment, and licensing industries. The company was established
through the publication of Playboy magazine in 1953, and became known throughout the world for its centerfold pictures of well-built nude women.
During the 1990s, however, the company transformed itself into a diverse operation which included pay-per-view television, weekly TV
programming, movies, videos and video catalogs, a cable TV network, and the marketing and selling of name-brand retail products (including
clothing, liquor, sound systems, and condoms). In spite of this diversification strategy, the company has always been and will continue to be
identified with Playboymagazine which is published in an American edition and 16 foreign editions. Well down from its peak circulation during the
late 1960s and early 1970s, the company's flagship publication still has the highest circulation among men's magazines with approximately 3 million
Born in the 1950s
Hugh Hefner, the founder of the "Playboy empire," was born in 1927 in Chicago, Illinois. Raised in the strict religious tradition of German-Swedish
Protestantism, Hefner and his younger brother were forbidden to drink, smoke, swear, and, particularly distressing to the two boys, attend movies
on Sunday. Hefner's father, an accountant for an aluminum company, was almost never home, and his mother, an austere and imposing women,
was the dominant personality in raising the children. Within such a family setting sex was regarded as horrid, something never to be discussed or
even mentioned. Young Hugh developed into an introverted young man, escaping into a fantasy world of writing, drawing cartoons, and collecting
Upon graduating from high school in 1944, Hefner served as a clerk in military installations throughout the United States for the remainder of World
War II, and then was discharged in the summer of 1946. He followed his high school sweetheart, Millie Williams, to the University of Illinois at
Champaign-Urbana, and attended classes as a psychology major, and gained renown as a contributor of cartoons to the campus humor magazine.
After graduating in 1949, Hefner married Millie, moved back to Chicago and, in order to support his family, worked in the personnel department of
a cartoon manufacturing company. Hating the job, Hefner decided to quit and attend classes in psychology at Northwestern University. He soon
dropped out, however, and took a position as a copywriter in the advertising department of Esquire magazine. When his boss refused to give him a
five dollar raise, Hefner suddenly quit his job. In 1952, Hefner found himself without steady employment. At the same time, his marriage to Millie,
which was rocky from the beginning, fell apart.
Although Hefner hated his job at Esquire, it was while working at the publication's office in Chicago that he came up with his idea for a new
product. Esquire had been successful in creating an image of what it meant to be an urbane young man, sophisticated and worldly, and interested
in fancy sports cars, good food, expensive clothing, exotic wine, hi-fi equipment, and women. Hefner grabbed this idea and decided to take the
formula one step further--by including photographed female nudes in the magazine. He approached a freelance art director, Art Paul, and asked
him to help design his magazine in exchange for private shares of stock in the product. Pawning his possessions to support himself, Hefner worked
odd jobs during the daytime. But through the evenings of 1952, with Paul's help, Hefner assembled the first issue of Playboy magazine on his
kitchen table in a small Chicago apartment. Hefner purchased the famous nude calendar picture of Marilyn Monroe for $200 from the calendar
company, inserted some risque cartoons and jokes of his own, rounded up a few literary pieces that had previously been published in other
magazines, and in November 1953 went to press. With $600 of his own money, and $10,000 raised through the sale of private stock to friends and
supporters, Hefner published the first issue of Playboy magazine. It carried no date, since Hefner didn't know when he'd have the money to publish
a second issue, or even if there would be one.
The bold and brash new publication sold 55,000 copies at 50 cents apiece, and Hefner was on his way to establishing the Playboy empire. By the
publication of the fourth issue, Hefner had made enough money to rent an office in downtown Chicago and begin hiring a staff. Still, he retained
firm control of all aspects of the magazine's publication. Unknown to most people, however, was the initial difficulty Hefner had in convincing
women to strip for his cameras. In fact, at one point Hefner was unable to find any women who wanted to pose nude for his magazine. When an
attractive female subscription manager at the magazine came to ask him for an addressograph machine, Hefner responded that she could have her
machine if she would pose as the Playmate of the Month. The beautiful subscription manager agreed, and word got around that the photo sessions
were conducted with respect, good humor, and consummate professionalism. From that time onward Hefner was deluged with photos from women
working at the Playboy office in Chicago and from models throughout the United States.
Growth During the 1960s
By 1960, Hefner had created one of the most successful publishing empires in the United States: circulation had surpassed the one million mark,
and advertising revenues had skyrocketed to $2.3 million. Buoyed by his achievement, in the early 1960s Hefner decided to open what he called
Playboy Clubs, where any tired businessman could eat good food, drink, and be entertained, all the while being waited on by Playboy "Bunnies," as
he called the waitresses and hostesses who wore nothing more than rabbit ears and a one-piece corset with a cottontail fixed to the bottom. Riding
on the wave of the sexual revolution of the 1960s, Hefner opened numerous Playboy Clubs across the United States. At the same time, he began to
diversify into more standard clubs, casinos, and resorts. In Chicago, Hefner purchased the old Knickerbocker Hotel and transformed it into the posh
and elegant Playboy Towers. Beginning in 1965, Hefner invested over $55 million to develop resort hotels in Jamaica, Miami, Great Gorge, New
Jersey, and Lake Geneva, Wisconsin. The Lake Geneva resort, the company's flagship hotel complex, cost $18 million. Other diversification
strategies included the construction of Playboy apartment complexes, an agreement with Columbia Pictures to make first-run movies, the
production of television shows and records, and the publication of sheet music. From 1965 to 1970, sales at Playboy Enterprises jumped
dramatically, from $48 million to just over $127 million.
Throughout the 1960s, Hefner carefully created his own Playboy myth. He purchased a huge Victorian estate in the heart of the most fashionable
Gold Coast area on Chicago's near North Side, and proceeded to decorate it with a combination of Renaissance and contemporary furnishings.
Hefner lived in a room off the great hall, complete with a $5 million circular bed, while bunnies and former playmates of the month occupied other
rooms on the upper two floors of the mansion. The swimming pool in the backyard was decorated with the trappings of a Roman temple; so many
late night parties were held there that neighbors began to file complaints. In fact, the Friday Night Party at the Playboy Mansion, as Hefner dubbed
it, was part of what fostered the man's growing legend. Hefner was the master of ceremonies that included swimming, drinking, eating, dancing,
and, of course, lots of voyeurism. Having invited as many bunnies, playmates, casts of stage plays, movie stars, and celebrities in Chicago that he
could find, Hefner would strut among his guests with pipe in mouth looking quite similar to a reincarnation of the Great Gatsby.
The Bunny Comes of Age
The early 1970s were the best years to date for Hefner's Playboy empire. The circulation of Playboy magazine reached its height in 1972 with 7.2
million readers. Pretax profits in 1973 amounted to $20 million, and the company was quickly approaching the 1000 mark for advertising pages. Yet
Hefner, growing more dissatisfied with the lack of celebrity access and general conservatism in Chicago, decided to move his residence from the
Windy City to the sunshine and glitz of Beverly Hills, California. In the process, he hired Derick Daniels to take charge of managing Playboy's day-to-
day operations and its growing business interests. However when Daniels, who had been instrumental in the develop of Knight-Ridder Newspapers,
arrived on the scene in the mid-1970s, he found an empire in disarray. Pretax profits had shrunk to $2 million in 1975, and barely topped $5 million
in 1976. The entertainment division, including movies, television, records, and sheet music, was generating terrible losses.
With the full support of Hefner, who was no longer interested in managing the company, Daniels implemented a comprehensive reorganization
strategy. The new head of Playboy made a clean sweep of management at all levels, getting rid of over 100 employees ranging from vice-presidents
to assistant publicists. The most important retrenchment came in the entertainment division. Daniels withdrew the company from producing movies
and television shows, discontinued its record and sheet music business, except for licensing arrangements, and began to reassess the kind of
advertisements run in the pages of its flagship magazine. To compensate for the losses incurred from its foray into entertainment, Daniels decided
to develop the company's gambling operations. Although Playboy's nightclub and resort division was losing money, its London-based casinos were
generating the majority of the company's cash flow. Daniels upgraded the London casinos, opened a new casino in Cable Beach, the Bahamas, and
made plans for a hotel-casino in Atlantic City, New Jersey.
Yet even under the steady leadership and management of Daniels, the Playboy empire continued to languish during the early 1980s. The number of
Playboy clubs dropped precipitously, from a high of 22 to only 3. In 1982, because of licensing and legal problems, the company was forced to
divest the one bright spot in its financial firmament, the gambling business. All of its casinos in the United States and British territories, including
those in Atlantic City, London, and the Bahamas, were sold off to other firms. With a resulting loss of over 50 percent in sales for the company in
1982, compounding a loss of over $69 million during the previous two years, Hefner decided to replace Daniels with someone he knew more
intimately and trusted more thoroughly: his own daughter.
Reorganization and Reorientation during the 1980s
Christie Hefner, a Phi Beta Kappa and summa cum laude graduate of Brandeis University in 1974, joined her father's company one year later. In
1985, she was promoted to the position of president, while Hugh Hefner continued as editor-in-chief and majority stockholder in the company.
Projecting a highly professional image of the businesswoman of the 1980s, Christie Hefner made a conscious decision to remain far away from the
libertine excesses of her father's lifestyle. Dressed in elegant but demure Gucci business suits, the new president quickly installed a talented
management team with extensive corporate experience to help her revitalize the fortunes of Playboy. Her most daunting challenge, however, was
how to deal with the dramatic changes in the public's attitudes toward sex that had occurred over the last 30 years. During the 1950s, the idea of
guiltless sex and naughty nudity had catapulted Hugh Hefner to his success, but in the 1980s, where everything seemed tolerated (if not completely
accepted) in the sexual arena, Christie's task was not only to turn the company around but redefine the Playboy credo of "Entertainment For Men."
With Christie at the helm, Playboy began to create an image for itself as the champion of free speech and first amendment rights. Contracting more
and more authors to write about social issues, the company publicly supported gay rights, AIDS research, and the plight of battered women. With
its growing overseas presence, Playboy magazine became a forum for dissidents from developing countries to write about abuses of power and
government corruption. In the first issue of the company's Taiwan publication of Playboy, an interview with one of the leaders of the Tiananmen
Square student uprising in China received a large amount of space. Although the magazine still reveled in its pictorials of busty women, Christie was
hard at work transforming the image of the company in order to attract a more diverse audience.
Still, competition during the 1980s was intense. Penthouse, Hustler, and Oui magazines provided more graphic nude pictures than Playboy. Perhaps
worst of all was the decision by the Meese Commission in 1986 to describe the magazine as pornographic. After this decision became public, major
vendors such as 7-Eleven and newsstands around the country refused to sell the magazine. Traditionally, 75 percent of all sales
of Playboy magazine had come from full-price newsstand sales. When this source of revenue suddenly vanished, Playboy quickly changed course and
implemented a highly successful subscription campaign. By the end of the decade, circulation had leveled off at approximately 3.4 million readers,
with over 75 percent coming from subscription sales, but the change in direction took time and profits remained stagnant.
One of the bright spots in the Playboy empire was the re-creation of the entertainment division. The company had formed a Playboy Channel during
the early 1980s in order to take advantage of the burgeoning cable television market. With television subscribers decreasing from a high of 750,000
in 1985 to 430,000 by 1989, Christie and her staff decided to replace the Playboy Channel with a pay-per-view service named Playboy At Night.
With soft core movies and Playmate videos, the new cable operation gained access into over 4 million homes and suddenly became the third largest
pay-per-view service in the United States. At the same time, the company started putting more money into producing videos, and by the end of the
decade Playboy was ranked the third largest nontheatrical distributor of videos, just behind Walt Disney and Jane Fonda. The "For Couples Only"
collection, including the highly regarded couples oriented massage video, was one of Playboy's best selling series of videos.
The 1990s and Beyond
The 1990s started auspiciously for Playboy, especially in the overseas markets: overseas circulation jumped from 500,000 during the mid-1980s to
over 1.5 million; 14 foreign editions were being published under license; the company began developing TV programming for Western Europe,
where a greater degree of tolerance for nudity made Playboy television more acceptable; and a Playboy licensee opened 20 sportswear boutiques
selling jogging suits, jeans, dress shirts, and attache cases with the Playboy logo on each item. The company also initiated a Playboy Channel in
Japan, arranged in partnership with Tohokushinsha Film Corporation. In another new development, Playboy revived its gaming interests by taking a
15 percent stake in a casino located on the Greek Island of Rhodes.
During the mid-1990s, Playboy magazine was still edited by Hugh Hefner, with many of the magazine's signature features, graphics, and cartoons.
Advertising pages had dropped to 595 for the year 1995, but circulation was holding at a steady 3.5 million, in spite of the stiff competition from
other magazines with more explicit nude centerfold pictures. Christie Hefner succeeded in reducing overhead costs for running the magazine, but
Hugh Hefner maintained that he needed a staff of 60 and a budget of approximately $4 million to edit Playboy from his Beverly Hills mansion. Still
the majority owner of stock in the company, Hugh Hefner had forsaken his pipe and silk pajamas in order to settle down and marry the 1989
Playmate of the Year, Kimberley Conrad. Hefner and Conrad's son, Marston, played amid the unused Jacuzzis around the mansion.
In the time since Hugh Hefner started Playboy magazine, American attitudes towards sex have undergone enormous changes. This change in
perception has left the second generation of management without a clear course to follow. Yet Christie Hefner is committed to developing the
Playboy empire, and to making its products more attractive to the tastes and proclivities of a wider, more mature, and sophisticated audience.
9111 East Douglas
Wichita, Kansas 67027

Telephone: (316) 681-9000

Fax: (316) 681-9869

Wholly Owned Subsidiary of PepsiCo, Inc.
Incorporated: 1959
Employees: 140,000
Sales: $5.1 billion (1996)
SICs: 5812 Eating Places; 6794 Patent Owners & Lessors

Company History:
Pizza Hut Inc. is the largest pizza restaurant company in the world in terms of both the number of outlets and the percentage of market
share that it holds. A subsidiary of PepsiCo, Inc., the company oversees more than 11,000 pizza restaurants and delivery outlets in 90
countries worldwide. In October 1997, the company expected to become a subsidiary of Tricon Global Restaurants, Inc., formed from the
spin-off of PepsiCo's restaurant holdings.
Early History
Pizza Hut was founded in 1958 by brothers Dan and Frank Carney in their hometown of Wichita, Kansas. When a friend suggested opening a
pizza parlor--then a rarity--they agreed that the idea could prove successful, and they borrowed $600 from their mother to start a business
with partner John Bender. Renting a small building at 503 South Bluff in downtown Wichita and purchasing secondhand equipment to make
pizzas, the Carneys and Bender opened the first Pizza Hut restaurant; on opening night, they gave pizza away to encourage community
interest. A year later, in 1959, Pizza Hut was incorporated in Kansas, and Dick Hassur opened the first franchise unit in Topeka, Kansas.
In the early 1960s Pizza Hut grew on the strength of aggressive marketing of the pizza restaurant idea. In 1962, the Carney brothers bought
out the interest held by Bender, and Robert Chisholm joined the company as treasurer. In 1966, when the number of Pizza Hut franchise
units had grown to 145, a home office was established to coordinate the businesses from Wichita.
Two years later, the first Pizza Hut franchise was opened in Canada. This was followed by the establishment of the International Pizza Hut
Franchise Holders Association (IPHFHA). It aimed at acquiring 40 percent of the company's franchise operations, or 120 stores, and adding
them to the six outlets wholly owned by Pizza Hut.
The acquisitions, however, brought turmoil to the chain. Varied accounting systems used by the previous franchise owners had to be merged
into one operating system, a process that took eight months to complete. In the meantime, sales flattened and profits tumbled.
Turmoil Brings New Structure in Early 1970s
In early 1970 Frank Carney decided that the company practice of relying on statistics from its annual report to inform its business strategy
was inadequate, and that a more developed, long-term business plan was necessary. The turning point occurred when Pizza Hut went public
and began growing at an unprecedented pace. Carney said in 1972, "We about lost control of the operations. Then we figured out that we had
to learn how to plan."
Pizza Hut's corporate strategy, arrived at after much consultation and boardroom debate, emerged in 1972. Carney would later remark that
the process of introducing a management structure did much to convince PepsiCo, Inc., that the pizza chain was worthy of purchase.
The corporate strategy's first priority was increasing sales and profits for the chain. Continuing to build a strong financial base for the
company to provide adequate financing for growth was the second priority. The strategy also called for adding new restaurants to the chain
in emerging and growing markets.
In 1970 Pizza Hut opened units in Munich, Germany, and Sydney, Australia. That same year, the chain's 500th restaurant opened, in
Nashville, Tennessee. Further acquisitions that year included an 80 percent stake in Ready Italy, a frozen crust maker, and a joint venture,
Sunflower Food Processors, formed with Sunflower Beef, Inc. The same year, the menus for all restaurants added sandwiches to the staple
"Thin 'n Crispy" pizza offering.
In 1971 Pizza Hut became the world's largest pizza chain, according to sales and number of restaurants--then just more than 1,000 in all. A
year later the chain gained a listing on the New York Stock Exchange. Pizza Hut also achieved, for the first time, a one million dollar sales
week in the U.S. market.
At the end of 1972 Pizza Hut made its long-anticipated offer of 410,000 shares of common stock to the public. The company expanded by
purchasing three restaurant divisions: Taco Kid, Next Door, and the Flaming Steer. In addition, Pizza Hut acquired Franchise Services, Inc., a
restaurant supply company, and J & G Food Company, Inc., a food and supplies distributor. The company also added a second distribution
center in Peoria, Illinois.
In 1973 Pizza Hut expanded further by opening outlets in Japan and Great Britain. Three years later the chain had more than 100 restaurants
outside the United States and two thousand units in its franchise network. The company's 2,000th restaurant was opened in Independence,
Missouri. It also established the 35 by 65 meter red-roof Pizza Hut restaurant building as the regulation size for all its new establishments.
The new construction standard called for free-standing buildings built in a distinctive one-story brick design. The sites seated from 60 to 120
Advertising played an increasingly influential role at Pizza Hut at this time, broadening the chain's public profile. Campaigns were run on both
a national and local level in the U.S. market. Spending on local advertising increased from $942,000 in 1972 to $3.17 million in 1974.
PepsiCo Buys Out Company in 1977
In 1977 Pizza Hut merged with PepsiCo, becoming a division of the global soft drink and food conglomerate. Sales that year reached $436
million, and a new $10 million dollar headquarters office opened in Wichita. PepsiCo had clearly seen potential in Pizza Hut. People
continued to eat outside their homes, especially as convenience and price-competitiveness in the fast food industry gained importance.
The 1980s brought new competitors to Pizza Hut, all challenging its number one position in the pizza restaurant trade, then worth $15 billion
in sales annually in the United States alone. While in the 1970s the company's main competitors had been regional chains like Dallas-based
Pizza Inn, Denver-based Shakey's, and Phoenix-based Village Inn and Straw Hat, fierce competition in the 1980s brought new entrants into
the quick-service pizza category, including Little Caesar's, Domino's Pizza International, and Pizza Express.
To raise its profile, Pizza Hut introduced "Pan Pizza" in 1980 throughout its network. The product, with a thicker crust made in deep pans,
soon became popular. The success of new additions to Pizza Hut's menu was facilitated by the marketing resources provided by PepsiCo.
For example, in 1983 Pizza Hut introduced "Personal Pan Pizza," offering customers a five-minute guarantee that their single-serving pizzas
would arrive quickly and steaming hot. The aim was to make a quick, affordable pizza the ideal lunchtime meal. Another addition to the
chain's menu was "Hand-Tossed Traditional Pizza," which would be introduced in 1988.
Strong Growth in Late 1980s and Early 1990s
In 1984 Steven Reinemund was appointed president and chief executive officer of Pizza Hut. He oversaw a period of unprecedented growth
for the pizza chain. In 1986 Pizza Hut opened its 5,000th franchise unit, in Dallas, Texas, and began its successful home delivery service. By
the 1990s the delivery and carryout business had grown to account for approximately 25 percent of the company's total sales.
In 1990 Pizza Hut opened its first restaurant in Moscow. Russians' pizza of choice, "Moskva," a pie topped with sardines, tuna, mackerel,
salmon, and onion, became a favorite at the Moscow Pizza Hut. The Moscow location quickly established itself as Pizza Hut's highest volume
unit in the world. Restaurants just behind in total volume served were found in France, Hong Kong, Finland, and Britain. Other favorite
toppings for pizzas in countries other than the United States included sauerkraut and onion, and spinach, ham, and onion. In Hong Kong
corned beef and Canadian bacon were favorites, while Asians and Australians seemed to enjoy various curry pizzas.
Competition in the United States was heightened in 1991 when McDonald's, the world's largest hamburger fast food chain, put "McPizza" on
its menu in several test markets and even offered home delivery to customers. Despite this effort and the economic recession of the early
1990s, Pizza Hut continued to profit. Company sales at the pizza chain were up ten percent worldwide to $5.3 billion in 1991 as growing
health awareness and the popularity of vegetarian lifestyles had prompted many people to reconsider pizza as a nutritious alternative to
greasy fast food fare. Pizza Hut Delivery, the home delivery operation, provided $1.2 billion in sales alone, and overall Pizza Hut sales, added
to those of PepsiCo subsidiaries Taco Bell and KFC (formerly Kentucky Fried Chicken), gave the parent company more than $21 billion in sales
that year on its restaurant and fast food side.
In the early 1990s Pizza Hut was concerned with making itself more accessible. Drive-through units were added for customers' convenience,
and Pizza Hut Express units were being developed. The Express unit originated in shopping malls, where it provided customers with fast food
at affordable prices made possible by lower operating overheads. Since that time, Pizza Hut positioned Express units in school cafeterias,
sports arenas, office buildings, and major airports. The company saw nontraditional locations as the fastest-growing sector of its operations in
the first half of the 1990s.
PepsiCo's corporate sponsorship of Pizza Hut included funding the Book It! National Reading Incentive Program, which encouraged higher
literacy rates among young people. The reward for better reading ability was free pizza at any Pizza Hut. In 1992, the Book It! program
involved more than 17 million students in North America alone, and Pizza Hut received letters of endorsement that year from President
George Bush and Secretary of Education Lamar Alexander.
PepsiCo took advantage of global change following the end of the Cold War, expanding Pizza Hut into new and emerging markets. In 1991
PepsiCo had restaurant outlets in 80 countries worldwide. Wayne Calloway, chairman of PepsiCo, indicated he wished to see continued
growth with the approach of the 21st century. He commented, "The major question for international restaurant growth is, 'How fast can we
get there?' A steadily growing interest in eating away from home and the continued gravitation to convenience foods are creating an
atmosphere of excitement for our restaurants." Pizza Hut restaurants had spread to 90 countries by 1997.
Declining Profits in Mid-1990s
In 1994 several changes resulted in the company's first decline in operating profits in 15 years. The pizza market was no longer growing; fast
food rivals cut prices; and investment in new outlets was draining corporate resources. PepsiCo's restaurant division saw sales in restaurants
open at least one year fall six percent in 1994, contributing to a drop in profits of 21 percent (to $295 million).
In an effort to change this disturbing direction, Roger A. Enrico moved from PepsiCo's beverage and snack food divisions to head the
restaurant division in 1994. His first move was to heavily promote a new product: stuffed crust pizza, a pizza with a ring of mozzarella folded
into the outer edge of the crust. The company used a massive advertising campaign to promote the new product, including television
commercials that paired celebrities eating their pizzas crust first.
Some indicators were promising: market share rose from 25.6 to 27 percent; 1995 sales increased 16 percent to $5.2 billion; and operating
income rose to $414 million, up 40 percent from the year before. In 1996 Pizza Hut planned to introduce a major new product each year and
two or three line extensions. The following year it followed through on this course, introducing Totally New Pizzas with 67 percent more
toppings than previous pizzas and thicker sauce. The company allocated $50 million for the project, part of which was to be used to install
new or improved ovens. In 1996 Pizza Hut accounted for 17 percent of PepsiCo's total sales and 13 percent of its operating profit.
However, these gains could not offset the drain that capital investment placed on PepsiCo's other divisions. The parent company's return on
assets was significantly greater in its beverage and snack food divisions than in its restaurant division. In the late 1990s, PepsiCo drew
together its restaurant businesses, including Pizza Hut, Taco Bell, and KFC. All operations were now overseen by a single senior manager, and
most back office operations, including payroll, data processing, and accounts payable, were combined. In January 1997 the company
announced plans to spin off this restaurant division, creating an independent publicly traded company called Tricon Global Restaurants, Inc.
The formal plan, approved by the PepsiCo board of directors in August 1997, stipulated that each PepsiCo shareholder would receive one
share of Tricon stock for every ten shares of PepsiCo stock owned. The plan also required Tricon to pay a one-time distribution of $4.5 billion
at the time of the spinoff. If approved by the Securities and Exchange Commission, the spinoff would take place on October 6, 1997.
Enrico, who had risen to the position of PepsiCo CEO, explained the move: "Our goal in taking these steps is to dramatically sharpen PepsiCo's
focus. Our restaurant business has tremendous financial strength and a very bright future. However, given the distinctly different dynamics
of restaurants and packaged goods, we believe all our businesses can better flourish with two separate and distinct managements and
corporate structures."
1225 Highway 169 North
425 Lexington Avenue
Minnesota, Minnesota 55441

Telephone: (612) 542-0500

Toll Free: 1-800-POLARIS
Fax: (612) 542-0599

Public Company
Incorporated: 1954 as Hetteen Hoist & Derrick
Employees: 3,350
Sales: $1.32 billion (1999)
Stock Exchanges: New York Pacific
Ticker Symbol: PII
NAIC: 336322 Other Motor Vehicle Electrical and Electronic Equipment Manufacturing; 336612 Boat Building; 336991 Motorcycle, Bicycle, and Parts
Manufacturing; 336999 All Other Transportation Equipment Manufacturing; 315228 Men's and Boys' Cut and Sew Other Outerwear Manufacturing;
315239 Women's & Girls' Cut and Sew Other Outerwear Manufacturing

Company Perspectives:

For almost 50 years, Polaris has been making machines that not only take you out there, they offer you a way out. A break from the routine. An
escape from the ordinary. A moment of freedom. Snowmobiles came first in 1954 and quickly established a track record for advanced engineering.
All-terrain vehicles followed in 1985, and since their introduction have set the standard for performance and innovation. 1992 saw the arrival of our
personal watercraft and their unprecedented combination of power and comfort. Then in 1997, the Polaris RANGER was born, creating a whole new
class of off-road utility vehicles. In 1998 we introduced Victory motorcycles and Cycle World named them "Best Cruiser"; in 1999 Motorcycle
Cruiser named them "Cruiser of the Year." Of course, there's more to having a great time than just a great ride. So we also make parts and
accessories designed to match our machines better than anything off the shelf, and a full line of garments and collectibles to stylishly capture the
spirit of Polaris. We even offer financial services to make getting on our machines, and out into the open, easier than ever. Today, we have over $1
billion in sales worldwide, with engineering, manufacturing and distribution facilities all across the Midwest, and wholly-owned subsidiaries in
Canada, Australia and New Zealand. It's been a fun ride, but then, after all these years, that's what we're all about.

Key Dates:

1954: A small Minnesota machine shop sells its first "powered sled."
1960: Edgar Hetteen et al. make promotional snowmobile trip across Alaska.
1968: Textron acquires Polaris.
1981: Management buys out the company after a couple of brown winters dry up sales.
1985: Polaris starts making ATVs.
1992: Polaris introduces its personal watercraft.
1995: Sales pass $1 billion.
1998: Victory Motorcycles debut.

Company History:
Polaris Industries Inc. is the largest manufacturer of snowmobiles in the world and a major competitor in all-terrain vehicles (ATVs) and personal
watercraft (PWC). It introduced a line of motorcycles in 1998. A pioneering force in the U.S. snowmobile industry, Polaris has since its inception
enjoyed a strong reputation for quality and innovation. In 1989, for instance, the "MacNeil-Lehrer News Hour" called Polaris America's version of
The snowmobile industry leader has had its share of troubles during its history, however. In 1964 it nearly went bankrupt with the failure of the
Comet, its first front-engine sled. During the late 1970s and early 1980s--a period of flagging sales and sell-offs that shook the industry as a whole--
Polaris's future looked just as grim. A mid-1981 leveraged buyout that took the form of a limited partnership prevented an otherwise imminent
plant shutdown, but it was several years before Polaris was again running smoothly, this time as a revitalized company uniquely situated in a far
leaner industry. A decade later, on December 23, 1994, Polaris completed its transformation from a limited partnership to a corporation.
Headquartered in Minneapolis, Polaris operated manufacturing facilities in Minnesota, Wisconsin, and Iowa; it sold its products through
approximately 2,000 North American dealers and a network of international distributors that marketed Polaris products in 116 countries around the
Arctic Origins
Polaris Industries was born in Roseau, a small community within a few miles of the northernmost point in the contiguous 48 states. This relatively
remote area, located closer to Winnipeg, Manitoba, than to Minneapolis, inspired a climate of persistent innovation. Hetteen Hoist & Derrick, the
forerunner of Polaris, was established in 1945 not for the manufacture of snowmobiles, however, but as a problem-solving job shop that became
known for its fabrication of one-of-a-kind machinery for farmers in the region. Metal supply was at a premium at the end of World War II, and Edgar
Hetteen was a skilled and inventive metal worker who could help people make do with what they had. Close friend David Johnson bought into the
company while he was still serving in the navy, and Edgar's brother Allan Hetteen became a partner in the early 1950s. The company produced farm
equipment, including straw choppers, portable grain elevators, and sprayers, but also depended on welding, grinding, and general repair work in
the off-season.
Given the area's climate, the seasonal nature of the original business, and the fact that the founders were avid outdoorsmen, it was perhaps
inevitable that the idea of snowmobile production would eventually transform the company. At the time, trips to fishing, hunting, and trapping
areas in the winter had to be navigated by cross-country skis or snowshoes. Although inventors had been toying with the concept of snow machines
since the 1920s, no reliable machine was readily available that could be used for such utilitarian purposes. Not until the 1950s, in large part
because of the work of Johnson, did the general notion of creating a snow-going vehicle steered by skis begin to take shape as an industry in the
United States. The company sold its first machine, a rough, virtually untested model, to an eager Roseau lumberyard owner in 1954. There was
then no clear development plan to guide the company in this new area. Indeed, Edgar Hetteen was focused principally on selling the company's
mainstay straw choppers and was lukewarm on the idea of snow machines until he saw the considerable interest generated when the company's
first snowmobile customer demonstrated his powered sled.
Other orders followed that year and the company, which renamed itself Polaris Industries after the Latin name for "north star," worked on
improving the original concept with each consecutive model. Five machines were built in the winter of 1954-55 (all of which sold for less than
$800), 75 in the winter of 1956-57, and more than 300 in 1957-58. The earliest models were called Sno-Cats, then Sno-Travelers, and were
purchased primarily by outdoorsmen and utility companies. The sleds, propelled by a rear-end four-cycle engine, featured a toboggan-style front
with a steering wheel and control levers. The early production line yielded one-of-a-kind machines, with components varying from one vehicle to
the next. Skis were fabricated from bumpers of Chevrolets and steering wheels were appropriated from cars and trucks. Not surprisingly, the early
machines were heavy and utilitarian. The Ranger rear-engine prototype and the Ranger model, manufactured between 1956 and 1964, formed the
basis for Polaris snowmobile development.
When the bulk of the business shifted from fabricating farm equipment to designing, building, and testing snowmobiles, Edgar Hetteen was faced
with a marketing problem. The company needed to broaden interest in the machine beyond utilitarian to recreational use. In short, Polaris had to
convince people it would be fun to ride around in the middle of winter in a small, open-air vehicle. As Jerry Bassett wrote in Polaris
Partners, "Edgar Hetteen, as the first president, had to establish a sales network for a product that could only be sold in places which got snow to
people who weren't totally certain that they needed his product." During a promotional trip Hetteen made in 1958, according to C.J. Ramstad
in Legend: Arctic Cat's First Quarter Century, "Hetteen got a real taste of the enormity of the problem that year when he set up an exhibit at a
sport and travel show. Full of enthusiasm, he hustled show goers into his booth and eagerly showed them his new `snow machine.' The curious
public thought the machine somehow produced snow. They wanted to know which end the snow came out!"
Then, inspired by a friend's suggestion, Hetteen decided to make a snowmobile trip across Alaska to demonstrate both the durability and recreation
his company's product offered. In March 1960 Hetteen and three others covered more than a thousand miles in about three weeks on one
Trailblazer and two Rangers. The adventure yielded national publicity, but Hetteen was shocked to find that it had also created dissension at home.
The negative response of some of the company's backers to Hetteen's trip, viewed by them as unnecessary, even frivolous, resulted in his selling out
his controlling interest in Polaris. After a trip back up to Alaska he returned to Minnesota, this time west of Roseau to Thief River Falls, where he
started the company that became Arctic Enterprises and later Arctco Inc., producer of Arctic Cat snowmobiles. His younger brother Allan, 31 at the
time, became president of Polaris.
Running a nearly parallel course to Polaris was another company that contributed to the early industry history. In Canada, Joseph-Armand
Bombardier developed and patented the sprocket-and-track assembly in 1937 and developed a one-piece molded rubber track in 1957. In 1958, the
first year of Ski-Doo brand manufacturing, his company produced 240 snowmobiles, while Polaris manufactured about 300 that same year. The early
1960s marked the beginning of snowmobiling as a sport with the front-engined Bombardier Ski-Doo. Such vehicles were used for recreation as well
as competitive racing. The testing of the first Polaris front-engined machine, the Comet, looked promising, but the 1964 model failed in
production. The company's very survival was suddenly at stake.
Polaris co-founder David Johnson later joked, "We made 400 machines and got 500 back." But it was the value of his word and reputation at the
time that convinced the creditors to give the company breathing room and a second chance. Johnson and Hetteen redoubled their efforts by
converting the Comets to rear-engined machines while they worked on a new front-end model. They hit pay dirt with the front-engined Mustang,
which enjoyed successful production from 1965 to 1973 and brought the company into the sporty racing vehicle arena.
Corporate in the 1970s
After its one stumble, the company grew rapidly in the boom years of the 1960s. So pronounced was the growth that it outstripped the
management skills of the owners, who had to decide whether to hire professional managers or sell the company. In 1968 Polaris was sold to
Textron, a diversified company holding E-Z Go golf carts, Bell helicopters, Talon zippers, and Schaefer pens. The company kept Polaris in Roseau
and continued snowmobile manufacturing, but also began limited research and development on watercraft and wheeled turf vehicles. Herb Graves
of Textron became president and Johnson stayed on as vice-president to oversee production.
During the 1970s Polaris began to solidify its reputation for high-performance snowmobiles. In pre-Textron years, Polaris had purchased its
snowmobile engines from a number of suppliers. With the entry of Textron, Polaris was able to bring on Fuji Heavy Industries as its sole supplier.
Fuji engineers went to Roseau to work on building a high-quality engine specifically for Polaris. Increasingly, the Polaris product lines were being
noticed. The TX Series set a standard for power and handling in racing and gained popularity with recreational riders. Introduced in 1977, the
liquid-cooled TX-L was a strong cross-country racing competitor. Polaris also introduced the RX-L in the mid-1970s, which carried the first
Independent Front Suspension (IFS) and produced winners on the racing circuits shortly after its debut. The 1970s also marked the opening of
corporate offices in Minneapolis, with product development and production staying up north.
The sport of snowmobiling grew by leaps and bounds in the early 1970s; enthusiasts in the snowbelts of the United States and Canada now
numbered more than a million. The growth rate for the industry was 35 percent per year, versus 20 percent for other recreation industry
manufacturers. In 1970, 63 companies manufactured snowmobiles in the United States, Canada, Europe, and Japan. Bombardier held 40 percent of
the market, with an additional 40 percent shared by Arctic Cat, Polaris, Scorpion, and Sno Jet. About one-third of the machines manufactured in
North America in the early 1970s were made in Minnesota.
Factory-backed racing teams found Polaris support in the days of Allan Hetteen and Textron, but the death of a Polaris team member in 1978
effectively ended the program. From 1981 on the company sponsored a modified racing program with independent racers. Hill climbs, stock and
modified oval racing, snow and grass drag racing, and cross-country endurance racing tested the limits of the machines and appealed to customers.
Racing was an important part of engineering research and development as well as public relations and product marketing.
Yet in the late 1970s, despite everything that favored the industry--including regular improvements in safety and an expanding trail system that
would eventually rival the U.S. Interstate Highway System in total miles--the snowmobiling boom was about to go bust. Companies began shutting
down or selling off their snowmobile divisions in the face of declining sales. Names such as Scorpion, AM, Harley-Davidson, Johnson & Evinrude,
Chaparral, and Suzuki would no longer be seen on snowmobile nameplates. By 1980 even Arctic Enterprises, the number one manufacturer, was in
trouble. High energy costs, economic recessions, snowless winters, and overexpansion eventually drove all but three manufacturers of snowmobiles
out of business. Industry sales slid downhill from 500,000 units annually in the early 1970s to 316,000 in 1975; 200,000 in 1980; 174,000 in 1981; and
80,000 in 1983.
Management Buyout in 1981
Textron wanted out of the snowmobile business, too. Textron president Beverly Dolan, who had been president of Polaris during its first years with
Textron, told Polaris's then-president, W. Hall Wendel, Jr., to sell off the company. A deal to sell the Polaris division to Canada's Bombardier fell
through, however, because of the threat of antitrust action by the U.S. Department of Justice. Liquidation was on the horizon. This opened the
door for a management group leveraged buyout led by Wendel, who believed that there was a market for snowmobiles and that seasonal snowfalls
would rise again. Polaris Industries was created in July 1981, and a shutdown of the Roseau plant was avoided. (Still, the company began
production with just 100 workers after the buyout.) Also at this time, plant workers voted the union out and Polaris proceeded to establish a
Japanese labor model of worker participation, with a crew that had firsthand knowledge of the machines and their capabilities. Times were still
tough, though: the 1982 product line consisted of the 1981 model with some detail changes, and barely more than 5,000 machines were built that
season. The same year as the buyout, Polaris attempted to purchase Arctic Cat. When the deal failed, Arctic Cat shut down, leaving Polaris, at
least for a while, as the only American snowmobile manufacturer.
The first years following the management buyout from Textron were lean and characterized by a skeleton factory crew and tight budgets. But the
Textron debt was paid off ahead of schedule and the snowmobile line was expanded and improved. The company also expanded into Canada to
become more price competitive and to create a stronger dealer network. Five years after the buyout the company had reached sales of $40 million
and employed 450 people. A Polaris innovation of the early 1980s was the "Snow Check" early deposit program. Polaris encouraged its dealers with
incentives to make spring deposits on machines for preseason delivery. For the first time snowmobiles were built to dealer orders rather than
manufacturer forecasts, which had been resulting in excess inventory. Other factors helping the industry along at the time were advancements in
clothing technology, winter resorts welcoming snowmobilers on winter vacations, and new engineering on the machines producing quieter, more
reliable vehicles. By 1984 there were 20 million snowmobilers in the northern snowbelt and mountain regions using the vehicles for rescue and
outdoor work as well as recreational and sporting events.
One of the highlights of the 1980s was the introduction of the Indy line of snowmobiles, which became so popular that other high-quality Polaris
sleds, such as the Cutlass, were phased out. Good suspension, special features (such as handwarmers and reverse drive), powerful engines, and
reliability all pushed Polaris into the number one position in the market. The Indy 500 was named the "sled of the decade" by Snowmobile
The 1990s and Beyond
Into the 1990s Polaris continued to improve the performance, ride, and reliability of its machines by introducing such features as the triple-cylinder
and high-displacement engines, extra-long travel suspensions, and specialized shock absorbers. The machines of the 1990s were a long way from
the industry's early noisy, pull-start models, with uncertain braking and questionable reliability. In 1990 Polaris held 30 percent of the snowmobile
market, manufacturing 165,000 units. Arctco Inc. held 25 percent of the total market, followed by Yamaha and Ski-Doo (Bombardier, Inc.), both at
22.5 percent.
Just as the snow outside Polaris's doors had provided a proving ground for snowmobiles, the summertime swampland of the far north provided a
place for testing wheeled turf vehicles. The company built and sold two-wheel tractor-tired bikes in the middle to late 1960s as it was testing
diversification into such areas as lawn and garden products, single and two-person watercraft, and snowmobile-engined go-carts. The Textron
acquisition and merger with E-Z Go golf carts ended formal ATV product development, so testing stayed underground until after the buyout. The
company then tried but failed to sell private-label ATVs to other large companies. Still hoping to better utilize its manufacturing facilities, the
company brought out two ATV designs, a three-wheel and a four-wheel with automatic shifting, which caught the interest and commitment of
distributors. Added features such as racks and trailers appealed to farmers, ranchers, and lawn maintenance workers. ATVs made perfect sense for
Polaris in that they shared engines and clutches with snowmobiles, could be marketed through the same dealers, and represented a seasonal line
manufactured in fall and winter months for sale in the summer, just the opposite of snowmobiles.
When Polaris entered the ATV market all the major manufacturers were Japanese, led by Honda. Polaris ATVs, a combination recreation-utility
vehicle, avoided direct competition with the leaders. The majority of the two million ATVs in use in the mid-1980s was in the United States and
Canada. The first production run of the Polaris ATVs was a resounding success and quickly sold out to dealers. Eventually, production of three-
wheel vehicles would be curtailed by all manufacturers, in response to reports of rising accidents and deaths and action by the Consumer Product
Safety Commission. Polaris ceased manufacture of its three-wheel adult version after its first year of ATV production. In 1990 the retail cost of a
four-wheel ATV ranged from $2,400 to $4,000 and Polaris controlled about seven percent of a shrinking market. By the end of 1993, however, ATV
sales made up 26 percent of entire sales by product line. ATV manufacture was now year-round, with a dedicated production line, and had the
potential to surpass snowmobile production. Because of marketing and distribution that now extended beyond the snowbelt to tractor, lawn and
garden, used car, and motorcycle dealers, Polaris had become a key national as well as international player in the broader market of recreational
Polaris introduced its first personal watercraft (PWC) in 1990, becoming the first major U.S. company to enter that industry. The recreational
vehicle started off with a splash due to its speed and handling. Just as it had in snowmobiles and ATVs, Polaris emphasized machine stability,
coming up with an entry in the market that was wider than most and was a sit-down rather than stand-up model, which by then was declining in
popularity. In the late 1980s personal watercraft was the growth segment of the marine industry and the trend was toward machines requiring less
athletic ability and targeting a broader age range. The recreational vehicle was similar to the snowmobile and the ATVs in terms of engine type and
channels of distribution. By testing competitors' products Polaris identified the qualities it wanted in its entry: a machine that was fast and fun to
drive, with good handling and stability, as well as better boarding in deep water than the competitors'. The company's first model was a success
and drew high-income, first-time buyers. By the end of 1993 PWC made up nine percent of total Polaris sales.
In 1994 Polaris employed 2,400 people companywide, had a sister plant in Osceola, Wisconsin, and was planning another plant in Iowa. Polaris
Canada, a wholly owned subsidiary, provided 25 percent of total sales, or about $100 million. Since 1991, $70 million had been spent in plant
improvements and new product development. David Johnson, the only person to see Polaris through all its incarnations, commented in Bassett's
retrospective, "The biggest strength of Polaris is the people. ... Everybody who's involved at Polaris, whether it's with the watercraft, or with the
ATVs or the snowmobiles, they want to make the best machine they know how." Polaris's partnership with its employees meant not only sharing in
making the best product possible, but sharing in the benefits. Profit sharing began in 1982 with an average of $200 per employee. By 1993
employees shared $6.8 million.
In December 1994 Polaris converted from a limited partnership to a public corporation for several reasons, including its desire to maximize
shareholder value, its need for greater flexibility, and the approaching 1997 deadline for relinquishing its partnership tax status. The small
company that began up along the Canadian border 40 years earlier had since transformed itself, through a series of rebirths, into a worldwide
leader, with annual sales of more than $800 million.
Polaris had a great year in 1994: sales rose 56 percent to $826 million and profits climbed 66 percent to $55 million. Its share price fell drastically,
however, after Barron's ran an article in January 1995 wondering whether a light snowfall would affect the company. Sympathetic analysts pointed
to the new areas of the company's business that were not snow-related, such as ATVs and watercraft, where the company had captured market
shares of 20 and 15 percent respectively.
In fact, Polaris had become the perfect diversification success story. In spite of Barron's worries, all product segments set records in 1995, leading
to total sales of more than $1 billion in 1995. Revenues had more than tripled in five years. Snowmobiles accounted for 40 percent, down from 67
percent in 1990.
Polaris opened its own engine plant in Osceola, Wisconsin in October 1995. The company had previously bought Japanese engines from Fuji Heavy
Industries and had set up the Robin ATV engine joint venture in Hudson, Wisconsin in February 1994. The new plant gave Polaris some flexibility in
dealing with currency fluctuations.
Another record year followed in 1996, although snowmobile and watercraft sales slipped. Still, snowmobiling was reaching new highs in popularity,
revitalizing the economy of sleepy Minnesota resorts that would otherwise have closed for the winter. Other related businesses popped up,
supplying snowmobile trailers or hauling the finished goods to market. Demographics and a lack of new trails led some to believe that the boom was
coming to an end, however. Concurrent with the rediscovery of the snowmobile was an explosion in personal watercraft sales, which tripled
between 1991 and 1996. Makers of larger powerboats felt that they were spoiling their business, though.
As the revitalized Harley-Davidson could not make its famous "hogs" fast enough, Polaris decided to develop its own big, heavy cruiser class
motorcycle priced below the Harleys. Made in Iowa, the first Victory V92C rolled off the line on July 4, 1998. Wendel noted that the company had
already shown it could compete with the Japanese bike makers in other categories. The Harley mystique would be difficult to approach, although
the Victory bikes received generally enthusiastic reviews. Others began making American bikes at the same time: Big Dog Motorcycles of Sun Valley,
Idaho, the reborn Excelsior-Henderson Motorcycle Mfg. Co. of Minnesota, and numerous smaller shops.
W. Hall Wendel, Jr., stepped down as CEO in May 1999, remaining a major shareholder as well as board chairman. Thomas Tiller, president and
chief operating officer since the previous summer, became the new CEO. Tiller had spent 15 years at General Electric, learning from its legendary
leader, Jack Welch. When appointed, Tiller announced plans to double the company's sales within four years.
Polaris had made huge strides growing organically, and several record years gave Polaris plenty of cash for acquisitions. But the company stuck with
joint ventures instead. In 2000, it contracted with Karts International Inc. to make a line of Polaris mini-bikes and go-carts for children. It also
marketed a child-sized snowmobile to compete with Arctic Cat's Kitty Cat and began developing a snowmobile video game for kids to "burn Polaris
into their beautiful little brains," as Tiller put it. Polaris took aim at hunters with a special camouflaged ATV co-branded with Remington firearms.
Other promotions with DeWalt Industrial Tool Co. and NASCAR helped publicize the brand in the South.
In March 2000, Edgar Hetteen and David Johnson, joined by current Polaris chief Tom Tiller and seven others, recreated the epic Alaskan journey
Hetteen had taken 40 years earlier to promote the snowmobile. This time the trip raised funds for Lou Gehrig disease research.
Dark clouds were just over the horizon: the Department of the Interior banned snowmobiles from most national parks in May 2000. "The snowmobile
industry has had many years to clean up their act and they haven't," said an official. Polaris and Arctic Cat countered that both had been working to
cut emissions and noise for years, but were waiting for the Environmental Protection Agency to announce a new emissions standard in September
2000 before retooling their production lines. The Park Service also complained of the potential for disturbing wildlife that snowmobiles offered.
Principal Subsidiaries: Polaris Industries Inc. ("Polaris Delaware"); Polaris Real Estate Corporation of Iowa, Inc.; Polaris Real Estate Corporation;
Polaris Industries Export Ltd. (Barbados); Polaris Industries Ltd. (Canada); Polaris Acceptance Inc.; Polaris Sales Inc.; Polaris Sales Australia Pty Ltd.
Principal Operating Units: All-Terrain Vehicles; Snowmobiles; Personal Watercraft; Parts, Garments and Accessories.
Principal Competitors: Arctco Inc.; Bombardier Inc.; Honda Motor Co., Ltd.; Suzuki Motor Corp.; Yamaha Corp.

1251 Avenue of the Americas
New York, New York 10020

Telephone: (212) 536-2000

Toll Free: 888-846-7076
Fax: (212) 536-3035

Private Company
Incorporated: 1898 as Lybrand, Ross Bros. & Montgomery; 1865 as Price and Waterhouse
Employees: 140,000
Sales: $15.3 billion (1998)
NAIC: 541211 Offices of Certified Public Accountants

Company Perspectives:

PricewaterhouseCoopers is the world's largest professional services organization. Drawing on the knowledge and skills of 155,000 in 150 countries,
we help our clients solve complex business problems and measurably enhance their ability to build value, manage risk and improve performance.

Company History:
The international partnership of PricewaterhouseCoopers is the largest accounting and business consultancy firm in the world. With approximately
140,000 employees in 150 countries in 1999, the company offers auditing services, tax and legal advice, financial advice, business process
outsourcing, and management consulting services. The partnership was created in 1998 from the merger of two Big Six accounting firms: Price
Waterhouse and Coopers & Lybrand.
History of Coopers & Lybrand
Accounting practices were necessitated by the increasingly complex and sophisticated needs of businesses during the early 19th-century Industrial
Revolution. Accounting as a profession emerged over several decades in the United States, and by 1898, the year in which Coopers & Lybrand was
founded, there was not yet a single school of accounting. Furthermore, the only texts available were British and these often failed to address
American problems and practices.
Accountants therefore received their training on the job, initially as bookkeepers, the most able and talented ones trained by their supervisor in
accounting practices and procedures. This was the route taken by the four American founders of Coopers & Lybrand: William M. Lybrand, brothers
T. Edward Ross and Adam A. Ross, and Robert H. Montgomery. All had worked in the same firm of Heins, Lybrand & Co. in Philadelphia and had
received the same training; all four would be active in establishing accounting as a profession. The Ross brothers, Adam and Edward, were pioneer
members in 1897 of the Pennsylvania Association of Public Accountants, one of the few professional associations for accountants in the country.
During this time, a British accounting firm known as Cooper Bros. & Co., founded by William Cooper, was celebrating its 44th anniversary. Nearly 60
years later, the American and the British firms would merge into Coopers & Lybrand International.
The four American employees of the Heins office pooled their resources, and on January 1, 1898 they opened a two-room, two-desk business in
Philadelphia. Until 1973, the company would be known as Lybrand, Ross Bros. & Montgomery. Hours were extremely long, almost always beyond the
official nine hours per day, Monday through Friday. For many years, young men hired by the firm would receive $7 a day and were expected to work
evenings and be on call during weekends.
From the start, the firm had a reputation for high professional standards, which the four partners attributed to the example of their former chief,
John Heins. Also from the start, clients were plentiful. Outside of his regular accounting duties, Adam A. Ross, who as an apprentice in Heins's
office had taken part in the first regular audit of a bank by a public accountant in Philadelphia's history, lobbied for state legislation mandating
certification for public accountants, a cause that his brother and partner, T. Edward Ross, would also espouse. Partners in the firm also gave
lectures in accountancy in the evenings and were hard at work persuading the University of Pennsylvania to establish a night school in accountancy,
which finally happened in 1902. Robert Montgomery undertook the first U.S. textbook on accountancy, published in 1905, while also that year
Lybrand contributed several articles to the new Journal of Accountancy, establishing the principles of the accounting profession. That was just the
beginning of the many contributions the four partners would make over the years to the professionalization of their field.
Barely two years after the firm of Lybrand, Ross Bros. & Montgomery was founded, it was already necessary to move into larger facilities in
Philadelphia. By 1902, the firm's first branch office was established in New York City, followed by another in Pittsburgh in 1908. In its initial forays
into tax consulting, the company assisted in the drafting of the first federal income tax law in 1913, and a member of the firm, Walter Staub, wrote
a seminal essay, Income Tax Guide, explaining the pending tax legislation. In 1917 Montgomery published the classic (and continuously updated
until 1929) Income Tax Procedure 1917. When the author established a tax practice in the New York office in 1918, he was immediately besieged by
anxious customers.
In 1919, Lybrand, Ross Bros. & Montgomery decided to expand their company into the District of Columbia. During the year and a half in which the
United States participated in World War I, Montgomery served on Bernard Baruch's War Industries Board in Washington and also on the Board of
Appraisers of the War Department; other firm members served on the Liberty Loan committee and engaged in other war efforts.
By the end of the war, the professionalization of accountancy and its indispensability to the country's economic structure, were established. The
greatly expanded firm of Lybrand, Ross Bros. & Montgomery, pacesetters in the accounting profession, were demanding college degrees of their job
applicants. Because of the paucity of accounting schools at universities and colleges, the firm was willing to take on college graduates with little or
no background in accounting, subjecting them, once hired, to a rigorous two-year night school program of training. Accounting being an exclusively
male profession during this time, the company hired only men.
During the 1920s, the firm experienced rapid expansion. Branches were established in the center of the vital automobile industry, Detroit, in 1920,
and as far away as Seattle. In 1924, when the firm merged with the accounting company of Klink, Bean & Co., offices opened in Los Angeles and
San Francisco. Also that year, an office was established in Berlin, Germany, followed by a Paris office in 1926 and a London office in 1929, the year
of the stock market crash. This would mark the beginning of the firm's globalization that would eventually result in branches in over 120 countries
The Great Depression was both bane and blessing to the accounting firm of Lybrand, Ross Bros. & Montgomery. The greatly expanded firm,
employing hundreds of staff, was faced with shrinking business opportunities as financial institutions and corporations collapsed and went bankrupt.
On the other hand, throughout the country and more importantly, on Capitol Hill, the crash was blamed on the lack of independent auditing of the
stock exchange. With a new president installed in 1933, Congress established the Securities and Exchange Commission, the regulatory agency for
public corporations and the stock exchange, which resulted in a plethora of auditing activities for the firm. The company also became involved in
New Deal projects, serving, for instance, as independent auditors for the Tennessee Valley Authority after 1944. Throughout the Depression years,
expansion of the company continued, with branch offices opening up in Illinois, Texas, and Kentucky. In 1935 Robert Montgomery became the
president of the prestigious American Institute of Accountants.
During World War II over 400 employees of Lybrand, Ross Bros. & Montgomery served in the Armed Forces. These accountants in uniform, along with
18 administrative assistants, received entertaining newsletters from the company wherever they were stationed; in the end, six members of the
firm lost their lives in the conflict. Remarkably, the London and Paris branches of the firm stayed open for business throughout the war, with only
the Berlin office having closed down in 1938.
By its 50th anniversary in 1948, the company employed nearly 1,200 staff members and 56 partners. The professionalization of accountancy by then
was complete, the role of accountants in business and government unquestioned. The company's evolution in the postwar years therefore would be
marked by an enormous expansion in the company's array of services and the continued internationalization of the firm.
Lybrand, Ross Bros. & Montgomery emerged from the war one of the largest accounting firms in the United States. Times were changing, however,
and no accounting firm could afford to restrict itself to traditional auditing and accounting services. In 1952 the firm entered a new arena when it
started a management consulting service for its clients in the banking and big business world. This was the first of what would become a wide array
of consulting services as well as information services and special software packages with the advent of personal computers. While these services by
no means supplanted traditional auditing and accounting, they had a significant impact on the firm. By 1974 the firm was the first to establish a
career track in accounting for those with computer expertise.
The year 1957 marked the establishment of the European Common Market. Soon thereafter, a merger resulted in Coopers & Lybrand International,
consisting initially of the firm's Canadian and British branch firms. While all foreign branches of the firm would bear the name Coopers & Lybrand,
the company in the United States retained its original name, Lybrand, Ross Bros. & Montgomery, until 1973. That year, the firm's management
decided in favor of adopting a single name for the entire global network of branch companies, which by then were located on all five continents.
While the firms, in over 120 countries, remained autonomous, they shared common goals and policies.
Since 1971, Coopers & Lybrand headquarters have remained in the hub of the financial and business world, New York City, with an important office
and political action committee located in Washington, D.C. By 1977 Coopers & Lybrand was ranked the third largest accounting company in the
United States and was still among the Big Six accounting firms by 1993. In 1981, Coopers & Lybrand became the first U.S. accounting firm to
establish a foothold in China. The following year, the company played an important role in the breakup of the $115 billion telephone monopoly,
AT&T. Despite the severity of the 1990s recession, Coopers & Lybrand did well--with a 2.5 percent growth in revenue in 1991, the worst year of the
recession--partly due to its rapid adaptation to the changing needs of business and a lack of dependency on the domestic marketplace. With the fall
of communism in Eastern Europe, Coopers & Lybrand opened offices in Hungary, Poland, Czechoslovakia, Berlin, and Russia, and remained one of
the few U.S. firms to do business in Eastern Europe.
History of Price Waterhouse
Price Waterhouse was founded in London in 1850 by Samuel Lowell Price, who wanted to take advantage of England's recent parliamentary laws
requiring the examination of a company's financial statements and records. The public accounting profession was growing so rapidly during these
years that in 1865 Price took on a partner, Edwin Waterhouse, to help with the expanding business. During the late 1860s and 1870s, while primarily
working on arbitrations, bankruptcies, and liquidations, Price and Waterhouse also developed a practice of introducing borrowers to prospective
lenders. At this time, many privately owned businesses were converted to public companies and, consequently, reports on earnings signed by
reputable accountants soon became an indispensable ingredient in any firm's prospectus.
As the 19th century drew to a close, the firm of Price Waterhouse had garnered a reputation in Britain as one of the leaders of auditing,
accounting, and financial consulting services. And, as many of its European clients established operations in the United States, Price Waterhouse
sent its own representatives to evaluate the business ventures and opportunities they were financing in order to protect investments and
shareholders' interests. Although Price had died in 1887, business in the former colonies was so significant that Waterhouse made the commitment
to establish a permanent U.S. presence. On September 1, 1890, the company opened an office at 45 Broadway Avenue in New York City.
A talented member of the London staff, Lewis D. Jones, was the first office manager in New York. Faced with developing clients over an enormous
territory that included North, Central, and South America, and serving the needs of diverse industries such as brewing, mining, steel, railroad,
leather, and packing, Jones soon required an assistant. Another member of the firm from London, William J. Caesar, arrived and opened a Chicago
office the following year. Caesar's aggressive style and management ability soon earned him the leadership of the U.S. operation.
At the turn of the century Arthur Lowes Dickinson succeeded Caesar; it was Dickinson who made the U.S. office uniquely American in both outlook
and operation. Rather than continuing the practice of bringing accountants from Britain to serve clients in the United States, Dickinson focused on
hiring native talent. Dickinson also encouraged his employees to develop their professional creativity. This quest to break new ground in accounting
methods and procedures led to the firm's creation of consolidated financial statements. After Price Waterhouse consolidated the accounts of U.S.
Steel, the method gained industrywide acceptance.
The financial report for U.S. Steel was the very first to include supporting statements and time schedules that reflected significant balance sheet
accounts, such as inventories and long-term debt, and to provide information on assets, operating funds, payroll statistics, and additional facts of
interest to stockholders. By this method of fair disclosure, Price Waterhouse set the standard for financial reporting at the beginning of the 20th
century. Price Waterhouse was also the first to provide client shareholders with quarterly financial data and, in 1903, while the firm conducted its
first municipal audit, it also pioneered efforts to survey the accounting and audit systems of government organizations. These accomplishments
drew attention to accountancy and the role of public accountants in a rapidly developing industrialized economy.
As a young accountant working on Price Waterhouse's audit of Eastman Kodak, George 0. May so attracted the attention of George Eastman that
Eastman offered him a job. May refused and 20-odd years later, while Eastman was visiting May's office, Eastman remarked, "What a mistake you
would have made had you accepted." May, whom many people regard as the father of the accounting profession in the United States, assumed
leadership of Price Waterhouse in 1910.
May opened many new offices throughout the United States, and developed new services for clients. In 1913, immediately after Congress enacted a
federal income tax, May initiated a tax practice. He also encouraged the firm to provide services for emerging industries, such as the motion
picture and automobile industries. It was under May's stewardship that the firm was contracted to handle the balloting of the Academy Awards in
1935 to assure the honesty of the voting process.
Primarily remembered for his devotion to public service, May campaigned relentlessly during the 1920s for Congress to enact laws stipulating that
publicly traded companies adopt standard auditing methods and accounting procedures. May secured the New York Stock Exchange as a client of
Price Waterhouse, and his work there in the late 1920s and early 1930s led to the formulation and passage of the Securities Exchange Act of 1934.
He retired in 1940 and devoted the remainder of his life to writing about the accounting profession.
During the 1940s, the firm faced its first major crisis. A highly profitable drug wholesaler, McKesson & Robbin, Inc., was the victim of an
embezzlement scheme carried out by a senior executive and the man's three brothers. The scheme, extremely complex and carefully conceived,
eluded detection by the independent auditors from Price Waterhouse. Although a subsequent investigation indicated that the firm's auditing
procedures were in strict compliance with the law and the industry's professional standards, the inability of the auditors to discover the
embezzlement was of concern to both the firm and the industry at large.
When senior partner John C. Scobie, a Scotsman with a reputation for being scrupulously honest, became head of the firm, he implemented new
auditing procedures which were designed to provide auditors with more access to a client's operations. Scobie's plan was to improve the auditor's
ability to evaluate whether accounting data reflected the actual performance of any given company; this, in turn, would enable auditors to provide
advice to clients on the many operational factors that influence financial results.
After World War II, overseas expansion and investment by companies previously maintaining a national or even regional profile led to the demand
for Price Waterhouse to develop a stronger international organization. During this period, the first U.S. senior partner, Percival F. Brundage, and a
native New Zealander, John B. Inglis, acted as co-leaders of the firm. Their strategy was twofold: to initiate broader national and international
approaches to serving the needs of clients and to build and improve the firm's operational structure.
In concert with the British arm of the organization, the Price Waterhouse International Firm--which promoted uniform accounting standards for all
Price Waterhouse offices around the world--was established in late 1945. A management consulting service, MCS, otherwise known as the systems
department, was founded in 1946 as part of the evolution of manual accounting systems the firm had been developing for various clients
throughout the years. The importance of electronic data became increasingly obvious during the war, and the leadership at Price Waterhouse was
quick to recognize the advent of the computer age. Full-time auditors and data processing professionals were hired to design charts for account and
pro forma financial statements, develop accounting and various financial systems, and provide advice on productivity improvements. During these
years, Price Waterhouse was called upon more and more to recommend the kinds of systems used to organize and produce financial and
management information.
When Brundage resigned as senior partner in 1954 to accept a position in the Eisenhower Administration, John Inglis took over sole command and
guided the firm into an era of specialization. Since clients more frequently needed nonauditing services, Inglis created four specialized divisions,
including accounting research, international tax, SEC review, and an international department. Following the comprehensive revision of the U.S.
tax code in 1954, the tax department developed into one of the most important of the firm. The firm's success was indisputable--in 1959 its gross
income was nearly $28.5 million.
Inglis retired in 1960 and was replaced by Herman W. Bevis, a brilliant theoretician and writer, who garnered a reputation for leading the debates
on the controversial issues of the day, such as deferred taxation and investment tax credits. He led Price Waterhouse through an enormous period
of expansion. Within the United States, federal, state and local governments became important clients of the firm's services. In the international
arena, Price Waterhouse was sought after by many companies to supply information on foreign business practices, taxes, and government
regulations, and to help assess the comparability of financial statements. The firm also helped companies such as Toyota and Sony secure capital
from U.S. financial markets by making sure their financial statements were in full compliance with the requirements of the Securities and Exchange
From its earliest days, Price Waterhouse's elite image had helped the firm bring in blue-chip corporations. Oil and steel industry giants had always
been high profile clients, and over the years their presence prompted more and more blue-chip companies to want to share in the prestige of the
firm. By the time John C. Biegler became U.S. chairman in 1969, Price Waterhouse counted almost 100 of the Fortune 500 as clients.
Yet Biegler's appointment came at a time of dramatic changes not only for Price Waterhouse but for the accounting profession itself. The expanding
economy the firm knew since World War II had suddenly vanished, and a creeping inflation and slow national growth ushered in recession. Dramatic
drops in the stock market and futures exchanges during 1970 led to a decade of financial instability. Moreover, many of the Big Eight accounting
firms were served with lawsuits from disgruntled owners of failed businesses. These problems led directly to an increased competition for clients
among all the accounting firms. As a result, Price Waterhouse could no longer rely on its reputation and high-quality work to secure accounts. In
order to compete more effectively for clients, the firm was forced to develop aggressive hard-sell marketing techniques, expand the scope and
range of its services, and reduce fees.
When Joseph E. Connor replaced Biegler to lead the firm in 1978, he succeeded in implementing a specific market-driven strategy which had
immediate payoffs. Connor developed "industry services groups' which were comprised of specialists with extensive knowledge and experience in
various industries. This strategy helped bring in new clients. Expanding services in the firm's traditional areas of tax, audit and management
consulting also helped retain many previous clients.
Notwithstanding the success of his strategy, in 1984 Connor met with chairman Charlie Steel and discussed a merger with Deloitte Haskins & Sells,
another of the Big Eight accounting firms, widely known in accounting circles as the 'auditors' auditor.' The intention behind the merger was to
create an organization of such proportions that no other accounting firm could ever again gain a competitive advantage. A letter of intent was
signed on October 11, 1984, and, conditional upon the approval of the partners, the merger would take place on January 1, 1985. Yet despite
Connor and Steele's confidence in the benefits of such a union, when the balloting was finished the U.S. partners of Price Waterhouse approved
while the influential British part of the firm vetoed the merger. For both men, it was a personal and professional defeat. Steel was forced to resign
in 1986, while Connor remained as chairman of the U.S. firm until he was replaced in 1988 by Shaun F. O'Malley.
The failure of the proposed merger between Price Waterhouse and Deloitte had raised the possibility of creating a giant accounting firm, and many
of the Big Eight partners discussed little else besides potential mergers. After Ernst & Whinney merged with Arthur Young on June 22, 1989, to
create Ernst & Young, within weeks four other firms announced plans to merge: Deloitte Haskins & Sells with Touche Ross, and Price Waterhouse
with Arthur Andersen.
The proposed merger between Price Waterhouse and Andersen seemed doomed from the start. The Andersen people thought the new firm should
be named Arthur Andersen while the Price Waterhouse people thought it should be named Price Waterhouse; Andersen thought it would be
acquiring an auditing practice while Price Waterhouse thought it was acquiring a consulting practice, but neither firm wanted to give the
impression that its services were "acquired' by the other; and finally, O'Malley and Andersen's chairman, Larry Weinbach, were new in their
positions and just starting to implement development and marketing strategies for their own respective firms. O'Malley and Weinbach agreed to
halt merger negotiations after three months.
The year 1990 did not begin auspiciously for Price Waterhouse. In May, a federal judge ordered Price Waterhouse to offer a partnership and nearly
$400,000 in back pay to Ann B. Hopkins, who claimed that she had been denied a promotion to partner on grounds of sexual discrimination. In
November of the same year, a British bank, Standard Charter PLC, sued the firm for negligence in failing to provide an accurate financial
accounting during the acquisition of United Bank of Arizona in 1987. Financial analysts interpreted this latter action as another setback for the
accounting industry in the United States: more than $3 billion in damage claims had already been brought against accounting firms by regulatory
agencies during the collapse of many savings and loan associations.
Entering the 1990s, Price Waterhouse was expanding its services to clients. The firm offered accounting, tax, and consulting products and services
in relation to information systems technology, corporate finance, financial services, petroleum, public utilities, retailing, entertainment, and other
industries. With the highest partner earnings and more blue-chip clients--including IBM, USX, J.P. Morgan, Westinghouse, and Shell Oil--than any of
the other Big Six U.S. accounting firms, the partners at Price Waterhouse were not worried about the firm's future. However, as its blue-chip client
base showed signs of shrinking, and with its sterling image tarnished by two aborted merger attempts, Price Waterhouse would have to fight
vigorously for smaller clients and market itself aggressively to survive in the modern world of consulting services.
The 1990s
Both Coopers & Lybrand and Price Waterhouse gradually increased their emphasis on consulting in the 1990s. Auditing was proving risky and
expensive, as the Big Six were being held liable for the failure of companies they audited and induced into paying huge settlements. In 1992
Coopers & Lybrand settled a suit brought against it by the investors of MiniScribe, a disk-drive maker that went bankrupt. Fighting against claims
that they should have caught the company's fraud, Coopers & Lybrand eventually agreed to pay investors $92 million. In another fraud-related case,
the firm made large payments in 1996 to settle claims regarding failed companies in the media empire of the deceased Robert Maxwell. The
accounting firm was fined by regulators in 1999 for their failure to detect Maxwell's fraudulent transfer of $650 million from a company pension
fund to himself. Among other payments was Coopers & Lybrand's expensive settlement related to their auditing of Phar-Mor pharmacies, bankrupt
in the mid-1990s.
Price Waterhouse had their own legal troubles in the 1990s. A protracted battle over the company's audit of Bank of Credit and Commerce
International ended in 1995 with a payment of $200 million, significantly less than the $11 billion sought by the creditors of the collapsed bank. In
addition to hefty settlements, the suits led to soaring insurance costs for the accounting firms. By the mid-1990s, many insurers refused to even
cover the auditing practices of the Big Six firms, forcing Coopers & Lybrand and Price Waterhouse to set aside money to cover themselves.
Several factors led to growth in fee income for Coopers & Lybrand and Price Waterhouse in the mid-1990s. An economic recovery in the United
States helped raise fee income by five percent for the Big Six in 1994. In addition, Coopers & Lybrand expanded its presence in Russia; in Moscow
alone the firm employed 250 people by 1995. Price Waterhouse also grew in Russia and Eastern Europe, counting almost 1,000 employees there by
1994. The most important factor in their growth was successful expansion of consulting services in the United States. Both companies focused on
providing services to certain industries, becoming specialists in those areas. Coopers & Lybrand primarily advised clients in pharmaceutical,
insurance, and telecommunications industries, whereas Price Waterhouse specialized in banking, media and entertainment, and oil and gas
The 1998 Merger
Price Waterhouse made yet another attempt at a merger in 1997 and came to an agreement with Coopers & Lybrand. Although the merger was
voted in by the 3,250 Price Waterhouse partners and the 5,250 Coopers & Lybrand partners, the merger met some opposition from the companies'
clients and financial regulators. Christopher Pearce, finance director of Rentokil and chairman of a group representing FTSE 100 companies' finance
directors, told the Economist that the mergers will "reduce the choice for auditing services and increase the conflicts of interest.'
These concerns and those of financial regulators looking at conflicts of interest between consulting and auditing branches of the companies did not
stand in the way of the merger, which was completed in 1998. The combination of the fourth and sixth largest of the Big Six firms resulted in a new
industry leader in terms of size and revenues, with approximately 13,000 employees and revenues estimated at $12 billion. In the area of
management consulting, the merger created little overlap because the two founding firms specialized in separate industries. It resulted in
combined revenue of $1.6 billion, making the new PricewaterhouseCoopers second only to Arthur Andersen in consulting income. Nicholas G.
Moore, chairman of Coopers & Lybrand International, became the chairman of PricewaterhouseCoopers, and James J. Schiro, chief executive
officer of Price Waterhouse, became the CEO of PricewaterhouseCoopers.
Revenues for the newly forged company were $15.3 billion in 1998. The company continued to grow, acquiring several European consulting firms in
the first half of 1999, including the France-based SV&GM Group, the Italian consulting firm Galgan & Merli, and Belgium-based KPMG Consulting. To
support its rapid growth, the PricewaterhouseCoopers launched a brand positioning ad campaign in 1999 designed to attract new employees.

800 Connecticut Avenue

Norwalk, Connecticut 06854-9998

Telephone: (203) 299-8000

Fax: (203) 299-8948

Public Company
Incorporated: 1998
Employees: 359
Sales: $1.03 billion (2002)
Stock Exchanges: NASDAQ
Ticker Symbol: PCLN
NAIC: 541512 Computer Systems Design Services

Company Perspectives: is an Internet-based transactional service that offers products in two categories: a travel service that offers leisure airline tickets,
hotel rooms, rental cars, packaged vacations and cruises; and a personal finance service that markets home mortgages, refinancing and home
equity loans through an independent licensee.

Key Dates:
1994: Jay Walker founds Walker Digital, a think tank, and begins developing new business models.
1996: Walker applies for a patent for his "demand collection" pricing system.
1997: Walker founds the Internet business
1998: begins operations in April, recording 600,000 hits on its first day.
1999: Priceline goes public at $16 per share; one month later, the stock is trading at an all-time high of $165 per share.
2000: Priceline acquires and shuts down attempts to extend its pricing model into other products; Jay Walker resigns from the
company at the end of the year.
2001: Priceline posts its first--and only--quarterly profit.
2003: Amid slumping sales, the company ends its car sales and long-distance telephone services; a partnership and investment agreement is
reached with Travelweb LLC.

Company History:

Former Internet high-flyer Incorporated has surprised the skeptics by surviving the collapse of the tech stock market at the beginning
of the 2000s. has pioneered a patented Internet-based "demand collection" pricing system that connects purchasers with sellers
under the company's registered "Name Your Own Price" slogan. applies that pricing system to sales of airline tickets, hotel rooms, and
car rentals, and vacation and cruise packages. The company also offers home financing services, including mortgages, mortgage refinancing, and
home equity loans. In addition to its main U.S.-oriented e-commerce web site, the company operates for the U.K.
market, and licenses the Priceline system and brand to Hutchison Whampoa-backed Priceline Asia in Hong Kong. The company also offers more
traditional discount travel services through Priceline has proven that demand for its pricing system exists--revenues topped $1
billion in 2002, despite the difficult travel market. Profits, however, have proven more elusive; its share price, which peaked very early on at $165,
has dropped to as low as $1.10. Richard Braddock is the company's non-executive chairman, and Jeffrey Boyd is Priceline's CEO.
Entrepreneurial Origins in the 1980s was the brainchild of Jay Walker and his think tank Walker Digital. By the time he founded that company, a limited partnership, in
the early 1990s, Walker had started some 20 different businesses--including launching his own newspaper at the age of nine. One of Walker's first
successes came while studying as an undergraduate at Cornell University. Walker came to the conclusion that the popular board game Monopoly
was, in fact, a game of skill, not chance. Putting his ideas into a book, 1000 Ways to Win Monopoly Games, Walker sold more than 100,000 copies
and earned himself a lawsuit from the game's manufacturer. (Walker won the lawsuit.) In a break from school, Walker launched a new weekly
newspaper, which survived for a full year.
After receiving a bachelor's degree in industrial relations, Walker set out to blaze an entrepreneurial trail in the early 1980s. By the end of the
decade, Walker had put a string of businesses behind him--ranging from a company that sought to place advertisements in catalogs, another that
sought to sell catalogs in retail stores, and another that sold light sculptures, succeeding in attracting a number of prominent customers.
At the beginning of the 1990s, however, Walker hit on a new product: ideas. Walker's brainstorm came after reading about the success of the public
key encryption system, which had been successfully patented by its inventors and which formed the basis of a company, RSA Data Security. Walker
recognized that, like any other invention, one could successfully patent an idea, or, in Walker's case, the development of new business models. This
discovery laid the basis of Walker Digital, which was incorporated as a partnership (90 percent owned by Walker himself) in 1994. In the meantime,
Walker set out looking for ideas.
Walker quickly found his first successful business model. Joining with Michael Loeb, son of the Fortune magazine editor, Walker launched NewSub
Services in 1992. Walker's idea, later patented, was simple--adapt the European model of magazine and newspaper subscriptions, which are linked
to customers' bank accounts and thus automatically renewable, to the U.S. market. The concept was a success, and eventually succeeded in
attracting more than 30 million customers. NewSub Services later renamed itself Synapse Group and became majority controlled by AOL
Walker had moved on to new entrepreneurial frontiers, however, selling one-third of his 50 percent stake in NewSub Services in order to raise $25
million for his next venture. In 1994, Walker founded Walker Digital as a think tank for business-oriented patents, based on the model of Thomas
Edison's collaborative Menlo Park laboratory. Walker Digital's team of thinkers quickly began churning out ideas--and patent applications. By the end
of the decade, the company had more than 300 patents to its name.
Pricing Revolutionary in the 1990s
By the mid-1990s, Walker Digital had developed the business model for a new style of pricing system that sought the inverse of the customer-
retailer relationship. Under Walker's system, customers were to "name their own price," placing a bid at a price they were prepared to pay for a
particular product. Retailers then would choose to accept or refuse the offer. Among other advantages, the system enabled retailers to unload
surplus merchandise without calling attention to the discount pricing.
By 1996, Walker had targeted the first area in which to deploy the new business model. The airline industry appeared to be the perfect testing
ground for the idea--on any given day, airlines were flying with some 500,000 empty seats. Walker proposed setting up a service that would allow
airlines to sell off the empty seats at discounted prices--without advertising the cut-rate fares.
By 1997, Walker Digital had put into place the concept and software structure for, an Internet-based "name your own price" ticketing
service that matched customers to airlines. Customers placed bids for the round trip of their choice, and the price they were willing to pay. In
return, customers accepted certain limitations--such as the choice of airline and exact travel times, while also accepting at least one connecting
flight. Priceline, which reserved the right to reject unreasonably low bids, used its database software to match buyers with airlines willing to
accept the price bid. Priceline was formally created in 1997, backed by the rights to part or all of some 19 Walker Digital patents, and a $500,000
investment from Walker himself. In exchange, Walker and Walker Digital took a 49 percent stake in the new company, headquartered in
Yet Priceline nearly did not get off the ground. Walker met with resistance from the major airlines, then in the process of developing their own
Internet web sites and reluctant to assist a potential competitor. By the beginning of 1998, Walker had succeeded in attracting just two relatively
small airlines, TWA and America West. Walker pressed ahead with the venture anyway and launched in April 1998, backing the launch
with a highly popular advertising campaign featuring former Star Trek star William Shatner as company spokesperson. Shatner was paid in part with
shares in
The site was immediately successful, with more than 600,000 "hits" on its first day and more than 30,000 ticket sales in its first two months., unable to meet the demand through TWA and America West alone, instead was forced to buy tickets on the retail market--
subsidizing customer orders at an average of $30 per ticket. The company's losses mounted quickly. As Walker told the Financial Times: "I took an
enormous risk launching Priceline, both personally and as a company. It took a lot of guts."
By mid-1998, the company appeared ready to collapse. At the same time, Walker faced a great deal of criticism, in part because of his boldness in
patenting business models and, in part, because to many, appeared to be simply a variant on the discount coupon--a means of
identifying price-conscious consumers among the larger, brand-loyal public.
The turning point for the company came in August 1998. Walker handed over the reins of the company to Richard Braddock. "As an entrepreneur,"
Walker told the Star Ledger, "I'm good at assembling resources and starting a company and getting it up and running, but I'm certainly not the right
person to be running a $100 million company." The arrival of Braddock, former president of Citicorp, gave Priceline a boost in legitimacy. It also
helped overcome the airlines' resistance, and that month, Priceline signed on its first major airline, Delta. As part of that deal, the company agreed
to warrant some 12 percent of its stock to Delta. With Delta onboard, the company was able to make steady gains in convincing other airlines to
make their surplus seating available through Priceline.
Priceline quickly expanded its range of products to include hotel room reservation and car rental services. The company also began extending the
"demand collection" system to other markets, such as car sales, launched in the New York area in July 1998. By October of that year, the company
had sold more than 60,000 airline tickets and posted some $2 million in car sales.
By the beginning of 1999, the company was booking orders for more than 1,000 airline tickets and 1,000 hotel rooms per week. The company's first
quarter sales that year neared 200,000 tickets, some 50 percent more than it had sold in its first nine months. In April 1999, Priceline went public,
with a listing on the NASDAQ. Initially priced at just $16 per share, Priceline became one of the stars of the tech stock boom--by May 1999,
Priceline's stock had shot up to its all-time high of $165 per share, valuing the company, which, like most Internet stocks of the time, had yet to
turn a profit, at nearly $19 billion. Walker's own share of the company, including his holding through Walker Digital, was valued at some $9 billion.
Walker himself played down the stock's star status, telling Forbes: "You want to be recognized for your intellectual achievement, not for the fact
that a bunch of day traders took your stock to a price that may or may not represent the real value of the firm." Nonetheless, the company's stock
value encouraged the other major airlines to join the service; with promises of similar stock option packages, Priceline succeeded in signing on the
rest of the major airline holdouts, including United, American Airlines, and US Airways, the first, second, and fifth largest airlines, by the end of
1999. By then, the company boasted a customer base of more than four million people. It also claimed one of the highest recognition rates among
Internet-based brands. Sales, too, were gaining strongly, jumping from just $35 million in 1998 to more than $480 million in 1999. That figure more
than tripled by the end of 2000.
Surviving into the New Century
Riding on its own momentum, Walker and Priceline started out the year 2000 with ambitious expansion plans. With the Priceline ticket and
reservation system gaining steadily--daily revenues were topping $3 million--the company took a two-pronged approach to expanding its operations.
The first of these involved exporting the concept, signing on licensees overseas. These included the, in the United
Kingdom; MyPrice in Australia and New Zealand; Europe, created by General Atlantic Partners and headed by former Burger King CEO
Dennis Malamatinas; Hutchison Whampoa's Priceline Asia in Hong Kong; and Softbank's Japan. In another expansion move, the
company acquired online discount travel agent Lowestfares .com, combining the Priceline model with more "traditional" online ticket sales.
At the same time, the company sought to extend the Priceline-held business model into other markets. In January 2000, the company announced its
intention to launch its own national Internet service based on the Priceline model, with service to start in Atlanta. That venture never got off the
ground, however; instead, the company began offering long-distance telephone services. More promising was a partnership formed with Alliance
Capital Partners to create Pricelinemortgages, which began offering home mortgage, mortgage refinancing, and home equity loan products.
Meanwhile, Walker Digital began developing additional concepts, launching WebHouse Club to apply the Priceline concept to grocery and gasoline
sales, and My Yardsale, which brought the concept to the used goods market. Meanwhile, Richard Braddock became company chairman, and Daniel
Shulman was hired as CEO.
Yet nearly all of Priceline's expansion ventures foundered--with the only survivors remaining the Priceline UK and Priceline Asia sites, and the
Pricelinemortgages services. Meanwhile, Priceline was facing increasing consumer pressure as well. In September 2000, the Connecticut Attorney
General's office announced that it was investigating some 100 consumer complaints against the company. The company was already facing a
groundswell of consumer dissatisfaction, in particular for the sometimes overly long layover times between connecting flights. Soon after, that
state's Better Business Bureau de-listed Priceline. When both WebHouse Club and My Yardsale announced that they were shutting down in October,
the already fragile investor confidence in the company collapsed completely. By the end of 2000, as the Priceline ventures in Australia and Japan
were abandoned, the company's shares had dropped to less than $1.50 per share--leading to a public dispute with spokesperson, and shareholder,
After addressing consumer concerns, Priceline was readmitted to the Better Business Bureau in December 2000. At the end of that month, the
company addressed shareholder concerns when Walker announced his decision to leave the company and sell off most of his holding in the
company. Despite posting a revenue increase to more than $1.2 billion in 2000, Priceline's continued losses--at $25 million--and the apparent
inability to apply its business model to other markets, seemed to doom the company as yet another failed tech stock in the Internet bust at the
turn of the century.
Priceline began a restructuring drive at the beginning of 2001, which included the layoffs of some 150 employees. In May 2001, the company
dropped CEO Shulman and Braddock instead took on a dual role as chairman and CEO. The company also stepped up its customer relations efforts.
By the summer of 2001, Priceline surprised the financial community by posting its first ever quarterly profit. While the company's cost-cutting
exercise had helped, it also benefited from the slump in the U.S. economy, which drove more customers to seek its discounted service. In the
second quarter of that year, the company signed on more than one million new customers; at the same time, it had built up a strong repeat
business among its growing customer base. The company also received praise for quickly abandoning its expansion drive to focus on its core
product. By August 2001, the company's shares had climbed back to the $9 range. Yet the company was unable to shrug off the effects of the
September 11th terror attacks. By the end of 2001, its sales had slipped back to $1.16. Nonetheless, it managed to contain its losses, which reached
just $7.3 million for the year.
In July 2002, Priceline hired a new CEO, Jeffrey Boyd, who shared the chief executive spot with Braddock before becoming the company's sole CEO
at the end of that year. Braddock took on the role of non-executive chairman at that time. Meanwhile, Priceline struggled throughout the year, hit
on one side by declines in the travel industry amid fears of terrorism and the impending war in Iraq, and on the other by the steady lowering of
regular airfares as airlines struggled to fill their seats. By the end of 2002, the company's losses deepened against falling sales, which dropped to
slightly more than $1 billion for the year.
Priceline's difficulties continued into the year as air traffic collapsed with the outbreak of the new war in Iraq. At the same time, the company shut
down its car sales business, as well as its long-distance telecommunications operation, dropping another 65 employees from its payroll.
Nonetheless, Priceline was not ready to give up the fight and began to look for new partnerships. In March 2003, Priceline agreed to buy an $8.5
million equity stake in online hotel reservation network Travelweb, owned by such hotel groups as Marriott International, Hilton Hotels, Hyatt, and
others. While Priceline appeared to edge toward more traditional sales outlets, its core discount niche nonetheless seemed to have found a solid
consumer market. Now Priceline needed only to find a way to turn a profit from its pricing revolution.
Principal Subsidiaries:
Principal Competitors: Cendant Corporation; Expedia, Inc.; Inc.

Edificio Torre Alta
Avenido Roble 300
Garza García, Nuevo Leon
Mexico 66265

Telephone: (528) 335-0202

Fax: (528) 335-7169

Private Company
Founded: 1981
Employees: 16,000
Sales: 5.96 billion pesos (US$1.69 billion) (1994)
SICs: 0721 Crop Planting, Cultivating and Protecting; 0811 Timber Tracts; 2111 Cigarettes; 2121 Cigars; 2131 Chewing and Smoking Tobacco
and Snuff; 2557 Folding Paperboard Boxes, Including Sanitary; 2671 Packaging Paper and Plastics Film, Coated and Laminated; 2836
Biological Products, Except Diagnostic Substances; 3271 Concrete Block and Brick; 3553 Aluminum Sheet, Plate and Foil; 6211 Security
Brokers, Dealers and Flotation Companies; 6311 Life Insurance; 6321 Accident and Health Insurance; 6331 Fire, Marine and Casualty
Insurance; 6719 Offices of Holding Companies, Not Elsewhere Classified

Company History:

Pulsar Internacional S.A. (sometimes called Grupo Pulsar) is a Mexican holding company with major interests in tobacco, packaging, produce,
and insurance. In 1997 Seminis was the world's largest vegetable-seed company, Seguros Comercial America was the largest insurance
company in Latin America, and Empresas La Moderna included Mexico's largest cigarette manufacturer and distributor. Pulsar's holdings also
included Vector Casa de Bolsa, a brokerage house and investment-banking firm. Alfonso Romo Garza, Pulsar Internacional's chairman and
chief executive officer, founded the company and, with family members, held a majority stake in the enterprise. Although a private
company, Pulsar Internacional included at least four publicly traded companies: Empresas La Moderna, Seguros Comercial America, Empaques
Ponderosa, and Vector Casa de Bolsa.
A descendant of Mexico's wealthy Madero family, Alfonso Romo Garza received a degree in agricultural engineering from Monterrey
Technological Institute in the early 1970s. Despite his matronym, he was not related to Monterrey's rich and influential Garza Sada clan, but
he married the daughter of Alejandro Garza Laguerra, the director general of Mexico's biggest brewery. Romo founded Pulsar in 1981 but,
after arranging a leveraged buyout of several bakeries, was cleaned out by the economic crisis that followed the sudden descent of the peso
in 1982.
Romo's fortunes turned around in 1985 when an old schoolmate approached him to ask if he might be interested in acquiring control of
Empresas La Moderna, whose chief unit was Cigarrera La Moderna, Mexico's leading producer of cigarettes. This firm's shares were being
purchased by Carlos Slim Helú, founder of the group that controlled Cigatam, Moderna's chief competitor. Slim seemingly wanted to avoid
antitrust problems but, according to critics, really intended to create another of Mexico's many "duopolies"--industries controlled by two
entrepreneurs offering little competition in price or quality. Romo, acting with his father-in-law and other investors, purchased a controlling
share of Empresas La Moderna for $40 million.
Pulsar's next major ventures were the acquisitions of the brokerage house Vector Casa de Bolsa in 1986 and the insurance company Seguros
America in 1989. Romo's attention then turned to advanced methods of agriculture, using the resources of Empresas La Moderna to acquire
several biotechnology companies. In 1997 Pulsar sold at least part of Cigarrera La Moderna to finance further biotechnology ventures. Romo's
personal fortune was estimated at $1.4 billion in 1996.
Cigarrera La Moderna, 1936--97
Cigarrera La Moderna was founded in 1936 by British American Tobacco Co. Ltd. (BAT), which had a large share of world cigarette production
and marketing, to produce higher-priced cigarettes than those of Cigarros El Aguila, which it also controlled and which had been established
in 1924. The company went public in 1964. In 1974 La Moderna was producing 32 percent of Mexico's cigarettes and had 43 percent of sales
in this sector. In 1976 it acquired the second-place producer, El Aguila. La Moderna's share of the cigarette market now reached 66 percent
in production and 75 percent in sales. It was Mexico's 14th largest company in 1977, with sales of 6.32 billion pesos (US$277 million).
The relationship with BAT soured in 1985, when over the British company's objections La Moderna entered into a licensing agreement with
R.J. Reynolds Tobacco International Inc. to produce Camel and Salem cigarettes in Mexico. The bitter dispute between the partners, which
also involved managerial control, ended in 1989, when BAT sold its 45 percent interest for 215 billion pesos (US$81.5 million). In 1991 R.J.
Reynolds and La Moderna entered into a joint venture that authorized the latter to make and sell Winston as well as Camel and Salem
cigarettes in Mexico.
Cigarrera La Moderna also was producing four of Mexico's six leading brands: Raleigh, Fiesta, Montana, and Alas and had licensed agreements
covering manufacturing with other business partners, including Alfred Dunhill Ltd. (Dunhill) and SEITA (Gitanes Blondes and Milds). It held 54
percent of the domestic market in 1997. The company also was marketing smokeless tobacco products under the brand names Copenhagen
and Skoal through a franchise by U.S. Tobacco Co. and cigars under the brand name CruzReal.
In July 1997 BAT (now BAT Industries) agreed to acquire at least 50 percent of Cigarrera La Moderna, plus two voting shares. A six-month
option would give BAT the opportunity to purchase the entire company. If so, BAT would pay $1 billion in cash, assume $212 million in debt,
and extend Cigarrera La Moderna's parent, Empresas La Moderna (ELM), a $500 million loan payable in three years. Otherwise, an ELM official
said, the parent company would keep its minority share and the $1.5 billion would be invested in Cigarrera La Moderna. Romo indicated that
his main objective was to obtain cash to extend ELM's presence in the biotechnology area.
Empresas La Moderna, 1980--97
Another subsidiary of Empresas La Moderna, Aluprint, established in 1980, became a market leader in the production and printing of flexible
and hard packaging. It acquired territorial rights for Mexico and Central America to the Aluglass process--new technology making available the
printing and production of high-quality metalized flexible and hard packaging material to the parent company as well as to multinational
companies operating in Mexico and other parts of Latin America. Aluprint had sales of 146 million pesos ($42 million) in 1994. It was merged
into another ELM subsidiary, Empaques Ponderosa, in 1996.
In 1990 Mexico ended state controls on tobacco farming and marketing, and constitutional reforms in 1992 allowed the private sector to
become involved in agribusiness for the first time in more than 70 years. By the end of 1993 ELM, which was part of Pulsar Internacional's
industrial division, had taken a major role in agribusiness, based on its expertise in the growing and processing of tobacco. That year it
acquired majority control of Agricola Batiz, a leading producer, marketer, and distributor in Mexico of fresh fruits and vegetables. Between
late 1994 and early 1996 ELM spent more than $480 million for control of three seed and biotechnology companies. One of these was Asgrow
Seed Co., purchased from Upjohn Co. The others were Petoseed Corp., a division of George C. Ball Co. of California, and the Dutch seed
company Royal Sluis. These acquisitions, merged into its 62 percent-owned Seminis, Inc. subsidiary, gave La Moderna 22 percent of the world
fruit-and-vegetable-seed market.
Empresas La Moderna also, in December 1994, acquired majority control of International Produce Holding Co. (IPHC), whose subsidiaries were
marketing and distributing fresh produce worldwide. In late 1996 it combined Agricola Batiz and IPHC with DNA Plant Technology Corp., a
California company specializing in genetically engineered food enhancement with whom it had merged, to form DNAP Holding Corp., in which
it held 70 percent of the stock. In February 1997 La Moderna formed a technology agreement with Monsanto Co. allowing DNAP to use
Monsanto's technology to develop enhanced fruits and vegetables through genetic engineering. The agreement was part of a deal that
included the sale of Asgrow's grain-seed business to Monsanto for $240 million.
The $280 million Asgrow acquisition was made with a $325 million bridge loan whose $180 million financing from Mexican banks was
jeopardized by the financial crisis that followed the fall of the peso in December 1994. Nevertheless, in November 1995 Empresas La
Moderna received a $130 million syndicated loan, an expression of international confidence. By 1996 some 43 percent of La Moderna's
agribusiness and tobacco revenues were coming from foreign operations or exports, compared to just 5 percent three years earlier.
Now one of the largest producers and distributors of fresh produce as well as tobacco in Mexico, Empresas La Moderna was providing seeds,
irrigation, new tractors, harvesting equipment, and interest-free loans to Mexican farmers, with shared profits. The operation, involving
some 7,000 small farmers on 30,000 acres in 1995, produced, in addition to 95 percent of the company's tobacco, fruits, and vegetables to
be exported to the United States under the "Master's Touch" brand. Research stations established in the state of Chiapas were developing
disease-resistant strains of mango, papaya, mamey, and guayaba, fruits Romo believed would become popular abroad. This laboratory also
was producing pest-eating insects. The company also maintained a station in the state of Mexico for research in developing blight-resistant
Another company unit, Desarollo Forestal, acquired 300,000 hectares (about 125,000 acres) of woodland in the states of Tabasco and
Campeche in 1993 for lumber production. It had planted eucalyptus, acacia, and gmelina on 1,000 hectares (400 acres) by 1997 and was
planning an investment of $350 million in the further development of these lands.
Still another important sector of Empresas La Moderna's business was Ponderosa Industrial, a holding company which, through its subsidiaries,
was engaged in the production and sale of pulp and paper, packaging, and industrial products. La Moderna became this company's majority
shareholder in November 1994. Ponderosa Industrial's subsidiary Empaques Ponderosa was Mexico's leading manufacturer of folding
boxboard, which it produced from recycled materials. In late 1996 Ponderosa Industrial and Empaques Ponderosa merged, with Ponderosa
Industrial surviving but changing its name to Empaques Ponderosa. Pulsar's stake in the enterprise subsequently fell from 51 to 29 percent,
according to a German source.
Empresas La Moderna's net sales totaled 14.32 billion pesos (US$1.87 billion) in 1996. Of the total, cigarettes accounted for 46 percent,
seeds for 34 percent, fresh produce for 11 percent, and packaging for 9 percent. Net income came to 8 percent of this total. The company's
long-term debt was 2.82 billion pesos ($357.4 million).
Seguros Comercial America, 1933--96
Seguros Comercial America, an insurance company, was formed from the 1993 merger of Seguros America and Seguros La Comercial. Seguros
America was established in 1933 as America Latina, Compañia General de Seguros and was incorporated by Banamex in 1969, changing its
name to Seguros America Banamex and subsequently to Seguros America. Seguros La Comercial was established in 1936 and acquired by
Pulsar Internacional in 1989 when it was nearly bankrupt. In 1993 it had a sales force of about 5,000 agents operating from 300 branches
across the country and over 20 claims offices operating from major cities throughout Mexico. It was the first Mexican insurer to establish a
liaison office in New York City.
The merged company was providing insurance policies and services for individuals and businesses in all lines, including life, accident, health,
and property/casualty. It maintained about 700 branch offices throughout Mexico in 1995. In 1996 the company acquired 70 percent of
Aseguradora Mexicana (Asemex), the second largest underwriter in Mexico, from the Mexican government for 955 million pesos (about
US$129 million), giving it 84 percent of Asemex's shares. This acquisition made Seguros Comercial America the largest insurance company in
Latin America, with a 32 percent market share in Mexico. Premium income came to 3.86 billion pesos (US$1.1 billion) in 1994. Net income
was 213.8 million pesos (US$61.1 million).
Vector Casa de Bolsa, 1974--97
Founded in 1974 and acquired by Pulsar in 1986, Vector Casa de Bolsa by 1993 was providing a wide range of financial services, including
securities underwriting, distribution, trading, asset management, mergers and acquisitions, corporate restructuring, and other advisory
corporate-finance activities, and real-estate advice, financing, and investments. It also formed and managed a family of funds. In 1993 the
company established an international arm with New York-based Vectormex Inc. Vector Casa de Bolsa lost about $21.8 million in 1995. Romo,
the majority owner, and other shareholders had to raise $55 million to cover losing positions in that year, a disastrous one for Mexican
business following the devaluation of the peso in December 1994. In 1996 Vector had net income of 4 million pesos (about US$525,000) on
revenues of 1.07 billion pesos (US$140 million).
Other Pulsar Ventures, 1993--97
In 1994 Pulsar allied itself with Hebel International, a German company making aerated concrete blocks for construction. Pulsar secured a
concession for Latin America and China to build large housing tracts with these durable and light blocks, which were said to be capable of
assembling homes in about one-third of the time compared to traditional methods in Mexico. By 1996 Contec Mexicana, a joint investment 90
percent-owned by Pulsar, had built 6,000 homes in Mexico using this block and also had constructed a number of commercial facilities,
including a hotel in Atlanta.
In 1994 Pulsar acquired a 15 percent stake in the British fixed-wireless telephony company Ionica for $22.5 million, securing licensing rights
for Mexico and a "priority" for all of Latin America. Fixed-wireless telephones use a digital-radio frequency that can also ship video and other
types of electronic information and can be installed faster and cheaper than ordinary telephone lines. They are also cheaper and less
complicated than cellular phones, which also use radio waves. Romo claimed his concession had the capacity to deliver telephone service at
savings as high as 40 percent for Mexicans and would focus on rural areas, where installing lines would be extremely costly.
Organización Orbis was established in 1993 to develop personal-care items, cosmetics, and biodegradable household-cleaning accessories
from Mexican plants through biotechnology. Based in the state of Nuevo Leon, this enterprise included a laboratory. Orbis products were
reaching 200,000 Mexican families in early 1997 and had sales in excess of $12 million in 1996.
Principal Subsidiaries: Empresas La Moderna, S.A. de C.V., including Empaques Ponderosa, S.A. de C.V. (51%), and Seminis, Inc. (62%);
Seguros Comercial America, S.A. de C.V.; Vector Casa de Bolsa, S.A. de C.V.
Würzburger Strasse 13
D-91074 Herzogenaurach

Telephone: (49)(9132) 812-489

Fax: (49) (9132) 812-356

Public Company
Incorporated: 1948 as Puma Schuhfabrik Rudolf Dassler
Employees: 1,424
Sales: DM 1.4 billion ($714.9 million) (1999)
Stock Exchanges: Frankfurt/Main
Ticker Symbol: PUM.FSE
NAIC: 316211 Rubber And Plastics Footwear Manufacturing; 316219 Other Footwear Manufacturing; 315212 Women's, Girls', and Infants' Cut and Sew
Apparel Contractors; 315211 Men's and Boys' Cut and Sew Apparel Contractors

Company Perspectives:

We live today in a world that is growing together, that changes ever faster, and that offers information in abundance. Puma is convinced that in
such a world a brand's success depends on more than the quality of its products. Behind the products there must be a brand with its own unique
personality. Only then will it distinguish itself from the competitor's "white mountains." Puma is determined to be one of those special brands that
tackle things in a different way: unmistakable and convincing. In the midst of the white mountains Puma will be the "Blue Mountain." Puma will not
be the biggest, but be visible in an unmistakable way, as the alternative sports brand.

Key Dates:

1924: Rudolf and Adolf Dassler incorporate their first shoe company.
1948: Rudolf Dassler sets up his own company Puma Schuhfabrik Rudolf Dassler.
1959: Rudolf Dassler's wife and two sons become part owners of the Puma Sportschuhfabriken Rudolf Dassler KG.
1962: Puma shoes are shipped to almost 100 countries.
1974: Armin A. Dassler takes over as CEO.
1986: Puma goes public.
1991: Swedish conglomerate Proventus AB becomes majority shareholder.
1993: 30-year-old Jochen Zeitz takes over as CEO.
1998: Puma acquires 25 percent of Logo Athletic Inc.
1999: Monarchy/Regency becomes Puma's biggest single shareholder.

Company History:
Puma AG is among the world's leading manufacturers of athletic shoes, sportswear, and accessories. The company is perhaps best known for its
soccer shoes and has sponsored such international soccer stars as Diego Armando Maradonna and Lothar Matthäus. The company also offers lines
shoes and sports clothing, designed by Lamine Kouyate, Amy Garbers, and others. Since 1996 Puma has intensified its activities in the United States
where it has a market share of eight percent. Puma owns 25 percent of American brand sports clothing maker Logo Athletic, which is licensed by
American professional basketball and football leagues. The American entertainment group Monarchy/Regency owns 32 percent of Puma.
1920s Origins
In the small town of Herzogenaurach, not far from the German city of Nuremberg, two brothers laid the foundation for what would become the
European capital of sportswear. Adolf and Rudolf Dassler were born into a poor family at the turn of the 19th century. Their father, Christoph
Dassler, was a worker at a shoe factory, while their mother, Pauline Dassler, ran a small laundry business. At age 15 Rudolf Dassler started working
at the same shoe factory as his father and soon showed the qualities of an entrepreneur. He was energetic, persistent, and ambitious, and he saved
his hard-earned money instead of spending it right away. However, it was not until after World War I that he had a opportunity to prove himself in
business. After the war, Rudolf Dassler took his first positions in business management, first at a porcelain factory and later in a leather wholesale
business in Nuremberg.
In the early 1920s Rudolf Dassler decided to go back to Herzogenaurach and team up with his brother Adolf in a business partnership. Their
company, which was incorporated as the Gebrüder Dassler Schuhfabrik in 1924, produced slippers and outdoor shoes. Rudolf Dassler ran the
business, while Adolf took care of the technical operations and production. Soon they realized that there was not a particularly promising market
for their shoes and so switched their focus to the manufacture of track shoes and football boots, a market that was just getting started at that
With a great deal of luck the company acquired its first major client, the sports club in Herzogenaurach, which ordered no fewer than 10,000 pairs
of athletic shoes in 1925. Thus, despite the ongoing worldwide economic depression in the late 1920s, the Dassler company took off and gained a
reputation among athletes and sporting goods companies. Half of all athletes at the Olympic Games in Amsterdam in 1928 wore Dassler shoes. In
1936, African-American track star Jesse Owens brought the company into the public eye when he won four gold medals at the Olympic Games in
Berlin wearing Dassler shoes.
Three years later World War II broke out. Although the brothers could have given up for a number of reasons during the war, it was not this world-
shattering event that led to the Dassler company's sudden end, but a homemade war of a different kind. In 1948, the two brothers had a serious
falling-out, and they stopped talking to each other. Their company was split into two new companies: Adolf Dassler formed his own business named
adidas, combining his nickname Adi with the first three letters of his last name; Rudolf Dassler set up his own shop called Puma Schuhfabrik Rudolf
Dassler. The two brothers had become competitors.
A number of world-class athletes, especially runners and soccer players, helped the young Puma brand gain acceptance. In 1950, at the first
international soccer match after World War II, several German players wore the Puma "Atom" shoe. The Olympic Games in 1952 in Helsinki were a
spectacular success for Puma and opened the British market to the young company. The American Olympic Committee made Puma its official shoe
supplier in 1952 and again 1956. In 1952 the American women's 400-meter relay team won the Olympic gold medal in Puma running shoes. Puma's
image was also carried around the world by the rising soccer star Pelé, the Brazilian "king of the stadium" who favored Puma's "King" shoes. After
some early difficulty, the company's export business began to thrive. Puma shoes were shipped to 55 countries on five continents. The first licensed
production line was opened in Austria. In 1959 Rudolf Dassler's firm was transformed into Puma Sportschuhfabriken Rudolf Dassler
Kommanditgesellschaft, as Dassler's wife and his two sons, Armin and Gerd, became part owners of the firm. By 1962 Puma shoes were exported to
almost 100 countries around the world.
Another Puma hallmark was product innovation. In 1960 Puma introduced a new technology for soccer shoes, using a vulcanization process to join
the soles to the uppers. Soon 80 percent of all soccer shoes were manufactured with this technology. In the early 1960s Puma also developed
running shoes with a uniquely shaped sole that supported the natural movement of the foot, based on the latest medical research of the time. In
the late 1960s Puma was the first company to offer athletic shoes with a Velcro strap.
A Second Generation of Family Leadership in the 1970s
Rudolf Dassler died in 1974, and his son Armin A. Dassler, who since the early 1960s had been managing Puma's first foreign subsidiary in Salzburg,
Austria, took his place. Twelve years later Puma went public and was renamed Puma AG Rudolf Dassler Sport. The company continued to introduce
innovative products. In the mid-1970s Puma introduced the so-called S.P.A. technology--sport shoes with a higher heel that relieved strain on the
Achilles tendon. In 1982 Armin A. Dassler invented the Puma Duoflex sole, with special slots that increased the foot's mobility. In 1989 the company
introduced the new Trinomic sport shoe system with hexagonal cells between sole and shoe that cushioned the runner's foot. Other innovations
followed in 1990 and 1991. Inspector Shoes were shoes for kids with a "window" in their soles that allowed parents or trainers to observe whether
the shoes were still the perfect fit during those years of rapid foot growth. The high tech Puma Disc System athletic and leisure shoes, which,
instead of laces, used a disk that tightened a series of wires.
During the 1970s and 1980s, world famous athletes wore Puma products on their feet and bodies. High-jumper Dwight Stones broke the world
record in Puma shoes three times in the years 1973 through 1976. In 1977 tennis player Guillermo Vilas won the French and U.S. Open in Puma
shoes. Sprinter Renaldo Nehemia ran three world records in 100-meter hurdles between 1979 and 1981 in Puma spikes. In the early 1980s American
football star Marcus Allen of the Oakland Raiders, as well as baseball greats Jim Rice and Roger Clemens, both of the Boston Red Sox, and George
Brett of the Kansas City Royals, favored Puma shoes. American sprinter Evelyn Ashford won two gold metals in Puma shoes at the Olympic Games
1984 in Los Angeles. Tennis stars Martina Navratilova and the young German tennis talent Boris Becker won their events at the famous Wimbledon
tennis competition in the mid-1980s in Puma shoes.
In 1991 the Swedish conglomerate Proventus AB bought all Puma common stock traded publicly in Frankfurt and Munich. That same year saw the
founding of Puma International, a holding company for Puma's divisions in the Far East, Australia, Spain, France, Austria, and Germany, which were
organized as independent profit centers. Despite the company's high profile and success, its profits had steadily declined until, in the early 1990s,
they were nonexistent. It was not until 1994 that Puma again turned a profit, and Puma shareholders received a dividend for the first time in 1996.
New Management in the 1990s
In 1993 Puma's prospects looked anything but bright. The company had been in the red for almost a decade. In December 1992 parent company
Proventus gave Puma a badly needed capital boost of DM 50 million. However, the company was competing in a stagnating market driven
increasingly rapid product cycles that resulted in rising research and development and marketing costs, as well as losses through more frequent
markdowns of older models. Although Puma scored high in brand name recognition, the company that in the 1980s had generated half of all sales
with shoes in the lower price ranges was now struggling with its cheap image. Much like its competitor adidas, Puma tried to succeed by leaving low
price markets that allowed only low profit margins; breaking into premium price markets--the traditional territory of American giants Nike and
Reebok--became their new goal. It was perhaps too little, too late. This strategy at first resulted in significant losses in sales and market share.
Adding to the company's problems was the fact that the successful introduction of the innovative Puma Disc System shoes in 1992 had been an
expensive undertaking. By February 1993 it was clear that Puma needed new leadership, and parent company Proventus replaced Puma CEO Stefan
Jacobsson with Niels Stenboej, who came from Abu Garcia, another Proventus subsidiary that made equipment for sports fishing. However, only
three month later Stenboej left amidst changes in upper management at the Proventus Helsingborg headquarters.
The arrival of 30-year old Jochen Zeitz hailed better times for Puma. At the time the youngest CEO of a European publicly traded company, Zeitz
had an MBA from the European Business School and had traveled the world from Brazil to the United States, making his first mark as a product
manager for Colgate Palmolive in New York and Hamburg. In 1990 he joined Puma and as a vice-president of international marketing and sales,
where he was responsible for the company's international communications strategy and contributed significantly to the repositioning of the Puma
brand. On year after Zeitz became CEO, Puma reported its first profit--DM 25 million--since its initial public offering in 1986. Under Zeitz's
leadership the company initiated a fundamental, market-oriented "fitness program" that included rigorous cost cutting and reorganization
measures. Inflexible structures were replaced, as was the case when the purchasing and product development departments were merged. Several
warehouses were replaced by a central distribution center, and all departments became profit centers.
Puma's restructuring was but one part of its new success story. The other was its innovative marketing plan. At its core was the positioning of the
Puma brand as an international performance sports brand for high-quality athletic shoes, sport textiles, and accessories. The company also based
its innovative marketing concepts on the latest trend research, earlier ignorance of which had in part caused Puma's past downturns.
As a result, Puma launched the "Puma-Offensive '95," a marketing program with four key areas of activity. The first was based on the revival of the
classic Puma suede shoes in the trendy clubs of New York, Los Angeles, and San Francisco. Puma developed a collection of shoe "originals" in various
colors and matching textile collections targeting fashion and trend conscious youth. The second element of the marketing offensive was the Puma
"World Team." Top sports figures, such as German soccer star Lothar Matthäus and Jamaican sprinter Merlene Ottey, represented Puma products in
an advertising campaign. The third piece in Puma's marketing mix was known as "Replica," a line of "fashions for fans" made available through sports
retailers and soccer clubs.
One of the most successful elements of Puma's concerted marketing effort was the Street Soccer Cup, a worldwide street soccer competition first
organized in 1994. The idea was developed in cooperation with Leonberg-based advertising agency Godenrath, Preiswerk & Partner (GPP). In 1993
the "street ball" wave had become immensely popular, as kids began storming Germany's courtyards, playgrounds, and parking lots to play pick-up
games of basketball. Puma and GPP worked together to popularize street soccer, which was characterized by its favoring of technique and finesse
over athleticism, its focus on casual fun rather than club regulations, and its preference for free style dress over uniforms. New rules for the game
had to be established as well. Street Soccer was played in the street on a concrete or asphalt surface, not on a grass field. The 20-by-14 meter field
was bordered by a fence. Four players plus one reserve player stormed two goals. Street Soccer was played in two age groups: ages 10 to 13 and
ages 14 to 16.
The event campaign was carried out in cooperation with the major German sports magazine Sport-Bild and was supported by retail sporting goods
stores. Other prominent German companies also joined Puma as sponsors. Germany's teenagers embraced the idea. In fact, demand far exceeded
supply, and thousands of registrations could not be accepted. About 31,000 youngsters between age 10 and 16 kicked the ball in over 6,000 teams
with names like "Magic," "Street Attacks," and "Turkish Brothers." Over 250,000 people watched the games at almost 200 events. The finals were
played out in front of the Reichstag building in Berlin. The success of this innovative concept encouraged Puma to continue it on an international
scale in 1995. The Street Soccer Cup '95 was also played in France, Hong Kong, and Tokyo. Puma introduced a new line of Street Soccer shoes and a
collection of colorful clothing for players and spectators. All told, approximately 800,000 people watched 70,000 kids playing soccer at more than
400 events during this Puma event.
Mid-1990s and Beyond: Conquering Western Europe and North America
The year 1996 marked the end of the restructuring period Puma had been undergoing since 1993. This was followed by a period of new alliances
and higher investment in international marketing and new product development. For the first time since the company went public, Puma
shareholders saw a dividend in 1996 after the company achieved a three-year sales record in comparison to previous years. A Puma stock offering
on the Frankfurt and Munich stock exchanges in June 1996 reduced the holdings of parent company Proventus Handels AB to 25 percent. A few
months later the American movie production and distribution firm Monarchy/Regency bought a 12.5 percent stake from Proventus; it obtained the
other 12.5 percent in 1997.
In 1999 Monarchy/Regency upgraded its shareholdings to 32 percent. The transaction made Monarchy/Regency Puma's biggest single shareholder.
The interests of the new partners complemented one another in that Monarchy/Regency was interested in a platform from which it could build
relationships in the sports world to diversify into new markets, while Puma CEO Zeitz believed that the entertainment company could help Puma
with its marketing efforts.
In the second half of the 1990s Puma intensified its international activities. A new subsidiary--Puma Italia S.r.l.--began operations in 1997. Two
years later Puma opened its new subsidiary Puma UK. However, the most important strategic market for Puma was the United States. In 1997 Puma
generated about 80 percent of its sales outside Germany, and this figure shrunk to ten percent if license income was included. Puma's position was
especially strong in Japan where ten percent of all license fees were collected. On the other hand, only a tiny fraction--4.5 percent--of Puma sales
of approximately $846 million derived from the United States, representing less than one percent market share. A first step toward penetrating the
largest sports market was the acquisition of Puma North America and the Puma trademark from Proventus AB in January 1996. In 1998 Puma sealed
a long-term contract with the Women's Tennis Association (WTA), making Puma the official supplier of shoes and textiles for the WTA women's tour.
In the same year Puma acquired a 25 percent share in Logo Athletic, one of the leading licensed suppliers for the American professional sports
leagues. The deal started paying off in the very next year. In 1999 Puma became one of four suppliers of the American National Football League
(NFL). Beginning in the 1999/2000 season 13 NFL football teams were wearing Puma, as well as nine National Basketball Association teams. When
two Puma teams--the St. Louis Rams and the Tennessee Titans--competed for the Superbowl in January 1999, about 1.3 billion TV watchers
worldwide were exposed to the Puma logo. Another novelty was the 1998 contract between Puma and then 16-year-old American tennis talent
Serena Williams. The five-year contract included not only promotion activities for Puma-wear but also engagements in movie and music projects of
Puma parent Monarchy/Regency. The strategy certainly seemed to be paying off in 1999 when Puma's U.S. sales increased by 60 percent, and,
moreover, the company seemed well-positioned for the future.
Principal Subsidiaries: Puma United Kingdom Ltd.; Puma France S.A.; Puma (Schweiz) AG (Switzerland); Austria Puma Dassler GmbH; Puma North
America, Inc. (United States); Logo Athletic Inc. (United States; 25%); Puma Benelux B.V. (Netherlands); Puma Canada, Inc.; Puma Italia S. r. l.
(Italy); Puma Polska sp.zo.o (Poland); Puma Hungary Kft.; Puma Australia Pty. Ltd.; Puma New Zealand Limited; Puma Chile S. A.; World Cat Ltd.
(Hong Kong); Puma Far East Ltd (Hong Kong).
Principal Competitors: adidas-Salomon AG; Nike, Inc.; Reebok International Ltd.; Fila Holding S.p.A.

499 Park Avenue
New York, New York 10022

Telephone: (212) 318-2000

Fax: (212) 980-4585

Private Company
Incorporated: 1986
Employees: 3,000
Sales: $1 billion (1996 est.)
SICs: 7371 Computer Software Systems, Analysis & Design; 7375 Online Information Retrieval Services; 7379 Database Developers; 7377 Computer
Hardware Rental or Leasing; 7383 News Reporting Services for Newspapers & Periodicals; 4832 Radio Broadcasting Stations; 2721 Magazine
Publishing; 2731 Book Publishing

Company Perspectives:

The company has established a unique position within the financial services industry by providing a broad range of functions combined into a single
"package" that represents substantial value, while at the same time addressing the demand for investment performance and efficiency in
increasingly complex global markets and exchanges. Through an unparalleled combination of information and analytics, Bloomberg Financial
Markets has quickly built a worldwide customer base of issuers, financial intermediaries, and institutional investors. Bloomberg's core business is
the Bloomberg, the world's fastest growing real-time financial information network, which links together the world's leading financial

Company History:

Bloomberg L.P. is a diversified information and media company, the core business of which is the leasing of a multifunction computer terminal to
primarily financial and information industry customers such as banks, securities brokerage firms, government agencies, and media organizations.
More than 75,000 such dual-screen terminals, known as "The Bloomberg," were used by more than 140,000 organizations in more than 90 countries
in 1997, including the White House, the Vatican, the Bank of England, the Federal Reserve, the Sultan of Brunei, and the World Bank. Available in a
standalone, a portable, and an "open," or PC-connectible version, the Bloomberg provides multimedia news, electronic communications, specialized
financial computation services, and financial pricing and other data for all the major global securities markets including equities, money markets,
currencies, municipals, corporate/Euro/sovereign bonds, commodities, mortgage-backed securities, derivative products (such as futures), and
government securities.
Besides its core data terminal business, Bloomberg's diversified media products include Bloomberg News (a news agency/wire
service), Bloomberg and Bloomberg Personal magazines, Bloomberg Business Radio, Bloomberg Direct TV, Bloomberg Small Business TV, and
Bloomberg Personal Online (an Internet site). Its oldest media venture is Bloomberg News, a global network of some 500 journalists who produce
3,000 business stories a day in five languages from more than 50 news bureaus worldwide.
Bloomberg L.P. also maintains a large in-house staff of data collectors (Bloomberg Princeton, New Jersey), sales people, and computer
programmers and technical personnel. Forbes magazine ranked Bloomberg L.P. 223rd in the 1996 Forbes 400 (by sales), and media mogul Rupert
Murdoch has described Bloomberg's founder, Michael Bloomberg, as "the most creative media entrepreneur of our time and, with Bill Gates,
perhaps the most successful."
Desktop Data for the Bond Trader: 1966--1984
After earning an M.B.A. from Harvard University in 1966, Massachusetts native Michael Bloomberg joined the Manhattan securities trading firm of
Salomon Brothers as a security counting clerk and worked his way up the ladder until by the early 1970s he had been named chief of the firm's
equity trading operation. By the late 1970s he had been placed in charge of developing the firm's in-house computerized financial system, but
office politics and Salomon's merger with commodities-trading firm Phibro Corporation led to his ouster in 1981. As a partner in the firm, Bloomberg
was entitled to sell his share back to Salomon, however, and at age 39 he was freed to make a fresh start with a tidy fortune of $10 to $20 million.
Rather than retire, Bloomberg decided to start a new business and, joining his experience with computers to his background in the finance markets,
he began to envision a computerized information system that would allow Wall Street firms to tap into a real-time store of market data, financial
calculations and projections, and other "analytics" via a computer terminal on their desks.
Using part of his Salomon windfall, Bloomberg assembled a group of computer programmers and in 1982 formed Innovative Marketing Systems (IMS).
The only Wall Street firm interested in his idea, however, was Merrill Lynch, which agreed to buy Bloomberg's as yet incomplete machines if he
could deliver them as advertised in six months. In June 1983, Bloomberg and his three core partners, Duncan MacMillan, Chuck Zegar, and Tom
Secunda, demonstrated their prototype machine for Merrill Lynch, which had specified that the device perform complicated calculations on
government bonds as well as conventional pricing computations of Merrill Lynch's inventory. Merrill Lynch was sufficiently impressed with
Bloomberg's creation to order 20 of his machines (they would eventually order 1,000), but with one catch: Bloomberg would agree not to market
the technology to Merrill Lynch's competitors for five years. To help finance Bloomberg's development of the computer, Merrill Lynch bought a 30
percent stake in IMS for $30 million. With its start-up cost worries eased, Bloomberg and his colleagues worked to expand the machine's capabilities
with the help of Merrill Lynch traders.
By the fall of 1984 IMS was selling its all-in-one financial terminals to Merrill Lynch's clients and unveiling a portable version of the system.
Bloomberg, however, wanted to test his product in the larger market and approached Merrill Lynch to request that they release IMS from its five-
year moratorium on sales to competitors. Because Merrill Lynch's 30 percent stake in Bloomberg's product meant it could reap some of the rewards
of IMS's expansion, it agreed to allow Bloomberg to sell his terminal to as many customers as he could find. By the mid-1980s at least 20 companies
were offering screen-based news, market data, and research to Wall Street brokers and traders, and throughout the decade the financial data
industry grew at a rate of 20 percent. But Bloomberg's constantly evolving machine offered something new. Besides providing bond and stock prices
and volume and other basic data, the Bloomberg (as the terminal soon came to be called) combined sources that had previously existed only in
scattered paper versions or through various specialized electronic services. On Bloomberg's machine, a trader could access roughly 40 links to in-
depth information on any bond, which were displayed around a central chart displaying the bond's current price. Moreover, the system was
hardwired to offer a range of complex calculations, known as analytics, for determining the relative value of securities as well as enough color-
coded keys and flashing lights to keep the system unintimidating.
Building a Brand Name: 1985--1988
Freed from Merrill Lynch's apron strings, Bloomberg and his IMS partners set out to market their terminal to the larger financial world. With industry
leader Merrill Lynch already on board, IMS's new sales force was soon leasing Bloombergs (at $1,000 a month) to such august customers as the Bank
of England and the Vatican. In the spring of 1986 Bloomberg changed the company's name from IMS to Bloomberg L.P. and expanded his customer
base from "buy side" firms--pension funds, central banks, mutual funds, insurers&mdashø the "sell side" of the financial industry--securities
underwriters and trading firms.
Bloomberg opened a London office in early 1987 with three clients, Merrill Lynch U.K., the Bank of England, and the Bank for International
Settlements, and four months later launched an office in Tokyo. A chance encounter with the owner of a financial data research company led to
the acquisition of Sinkers Inc. in December 1987, forming the core of the data collection and analysis operation that within a few years would
become Bloomberg Princeton. (By 1996, Bloomberg's Princeton operation would employ some 900 researchers and data-entry workers charged with
sifting through thousands of prospectuses and financial statements for the data channeled through the Bloomberg terminal.)
Shortly after Bloomberg installed its 5,000th terminal, Bloomberg was contacted by Wall Street Journal writer Matthew Winkler, who had learned
about the machine while interviewing a Merrill Lynch trader in London a year or so before. To his astonishment, Winkler had discovered that, along
with the Associated Press, the Journal had begun using Bloomberg rather than the Federal Reserve Bank of New York as its only supplier of daily
prices for U.S. government bonds, despite the fact that Bloomberg competed directly with Telerate, an electronic terminal-based bond data
provider that the Journal's parent company, Dow Jones, was just then in the process of buying for a billion and a half dollars. In September 1988,
Winkler's positive profile of Bloomberg and his campaign to unseat Telerate as a financial data industry leader was published on page one of
the Journal,an irony that was not lost on Michael Bloomberg. In June 1988 Bloomberg added a securities trading feature to the Bloomberg; in
October a service known as "Sabre-izing" that allowed Bloomberg users to access prices contributed by a variety of firms was added; and in June
1989 a contributor system feature was added for financial research and commentary.
Bloomberg Business News: 1989--1991
With Bloomberg's global network now including a new office in Sydney, Australia, Bloomberg met with Winkler again in early 1989 to explore the
possibility of expanding Bloomberg's services to include business news. He offered to bring Winkler aboard in 1990 as editor in chief of "Bloomberg
Business News," a new venture that would not only spread the Bloomberg name, and thus sell more terminals, but would free Bloomberg from its
reliance on the Dow Jones News Service for the Bloomberg's business news feature. With Bloomberg's annual growth now far outpacing that of
Reuters and Dow Jones and its revenue fast approaching $100 million, Bloomberg feared that Dow Jones would soon recognize the threat Bloomberg
posed and thus decide to deprive it of one of its most valuable subscriber services. Winkler was sold on Bloomberg's vision and began to establish a
Bloomberg office in Washington, D.C. to cover the political events that affected the business world. He soon learned, however, that Bloomberg
Business News needed to win formal accreditation from Washington's Standing Committee of Correspondents (SCC), a congressionally sanctioned
body that controlled who had access to the capital's news makers. In no hurry to welcome a new competitor into the elite group of national news
journalists, the SCC rejected Bloomberg's request for accreditation, arguing that Bloomberg Business News was not carried by any newspapers and,
moreover, was partly owned by Merrill Lynch, creating a potential conflict of interest. (Soon after Bloomberg News went on line in June 1990,
however, Winkler had run a story casting Merrill Lynch in a negative light to establish the news arm's independence.)
To win legitimacy for Bloomberg Business News, Bloomberg enlisted the support of the Associated Press (AP), which received its bond prices free of
charge from Bloomberg and gained millions of dollars a year in compensation for allowing Bloomberg terminals to carry AP stories. But even the AP's
endorsement failed to win Bloomberg its news credentials. By chance in 1990, however, Winkler was asked by staffers at the New York Times if
they could receive a Bloomberg terminal for free. Bloomberg promised them one on one condition: that the paper consider publishing Bloomberg
Business News stories, with the Bloomberg byline, in the Times and its news wires whenever it deemed them "fit to print." In 1991 the Times agreed
to the arrangement, and Bloomberg Business News stories were soon appearing in the nation's premier newspaper. Within a year every major
newspaper in the United States had requested the same arrangement: free Bloomberg terminals in exchange for occasional publication of
Bloomberg bylined stories. Bloomberg had won legitimacy as a national news source.
A Bloomberg on Every Desk: 1991--1993
With sales coasting toward $140 million, Bloomberg continued to add value to his core financial data terminal leasing business. In early 1990 he
unveiled a portfolio system feature for the Bloomberg; a month later he launched "Bloomberg Traveller," a service to enable subscribers to access
their Bloombergs from remote locations; and in September he opened an office in Singapore. By November 1990 the 10,000th Bloomberg had been
installed, and in March 1991 the machines began offering a specialized oil buyer's guide service and a video training series for subscribers new to
the Bloomberg system. Far from its early bare-bones bond data service, by 1991 the Bloomberg had expanded (with no increase in rates) to
encompass prices from 18 U.S. Treasury bond dealers and 75 corporate bond dealers, news and statistics on some 15,000 companies, and more than
200 other services, including money-flow calculations and Grant's Interest Rate Observer. Moreover, it had moved beyond its early specialization in
bonds to include data on stocks, the energy markets, and such rarefied financial instruments as mortgage-backed securities. Individual stocks could
now be analyzed through at least 63 screens of information, including earnings estimates and historical price performance, and stocks on the Dow
Jones Industrial Average could be compared on 23 individual performance parameters. By 1991, Bloomberg was expanding its offerings at a pace of
roughly one new service a day, providing everything from ski reports, weather forecasts, and real estate listings to horoscopes, classified ads, and
sports scores.
By the end of the 1991, Bloomberg L.P.'s worth was approaching an estimated $800 million, and with 14,000 installed terminals it was gaining new
subscribers faster than any other firm in the $3.5 billion specialized information industry. Although Reuters could claim 185,000 installed terminals,
Dow Jones's Telerate about 85,000, Citicorp's Quotron 70,000, and Automatic Data Processing 68,000, Bloomberg had won the wary attention of its
competitors, and in the early 1990s (as Bloomberg had anticipated) Dow Jones announced it would pull its news service from Bloomberg terminals.
Carried over its own news wire, the announcement only served to give Bloomberg more free publicity, however, and a few months later Dow Jones
reversed its policy when it discovered its embargo had had no effect on Bloomberg's sales.
In 1992, Bloomberg unveiled a secure E-mail system known as "Bloomberg Message" for his subscribers, which anticipated by several years the
Internet-driven explosion in the use of E-mail as a routine form of business-to-business communication. He also introduced a futures analysis
feature for the Bloomberg and built a small TV studio in his Manhattan newsroom to allow Bloomberg Business News to tape interviews with
corporate executives (a program that was soon named Bloomberg Forum). Bloomberg Business News was meanwhile establishing itself as a major
player in the national business news arena, with more than 100 reporters transmitting almost 1,000 stories a day from seven domestic and five
overseas bureaus. With his news service efficiently spreading the Bloomberg brand name, in 1992 he took to the air waves as well, purchasing the
legendary New York radio station WNEW for $13.5 million and converting it to an all-news format under the call letters WBBR (for Bloomberg
Business Radio). By November sales stood at about $290 million and 22,000 Bloombergs were installed worldwide, with 625 new terminals coming
on line every month.
In 1993, Bloomberg launched a 15-minute weekday business news program for broadcast on PBS; opened offices in Frankfurt, Germany and in Hong
Kong; and unveiled Bloomberg Multimedia, which enabled his terminals to display still color photos and audio from his radio broadcasts. Subscribers
also now could access data on real estate, bank loans, and counter trade, and data on stock equities had grown to account for half of his new
business. Each new media venture spurred a leap in sales of Bloomberg terminals, which by late 1993 numbered more than 31,000 worldwide,
catapulting Bloomberg's sales to $370 million.
Global Growth and the "Open Bloomberg": 1994--1995
Despite Michael Bloomberg's protestations that his multimedia ventures were only attempts to boost sales of his financial data terminals, by the
mid-1990s it had become clear that Bloomberg had set his sights not merely on "catching up" to Reuters and Dow Jones but on equaling and,
perhaps, even surpassing them as global multimedia giants. Bloomberg's terminals and news service were making rapid inroads in the overseas
market. In 1994--1995, Bloomberg installed its 10,000th terminal in Europe; reorganized its European news operation; unveiled an online trading
service for its European subscribers; and created European Bloomberg Information in London to enable European audiences to view Bloomberg's TV
broadcast via satellite and cable systems. After opening bureaus in Johannesburg, South Africa, and Beijing, and with plans under way for a new
bureau in India, by the end of 1995 the global network of Bloomberg Business News comprised 335 reporters in 56 bureaus.
In the United States, the contraction of the bond, derivatives, and mortgage markets in 1994 presented Bloomberg with the first drop in sales
growth in its 12-year history. Instead of the 35 percent to 40 percent annual growth it had enjoyed through the summer of 1994, by the end of 1995
it had been forced to settle for a still enviable 25 percent pace. By 1995 Bloomberg had unveiled a new magazine called Bloomberg Personal, to be
carried each Sunday as an insert in 18 U.S. papers around the nation. With an initial circulation of six million, it was the largest magazine launch in
history. Bloomberg next launched Bloomberg Information Television, a 24-hour financial news service to be distributed by the direct-broadcast
satellite company DirecTV. By early 1995, Bloomberg was wiring each of his 45,000 terminals for DirecTV satellite dishes so subscribers could access
his new satellite news service through their Bloombergs. In 1995 Bloomberg launched a web site, which by the end of the year was offering a live
audio feed of its radio broadcast. Moreover, Bloomberg told journalists that he planned to forge ahead with so-called on-demand audio and video
features for his terminals, claiming "that's the journalism story of the future."
If Bloomberg had an Achilles heel it was that he had steadfastly refused to give up his terminal's proprietary architecture for a more open, PC-based
approach. As competitors like Reuters and Dow Jones began to allow subscribers to download data from their services to their own computers,
however, Bloomberg began to inch toward a more relaxed policy, and in 1995 he introduced what he labeled the "Open Bloomberg." Under this new
system, subscribers would now be able to access Bloomberg's data from any PC or Sun Microsystem workstation--but with significant conditions. The
customer's PCs--both those sending the data and those receiving--would each have to be connected to a Bloomberg terminal; subscribers would only
be able to use Bloomberg's proprietary data server, keyboard, and audio systems; and whereas news and data could be downloaded, Bloomberg's
raw data feed would remain safely off limits within the proprietary Bloomberg box.
"King of the Media": 1996--1997
Bloomberg continued to insist that open data systems such as the Internet posed no real threat to his business, arguing that his value-added
services, such as his securities-calculating analytics, would never be publicly available on the Internet. But competitors like Reuters and Dow Jones
were allowing customers to use the entire raw data feed from their services in any way and on any platform they wished, and by 1996 Bloomberg
was finding that only 25 percent of his customers were for Open Bloombergs. In late 1996, therefore, Bloomberg announced the "Bloomberg Data
License," which enabled his subscribers to gain direct access to the entire data portion of his raw feed in any amount they wished and for any use
(except resale). Bloomberg's prized analytics features would, however, remain strictly proprietary and unavailable for download. By spring 1997,
Bloomberg's business was evenly split: half his customers wanted to purchase his data for use through their PCs and half wanted the traditional
Bloomberg terminal.
With 75,000 terminals installed by May 1997, Bloomberg introduced a flat-panel display monitor to reduce the amount of desk space required by its
terminals, closed a deal with Lexis-Nexis to provide its news and market summaries to the database giant's 750,000 subscribers, and partnered with
Multex Systems to provide its subscribers with investment research reports via its terminal. In early 1996 Bloomberg announced its entry into yet
another corner of the media industry with the unveiling of Bloomberg Press publishing and its two imprints, Bloomberg Personal Bookshelf (for
consumers) and Bloomberg Professional Library (for financial workers). A year later it announced a venture with AT&T to make Bloomberg news and
market information accessible to on-the-go commuters through AT&T "PocketNet" cell phones, which would contain a modem that would pick up a
text-based version of Bloomberg's data and display it on the phone's small screen.
Meanwhile, Bloomberg Business News, rechristened Bloomberg News in 1997, had expanded to 70 news bureaus worldwide and was carried in more
than 800 newspapers around the world, and Bloomberg Information Television was being distributed to more than 40 international affiliates. In
1996 Bloomberg admitted that his ultimate goal was a 24-hour local and international news service produced by local professionals around the
world in each country's local language. Even in its core business, leasing data terminals, Bloomberg was now resolutely global: almost half its
business came from overseas. In late 1996 Bloomberg bought back one-third of Merrill Lynch's 30 percent stake in his company for $200 million. To
reporters he disclosed that although he had no intention of taking Bloomberg public he was considering starting a new financial newspaper in Great
Britain and perhaps one day launching a cable news network when television became all-digital in the early 2000s. "The future belongs to
multimedia, not one-product companies," he told them. "I'm going to make sure that we're one of those New Age companies."

10-1, Kyobashi 1-chome
Tokyo 104-8340

Telephone: (03) 3567-0111

Fax: (03) 3535-2553

Public Company
Incorporated: 1931 as Bridgestone Ltd.
Employees: 106,846
Sales: ¥2.25 trillion ($18.75 billion) (2002)
Stock Exchanges: Tokyo Nagoya Osaka Fukuoka
Ticker Symbol: 5108
NAIC: 326211 Tire Manufacturing (Except Retreading); 314992 Tire Cord and Tire Fabric Mills; 325182 Carbon Black Manufacturing; 325212 Synthetic
Rubber Manufacturing; 326212 Tire Retreading; 326291 Rubber Product Manufacturing for Mechanical Use; 332611 Spring (Heavy Gauge)
Manufacturing; 336399 All Other Motor Vehicle Parts Manufacturing; 336991 Motorcycle, Bicycle, and Parts Manufacturing; 339920 Sporting and
Athletic Goods Manufacturing; 441320 Tire Dealers

Company Perspectives:
"Serving society with superior quality." Those words of our founder, Shojiro Ishibashi, state our mission simply and precisely. That mission is what
the trust we earn and the pride we feel are all about.

Key Dates:
1931: Shojiro Ishibashi founds Bridgestone Ltd. in Kurume, Japan, as the first local tire supplier for the nascent Japanese automotive industry.
1937: Headquarters are relocated to Tokyo.
1942: The company's name is changed to Nippon Tire Co., Ltd.
1951: The company is renamed Bridgestone Tire Co., Ltd.
1983: Bridgestone gains a U.S. production base through the purchase of a plant in LaVergne, Tennessee, belonging to the Firestone Tire & Rubber
1984: Bridgestone Corporation is adopted as the new company name.
1988: Bridgestone acquires Firestone for $2.65 billion.
1989: Bridgestone's U.S. operations are integrated with those of Firestone, forming the Bridgestone/Firestone, Inc. subsidiary.
1994: A long and bitter strike begins at five Bridgestone/Firestone plants in the United States.
2000: A spate of rollover accidents--some fatal--involving Firestone tires and Ford Explorer vehicles leads to the recall of 6.5 million Firestone
2001: Recall-related tensions lead Bridgestone to sever relations with Ford Motor Company in North and South America; the company's U.S. unit
loses $1.7 billion because of costs associated with the recall, restructuring efforts, and lawsuit settlements.

Company History:
Bridgestone Corporation is the world's leading manufacturer of tires, and the company is number three in the North American tire market, trailing
the other two of the world's "Big Three" tiremakers, Michelin and The Goodyear Tire & Rubber Company. In addition to its flagship Bridgestone and
Firestone brands, the company makes and markets tires under the names Dayton, Seiberling, Road King, Gillette, and Peerless, as well as private
and house brand tires. Bridgestone also makes the raw materials that go into tires and maintains an extensive network of company-owned tire
retail outlets, including nearly 2,300 in North America and about 700 in Japan. The company's tires also are sold through tens of thousands of
independent retailers operating in more than 150 countries around the world. Nontire products, which account for about 20 percent of sales,
include automotive components, particularly vibration- and noise-isolating parts, such as engine mounts and air springs; industrial products, such as
polyurethane foam, conveyor belts, and rubber tracks for crawler tractors; construction and civil engineering materials; and sporting goods--golf
balls and clubs, tennis balls and rackets, and bicycles. Products are manufactured within more than 40 tire plants and more than 60 nontire plants
on six continents. Geographically, sales break down as follows: 44 percent from North and South America, 37 percent from Japan, 11 percent from
Europe, and the remaining 8 percent from elsewhere (Africa and the Asia-Pacific region outside of Japan).
Origins of Pioneering Japanese Tiremaker
Bridgestone was founded by Shojiro Ishibashi, whose name means "stone bridge." Prior to founding the company, Ishibashi, along with his brother,
had led the family clothing business, which produced tabi--Japanese workers' footwear; Ishibashi made a fortune by adding rubber soles. Deciding
that his future lay in the rubber business, he began intensive research and development in 1929, founding Bridgestone Ltd. two years later in
Kurume, Japan, as the first local tire supplier for the nascent Japanese automotive industry. Headquarters were moved to Tokyo in 1937. In 1942
the company changed its name to the Nippon Tire Co., Ltd., but was renamed Bridgestone Tire Co., Ltd. in 1951 and became Bridgestone
Corporation in 1984. Ishibashi was an aggressive businessman with strong marketing skills whose main business principle was to expand during
recessionary periods. He also thrived on business connections made through his children's marriages. It was said in Japan that his family connections
to government officials allowed Bridgestone to secure orders during the Korean War of the 1950s, helping the company to gain its strong position in
the domestic market. Meantime, production of nontire products began early on, with golf balls added to the portfolio in the 1930s and bicycles in
Before World War II, Bridgestone's business--like that of other major Japanese industrial concerns--was focused on supplying military requirements;
at the same time, Bridgestone tires also supplied the growing Japanese automobile industry. Production was based at two plants, one in Kurume,
the other in Yokohama. Growth after the war was rapid, with the establishment of four new production facilities in the 1960s and six during the
1970s. Bridgestone's first overseas factory was established in Singapore in 1963, with further factories built in Thailand in 1967 and Indonesia in
1973. Bridgestone Singapore ceased operations in 1980 following the Singapore government's lifting of tariff protection for locally made tires. In
1976 Bridgestone set up a sales company in Hamburg, Germany, in partnership with Mitsui. This new company, named Bridgestone Reifen G.m.b.H.,
was intended to increase tire sales in the important West German market. In 1990 Bridgestone set up a new subsidiary in London, Bridgestone
Industrial, to handle industrial rubber products throughout Europe.
Expansion Through 1980s Acquisitions
Since the 1980s Bridgestone's most significant expansion has been by acquisition, acquiring majority interests in Uniroyal Holdings Ltd. (UHL), the
South Australian tire manufacturer, in 1980 and a Taiwanese company in 1986. In 1983 Bridgestone gained its first U.S. production base by
purchasing a plant in LaVergne, Tennessee, belonging to the Firestone Tire & Rubber Company. This proved to be the first step toward Bridgestone's
acquisition of that U.S. company in 1988, for a total of $2.65 billion.
Before acquiring Firestone, Bridgestone had first approached Goodyear in 1987, with proposals for a merger that would have created the world's
largest tire manufacturer. Talks in Hawaii, however, failed to reach agreement as Bridgestone would not accept the high value that Goodyear had
placed on its loss-making Trans-American oil pipeline. Bridgestone then turned to Firestone as a U.S. production base for the manufacture of heavy-
duty radial truck tires. They were encouraged in this by the acquisition of an ailing Firestone plant in LaVergne, Tennessee, in 1983, which
Bridgestone had turned into a success. Bridgestone originally agreed to buy Firestone's tire operations for $1.25 billion, but Pirelli, the Italian
manufacturer, intervened with a rival bid, forcing the Japanese company to increase the offer. Bridgestone finally paid $2.65 billion for the whole
company, with 54,000 employees and two headquarters, in 1988. The following year Bridgestone's North American operations were integrated with
those of Firestone under the Bridgestone/Firestone, Inc. subsidiary. One year later, Bridgestone/Firestone Europe S.A. was created to manage
European operations.
The Firestone deal gave Bridgestone its sought-after foothold in the United States and strengthened its position in Europe, as Firestone also owned
plants in Portugal, Spain, France, and Italy. In addition, it gave Bridgestone instant access to high-quality manufacturing facilities, with an
extensive national marketing system for replacement tires, as well as large research and development laboratories. The Firestone name and sales
network gave the Japanese company access to Detroit carmakers for original equipment sales and for the sale of Firestone brand tires for the two
million cars a year produced by Japanese automobile firms. In North America, Bridgestone's sales in the replacement market were through
independent dealers and through their MasterCare network of more than 1,500 tire and service centers. These independent dealers also
strengthened sales in the United States and Canada, and the company's marketing strategy widened further in the early 1990s through mass
merchandisers such as Sears and Kmart. Another highlight of its international sales network was the chain of Cockpit retail outlets, which offered
car audio equipment and accessories such as wheels, as well as tires. The 200th Cockpit shop opened in the spring of 1990.
Within six months of the Firestone purchase, Bridgestone announced a $1.5 billion modernization program. Firestone's auxiliary head office in
Chicago and Bridgestone's own U.S. base in Nashville were closed to concentrate operations in Akron, and Firestone's management was reduced
through a voluntary early retirement scheme. The investment in Firestone coincided with a slowdown in North American and European car
production, however, heralding a period of much tougher competition in tire markets. The renovation of Firestone turned out to be more expensive
and time-consuming than expected. Other problems included weak markets in Latin America and the Middle East and intense competition in
European markets. Fortunately for Bridgestone, not all of the massive investment came from borrowings but in part from Bridgestone's hidden
assets, including land, buildings, and securities, purchases made decades ago. Company founder Shojiro Ishibashi also had invested heavily in art,
mostly Western, opening the Bridgestone Museum of Art in 1952.
Bridgestone continued to retain its position in Asia, where Bridgestone and Firestone brands maintained the largest share of the market. This region
promised to display rapid growth in the world's tire markets over the next decade, and Bridgestone was positioned to remain in a strong position to
capitalize on this with local production operations and large market shares, particularly in Thailand, Indonesia, and Taiwan.
Bridgestone's production, however, was not limited to tires. Its technical research and development laboratories worked on the development of
rubber and nonrubber items. Rubber technology featured prominently with such items as conveyor belts, inflatable rubber dams, and marine
fenders. Multi-rubber bearings were produced for use in the construction of buildings in areas prone to earthquakes as the rubber element in the
construction enabled the buildings to vibrate with the earth's movement. Bridgestone's other innovative ideas included rubber "muscles" for robots
and grease-free conveyor belts. Bridgestone became a Japanese leader in vibration-isolating components for automobiles and through
Bridgestone/Firestone gained a large share of the North American market for rubberized roofing materials. It was also a major supplier in the
United States of air springs for trucks, automobiles, trailers, and other vehicles.
In 1988 Bridgestone Cycle Co., Ltd. gave cyclists the first opportunity to design their own machines. Cyclists were able to choose, from a list of
standard parts, the shape, color, and materials for the frame, brakes, handlebars, and seat, to make their own unique "mix and match" bicycle.
Bridgestone's advance in metallurgy made it possible to produce bicycles that were lighter than ever in weight. The Radac line of racing, touring,
and recreational bicycles was introduced in 1990, with a model that featured the world's lightest frame, thanks to an aluminum-ceramic composite,
the first ceramic material ever to be used on a bicycle. Nonrubber products included items from special batteries for electronic equipment to
weighing systems for aircraft. Bridgestone was also a leading supplier of golf balls and clubs, tennis rackets, and other sporting goods. The
Bridgestone Sports Co., Ltd. was established in 1972 and subsequently won many awards, including one from the Japanese Ministry for International
Trade and Industry for a line of windsurfing boards. In 1987 the company introduced the Science Eye system, which gave a high-speed photographic
analysis of a golfer's swing, for use in department stores and professional shops. Bridgestone also operated swimming schools and health clubs.
Although Bridgestone Corporation entered the 1990s with the ability to compete on equal terms with the industry's two other giants, Goodyear of
the United States and Michelin of France, its international expansion came late. Bridgestone had concentrated on the domestic market while other
Japanese companies were developing production plants and overseas markets. Japanese customers bought whatever Bridgestone sold, which did
little to encourage Bridgestone to develop new products; in addition, Bridgestone's production of radial tires came late by Western standards.
Japanese manufacturers were reluctant to import European or American tires in the 1960s and 1970s, even though foreign tires were considered
superior to Bridgestone's. These factors conspired to give the company a commanding share of the Japanese market, 46 percent in 1990, while
exports were 50 percent.
Difficulties with U.S. Operations in the Forefront in the 1990s
By 1991, Bridgestone's acquisition of Firestone generally was being called a huge blunder. Bridgestone, not wishing to step on American toes, was
slow to push for changes that were needed at a Firestone bloated with bureaucracy. Bridgestone even waited until late 1991 to integrate the U.S.
headquarters of Bridgestone and Firestone into one location (which turned out to be Nashville, not Akron, where Firestone had resided).
Bridgestone also had difficulty with the size of its new foreign subsidiary, finding it hard to manage from Japan. Finally, in March 1991 Yoichiro
Kaizaki, who spoke little English and had a background in the company's nontire operations, was sent to the United States to head up
Bridgestone/Firestone, the first Japanese person to do so. Meanwhile, Bridgestone/Firestone had lost $1 billion in the United States from 1990 to
1992. Bridgestone's profits consequently suffered, totaling only ¥4.5 billion in 1990 and ¥7.47 billion in 1991 before rebounding slightly to ¥28.4
billion in 1992.
Kaizaki immediately began to turn around the company's U.S. operations. In addition to consolidating headquarters in Nashville, he also tightened
the management structure by setting up 21 operating divisions at Bridgestone/Firestone, each with its own president whose pay was tied to his or
her division's performance. Money was pumped in from Japan to raise productivity at the plants and to improve the quality of the tires produced
there. After two years of improving the American operation, Kaizaki returned to Japan as president of Bridgestone Corporation. Kaizaki appointed
Masatoshi Ono, a trusted lieutenant, to head up Bridgestone/Firestone.
Bridgestone executives believed that its U.S. plants would not be profitable until the wages of its workers were cut and the workers agreed to
operate the plants 24 hours a day. With labor and management on a collision course, United Rubber Workers (URW) contracts with major
tiremakers expired in April 1994. Goodyear was chosen that year as the target company, and it reached an agreement in June with the URW.
Bridgestone, however, refused to accept the "pattern" agreement. The union rejected the company's contract proposal, and on July 12, more than
4,000 URW workers at five Bridgestone/Firestone plants went out on strike. In January 1995 Bridgestone hired more than 2,000 permanent
"replacement workers" (scabs), bringing criticism from both Labor Secretary Robert Reich and President Bill Clinton and much negative publicity for
Bridgestone/Firestone. In May the URW called off the ten-month-old strike, with the workers agreeing to return to work without a contract.
Nevertheless, not all of the workers were rehired immediately. In July 1995 the URW was absorbed into the United Steelworkers of America.
In September 1996 Bridgestone/Firestone recalled almost all of the workers it had replaced, and a little more than a month later, in early
November, a three-year agreement was reached, which both the Steelworkers and Bridgestone claimed as victory. Among the provisions favoring
the workers were the 4.4 percent wage hike and the rehiring of all workers dismissed during the long conflict. Bridgestone won the key concession
on operating the factories around the clock.
In the midst of this labor strife, Bridgestone/Firestone managed to turn a 1996 profit of $180 million in part because it had unilaterally imposed an
around-the-clock schedule. Back in Japan, meanwhile, Kaizaki was trimming domestic operations to contain costs, cutting the workforce 14 percent
from 1993 to 1996. The company was also in the midst of building new tire plants in central Europe and China and a plant in India scheduled to
open in 1998 through a joint venture with Tata Industries. In addition, despite its difficulties in the United States, Bridgestone spent $430 million in
1997 and 1998 to upgrade existing American plants and announced in mid-1997 that it would build its eighth U.S. tire factory, a $435 million plant
scheduled to open in Aiken, South Carolina, in early 1999. The new factory would manufacture about 25,000 car and light-truck tires at its peak,
and reach full employment of 800 workers by 2000. The company needed the new plants to satisfy the increasing demand for its tires; the U.S.
plant also was designed specifically to reduce the need to import tires from Japan. Indeed, tire sales had increased nearly 19 percent in 1996, a
year in which Bridgestone earned a record ¥70.34 billion ($645.28 million) on a record ¥1.96 trillion ($17.96 billion) in sales.
Despite slumping sales of automobiles in Japan and other Asian nations because of the Asian economic crisis of 1997-98, Bridgestone closed out the
decade strongly. In fact, the results for 1998 set new records: ¥104.63 billion ($921 million) in profits on ¥2.24 trillion ($19.69 billion) in revenues.
The company was aided by its more efficient and productive U.S. operations, which showed steadily increasing profits in the late 1990s, reaching
$300 million by 1999. The balance sheet of the U.S. subsidiary also was bolstered through a 1999 infusion of cash from the parent company aimed
at reining in Bridgestone/Firestone, Inc.'s $3 billion debt.
On the negative side, Kaizaki had received much criticism in Japan for his aggressive, U.S.-style restructuring initiatives, including the launch of an
early retirement program in the early 1990s; such moves were, in large part, still considered anathema in Japan. The criticism of Kaizaki came to a
head in March 1999. That month a Bridgestone manager who had agreed to take early retirement went into Kaizaki's office to demand that the
company's personnel policies be changed. When Kaizaki refused to change course, the manager took out a knife and committed hara-kiri. The
resulting firestorm of negative publicity was only heightened by Kaizaki's failure to speak publicly about the incident for four months; when he did
break his silence during a meeting with reporters, the company president came off as defiant and unfeeling.
Surviving a Potentially Devastating Tire Recall in the Early 2000s
In mid-2000 Kaizaki found himself embroiled in another crisis when reports began surfacing of possible defects in several Firestone tire models.
Some of the tires, many of which had been used as the original tires on Ford Explorer sport utility vehicles, were shredding on the highway, leading
to rollover accidents and more than 200 deaths and some 800 injuries, according to investigators with the U.S. National Highway Traffic Safety
Administration. In August 2000 Bridgestone announced that its U.S. subsidiary would recall 6.5 million Firestone-brand ATX, ATX II, and Wilderness
AT tires and replace them at the cost of hundreds of millions of dollars. Bridgestone's stock nosedived, and the company was once again hurt by
missteps on the public relations front: Kaizaki, as he had in the prior crisis, maintained a long public silence over the issue, and Ono, the head of
the U.S. subsidiary, made a belated public apology that was further marred by the suggestion that the drivers were to blame for the accidents
because they had failed to keep their tires properly inflated.
Bridgestone gained control over the crisis soon after new executives were installed. In October 2000 Ono was replaced by John Lampe, who had
been marketing chief for Bridgestone/Firestone. In early 2001, Shigeo Watanabe, a senior vice-president, took over the helm at Bridgestone,
replacing Kaizaki. One of Watanabe's key early moves was to give Lampe more authority to make autonomous decisions concerning the crisis
without constantly needing to gain approval from the Tokyo headquarters. As an American, Lampe was better able to communicate the
Bridgestone/Firestone line: While acknowledging that the company had made some bad tires, and after expressing regret for the tragic accidents,
Lampe was aggressive in contending that the design of the Ford Explorer had played a key role in the rollover accidents. When Ford Motor Company
announced in May 2001 that it would spend $3 billion to replace an additional 13 million Firestone tires on Ford vehicles, Lampe made the stunning
announcement that the Bridgestone/Firestone unit would end its 95-year relationship with Ford--at least in North and South America. (The two
companies had more than just a business relationship: William Clay Ford, Jr., chairman of Ford, was the great-grandson of the founder of Firestone,
Harvey Firestone.) While dramatic, cutting ties with Ford represented the loss of only 4 percent of Bridgestone's total revenues.
To escape the bankruptcy of the U.S. unit that many observers were predicting at the height of the crisis, Lampe engineered other moves. He took
to the airwaves, starring in television commercials that had the theme "Making It Right" to begin repairing the damaged Firestone image. To the
surprise of a number of analysts, the Firestone brand was not jettisoned but was instead retained as a mass market brand in the United States--
though repositioned slightly downmarket--while the Bridgestone brand received greater emphasis as a premium brand. Lampe worked hard to keep
Bridgestone/Firestone dealers onboard in particular by picking up the costs of the recall. He also launched a cost-cutting initiative to stem the
unit's sea of red ink. Most notably, the company's plant in Decatur, Illinois, where many of the recalled tires had been made, was shut down at the
end of 2001, costing about 1,500 workers their jobs.
Recall-related costs led to a $511 million loss at Bridgestone/Firestone in 2000, and the following year the unit lost a whopping $1.7 billion thanks
not only to recall and restructuring costs but also to $285 million paid out to settle lawsuits filed in connection with the rollover accidents. The
crisis meantime had a major impact on the company's U.S. market share, cutting its portion of the replacement tire market from 10.5 percent in
1999 to 7.5 percent in 2001, while its share of the new car market fell in the same period from 25 percent to 22 percent. To shore up the finances
at Bridgestone/Firestone, the parent company injected it with $1.3 billion in January 2002. Despite the retention of the Firestone brand,
Bridgestone began dropping that moniker from the names of its subsidiaries, with the U.S. unit renamed Bridgestone Americas Holding, Inc. at the
beginning of 2003 and the company's European holding company renamed Bridgestone Europe N.V./S.A. This rebranding was part of an effort to
build a global corporate identity under the Bridgestone name.
The remarkable turnaround at Bridgestone was evident in its results for 2002, which included a 5 percent increase in revenues, a 161 percent jump
in profits, and the return of the U.S.-based subsidiary to profitability. Growing ever more confident that the crisis was over, Bridgestone announced
late in 2002 that it was earmarking ¥56 billion ($467 million) for an expansion of its global passenger tire production capacity at plants in Japan,
Poland, Thailand, Indonesia, China, Costa Rica, and Mexico. An additional ¥27 billion ($225 million) was set aside to increase production capacity at
plants in Thailand, China, and Spain, where truck and bus tires were made. In March 2003 Bridgestone bolstered its European operations by
purchasing an 18.9 percent interest in Finnish tire manufacturer Nokian Tyres PLC for ¥78.3 million. Nokian was the largest tire producer in the
Nordic region with sales of ¥479 million in 2002. Still the world's leading tire maker, Bridgestone had managed not only to survive the potentially
crippling tire recall but also to return quickly to a policy of aggressive growth.
Principal Subsidiaries: Bridgestone Cycle Co., Ltd.; Bridgestone Finance Corporation; Bridgestone Flowtech Corporation; Bridgestone Elastech Co.,
Ltd.; Bridgestone Sports Co., Ltd.; Asahi Carbon Co., Ltd. (99.4%); Bridgestone Tire Tokyo Hanbai K.K.; Bridgestone Tire Chubu Hanbai K.K. (99.7%);
Bridgestone Tire Osaka Hanbai K.K.; Bridgestone Tire Hokkaido Hanbai K.K.; Bridgestone Tire Kyushu Hanbai K.K.; Bridgestone/Firestone Argentina
S.A.I.C.; Bridgestone Australia Ltd. (60.3%); Bridgestone Earthmover Tyres Pty. Ltd. (Australia); Bridgestone Europe N.V./S.A. (Belgium);
Bridgestone Aircraft Tire (Europe) S.A. (Belgium); Bridgestone/Firestone do Brasil Industria e Comercio Ltda. (Brazil); Bridgestone/Firestone Canada
Inc.; Bridgestone/Firestone Chile, S.A. (89.7%); Bridgestone Off-the-Road Tire Latin America S.A. (Chile; 90%); Bridgestone (Tianjin) Tire Co., Ltd.
(China; 94.5%); Bridgestone (Shenyang) Tire Co., Ltd. (China; 73.5%); Bridgestone Aircraft Tire Company (Asia) Limited (China);
Bridgestone/Firestone de Costa Rica, S.A. (98.6%); Bridgestone France S.A.; Bridgestone Deutschland G.m.b.H. (Germany); Bridgestone ACC India
Ltd. (64%); P.T. Bridgestone Tire Indonesia (51%); Bridgestone Italia S.p.A. (Italy); Bridgestone/Firestone de Mexico, S.A. de C.V.; Bridgestone
Benelux B.V. (Netherlands); Bridgestone Finance Europe B.V. (Netherlands); Bridgestone/Firestone New Zealand Ltd.; Bridgestone Poland Limited
Liability Company; Bridgestone Portuguesa, Lda. (Portugal); Bridgestone C.I.S. L.L.C. (Russia); Bridgestone Singapore Pte., Ltd.;
Bridgestone/Firestone South Africa Holdings (Pty) Ltd. (93.7%); Bridgestone Hispania S.A. (Spain; 99.7%); Bridgestone Sweden AB; Bridgestone
(Schweiz) AG (Switzerland); Bridgestone Taiwan Co., Ltd. (80%); Thai Bridgestone Co., Ltd. (Thailand; 67.2%); Brisa Bridgestone Sabanci Lastik
Sanayi ve Ticaret A.S. (Turkey; 42.9%); Bridgestone U.K. Ltd.; Bridgestone Industrial Ltd. (U.K.); Bridgestone Americas Holding, Inc. (U.S.A.);
Bridgestone/Firestone North American Tire, LLC (U.S.A.); BFS Retail & Commercial Operations, LLC (U.S.A.); BFS Diversified Products, LLC (U.S.A.);
Morgan Tire & Auto, Inc. (U.S.A.; 58.5%); Bridgestone APM Company (U.S.A.); Bridgestone Aircraft Tire (USA), Inc.; Bridgestone/Firestone
Venezolana C.A. (Venezuela).
Principal Competitors: Compagnie Générale des Établissements Michelin; The Goodyear Tire & Rubber Company; Continental AG; Sumitomo Rubber
Industries, Ltd.; The Yokohama Rubber Co., Ltd.; Cooper Tire & Rubber Company; Toyo Tire & Rubber Co., Ltd.; Kumho Industrial Co., Ltd.

P.O. Box 10
Speedbird House
Heathrow Airport
Hounslow, Greater London TW6 2JA

Telephone: 81 759-5511
Fax: 81 897-1889

Public Company
Incorporated: 1924 as Imperial Air Transportation, Ltd.
Employees: 50,060
Sales: £7.177 billion (US$9.78 billion)
Stock Exchanges: London
SICs: 4500 Transportation by Air; 4725 Tour Operators

Company History:
British Airways PLC is the largest international airline in the world. It is based at Heathrow Airport in London, the busiest international airport in
the world, and has a global flight network through such partners as USAir in the United States, Qantas in Australia, and TAT European Airlines in
France. Via its own operations and those of its alliance partners, British Airways serves 95 million passengers a year using 441 airports in 86
countries and more than 1,000 planes.
British Airways' earliest predecessor was Aircraft Transport & Travel, Ltd., founded in 1916. On August 25, 1919 this company inaugurated the
world's first scheduled international air service, with a converted de Havilland 4A day bomber leaving Hounslow (later Heathrow) Airport for London
and also Le Bourget in Paris. Eight days later another company, Handley Page Transport, Ltd., started a cross-channel service between London's
Cricklewood Field and both Paris and Brussels.
That same year Britain's advisory committee for civil aviation proposed plans for establishing a world airline network linking Britain with Canada,
India, South Africa, Australia, and New Zealand. Because airplanes capable of crossing wide stretches of water were not yet available, the
committee recommended that first priority be given to a route to India operated by state-assisted private enterprise.
Progress was made quickly. Before the end of the year the British government was operating a service to Karachi and had established a network of
43 Royal Air Force (RAF) landing strips through Africa to the Cape of Good Hope. Meanwhile, strong competition from subsidized foreign airline
companies had forced many of the private British air carriers out of business. By March 1921 all British airline companies had suspended their
operations. The government responded with a pledge to keep the British companies flying, using its own form of subsidization.
In January 1923 Parliament appointed the Civil Air Transport Subsidies Committee to form a single British international air carrier from existing
companies. On March 31, 1924 the Daimler Airway, British Marine Air Navigation, Instone Air Line, and Handley Page merged to become Imperial Air
In 1925 Imperial Airways operated a number of European routes while it surveyed a route across the Arabian desert from Cairo to Basra in present-
day Iraq. The airline was faced with a number of problems on this route. The desert was featureless, making it easy to get lost. Water stops and
meteorological and radio stations were difficult to maintain. Basra was a major terminal on the route to India. However, on January 7, 1927 the
Persian government forbade Britain the use of its airspace, blocking all flights to India. Negotiations reopened the airspace two years later, but not
before generating a demand for longer range aircraft.
Passengers flying to India flew from London via Paris to Basel, where they boarded a train for Genoa. A flying boat then took them on to Alexandria,
where they flew in stages to Karachi. The passage to India, previously three weeks by sea, had been reduced to one week by air.
Imperial Airways service to Calcutta was established in July 1933, to Rangoon in September, and to Singapore in December. In January of the
following year the Australia's Queensland and Northern Territories Air Service (Qantas) inaugurated a route linking Singapore with Brisbane. The
passage to Australia could be completed in twelve-and-a-half days.
A commercial service through Africa was opened in 1931 with flying boats linking Cairo with Mwanza on Lake Victoria. In April 1933 the route was
extended to Cape Town, the trip from London taking ten-and-a-half days. An east-west trans-African route from Khartoum in the Sudan to Kano in
northern Nigeria was established in February 1936. This route completed a world network which linked nearly all the countries of the British
The primary source of revenue on the network was not from transporting passengers but mail. Nevertheless, an increase in demand for more
passenger seating and cargo space generated a need for larger airplanes. Britain's primary supplier of flying boats, the Short Company, developed a
new model, designated the C-class, with 24 seats and weighing 18 tons. Since it had an increased range and flew 145 miles per hour, it was able to
simply bypass "politically difficult areas." The Short C-class went into service in October 1936. A year later Imperial Airways made its first trans-
Atlantic crossing with a flying boat equipped with extra fuel tanks. However, it was Pan Am, with more sophisticated and updated Boeing airplanes,
which was first to schedule a regular trans-Atlantic service.
Imperial Airways was formed with the intention of being Britain's "chosen instrument" for overseas air service. On its European services, however,
Imperial was competing with the British Continental airlines and an aggressive newcomer called British Airways. British Airways was created in
October 1935 by the merger of three smaller airline companies. Three months later the company acquired a fleet of Lockheed 10 Electras which
were the fastest airplanes yet available. The competition from British Airways threatened the "chosen instrument" so much that in November 1937 a
Parliamentary committee proposed the nationalization and merger of Imperial and British Airways. When the reorganization was completed on
November 24, 1939, the British Overseas Airways Corporation (BOAC) was formed.
The creation of BOAC was overshadowed by the declaration of war on Germany the previous September. The Secretary of State for Air assumed
control of all British air services, including BOAC. Within a year Italy had entered the war and France had fallen. Britain's air routes through Europe
had been eliminated. British flying boats, however, continued to ferry personnel and war cargo between London and West Africa with an
intermediate stop at Lisbon in neutral Portugal. The air link to Khartoum maintained Britain's connection to the "Horseshoe Route," from Cape Town
through East Africa, Arabia, India, and Singapore to Australia. When Malaya and Singapore were later invaded by the Japanese, BOAC and Qantas
opened a nonstop service between Ceylon and Perth in Western Australia. BOAC transported ball bearings from neutral Sweden using a route which
was dangerously exposed to the German Luftwaffe. BOAC also operated a service for returning flight crews to North America after they delivered
American- and Canadian-built aircraft to the Royal Air Force.
When the war ended BOAC had a fleet of 160 aircraft and an aerial network that covered 54,000 miles. The South American destinations of BOAC
were assigned to a new state-owned airline, British South American Airways (BSAA), in March 1946. Similarly, the European services were turned
over to British European Airways (BEA) on August 1, 1946. After the war Britain reestablished its overseas services to the nations of its empire.
Some of the nations which had recently gained their independence from Britain received advice (and often finance) from BOAC.
In order to remain competitive with the American airline companies, BOAC purchased Lockheed Constellations, the most advanced commercial
aircraft of the day. They were later joined by Boeing 377 Stratocruisers and Canadair Argonauts (modified DC-4s). BEA operated generally smaller
airplanes and more frequent flights between the British Isles and Continental Europe. In 1948 it joined other Allied airline companies in the airlift
to Berlin during the Soviet blockade.
Following a series of equipment failures at BSAA, the Civil Aviation ministry declared that the company should remerge with BOAC. On July 30,
1949, BSAA was absorbed by BOAC. Even though its passenger load had steadily increased, BOAC accumulated a debt of £32 million in the five years
from 1946 to 1951. Much of this was due to "recapitalization," or purchasing new equipment; the British-built Handley Page Hermes and de
Havilland's DH Comet 1, the world's first jetliners, were delivered to BOAC.
In January 1954 one of BOAC's Comets exploded near Elba in the Mediterranean. Another Comet crashed near Naples only 16 days after an
investigation of the first crash was concluded. As a result, the Comet's certificate of airworthiness was withdrawn and a full investigation was
ordered. In the final report it was determined that the Comet's pressurized cabin was inadequately designed to withstand low air pressures at
altitudes over 25,000 feet. When the airplane reached that altitude it simply exploded. The cabin was strengthened and the jet reintroduced in
1958 as the DH Comet 4.
The company was forced to purchase propeller-driven DC-7s to cover equipment shortages when delivery of its Britannia turboprops was delayed in
1956. When the Comet reentered service BOAC found itself with two undesirable fleets of aircraft which were later sold at a loss of £51 million
($122 million).
South American operations were suspended in 1954 when the Comet was taken out of service. Operation of the route with shorter range aircraft
was too costly. At the insistence of Argentina and Brazil, which claimed Britain had "lost interest" in South America, the routes were reopened in
1960. That same year the first of 15 Boeing 707 jetliners was delivered to BOAC.
British European Airways used a wide variety of aircraft for its operations and remained a good customer for British aircraft manufacturers. In 1964
the company accepted delivery of the first de Havilland Trident 1, a three-engine airliner capable of speeds up to 600 miles per hour. A few years
later, when the company expressed an interest in purchasing a mixed fleet of Boeing 727s and 737s, it was instructed by the government to "buy
British" instead. BEA complied, ordering BAC-111s and improved versions of the Trident.
BOAC's cargo traffic was growing at an annual rate of 27 percent. Nevertheless, a sudden and unexplained drop in passenger traffic during 1961 left
many of the world's airline companies with "excess capacity," or too many empty seats to fly profitably. At the end of the fiscal year BOAC's
accumulated deficit had grown to £64 million. The losses, however, were underwritten by the British government, which could not allow its flag
carrier to go bankrupt.
BOAC and Air France agreed to commit funds for the buildings of a supersonic transport (SST) in 1962. In June the company became associated with
the Cunard Steamship Company. A new company, BOAC-Cunard Ltd., was placed in charge of the trans-Atlantic air services in an attempt to
capture a larger portion of the American travel markets.
The British government published a "White Paper" (a statement of government policy) which recommended a drastic reorganization of BOAC. In
response, the company's chairman, Sir Matthew Slattery, and the managing director, Sir Basil Smallpiece, resigned. Britain's minister for aviation
appointed Sir Giles Guthrie as the new chairman and chief executive officer. Under Sir Giles BOAC suspended its unprofitable services and
rescheduled its equipment purchases and debt payments. After the financial situation had improved, the company continued to purchase new
equipment and expand its flight network. In April of 1967 BOAC established its second around-the-world route and opened a new cargo terminal at
The company's sister airline, BEA, had been paying close attention to consumer marketing for vacationers. In 1967 the company created a division
called BEA Airtours Ltd., offering complete travel packages to a number of vacation spots. In May 1969 BOAC opened a passage to Japan via the
North Pole. The route was shortened even further when the Soviet Union granted BOAC landing rights in Moscow and a Siberian airlane to Tokyo.
On March 31, 1972, after six years of record profits, BOAC announced that it no longer owed any money to the government. Later, on July 17,
following several recommendations on further reorganization of the state-owned airline companies, management of BEA and BOAC were
coordinated under a new government agency called the British Airways Group. On April 1, 1974 the two companies were merged and renamed
British Airways. A second reorganization of the internal management structure took place in 1977.
The first British Airways Concorde was introduced in 1976. Jointly manufactured by British Aerospace and the French firm Aerospatiale, the
supersonic Concorde was capable of carrying 100 passengers at the speed of 1,350 miles per hour at an altitude of 55,000 feet. A seven-hour flight
from New York to London was nearly reduced to half the time by the Concorde. British Airways employed additional Concordes on a number of
international services, most notably London-Singapore, which was temporarily suspended through 1978 due to "political difficulties."
In 1980 Prime Minister Margaret Thatcher appointed Lord (John) King as the new chairman of British Airways. His stated assignment was to prepare
the airline for privatization (sale to private stockholders). Lord King's first move was to adopt aggressive "American-style" marketing and
management philosophies. As a result, he initiated a massive campaign to scale down the company and reduce costs. More unprofitable air services
were terminated, and a staff reduction (begun under Lord King's predecessor, Roy Watts) was continued. A British Airways official told Business
Week magazine that, "we had too many staff but couldn't get rid of them because of the unions." In order to utilize the excess labor, the company
was forced to remain large. Lord King established a better relationship with labor, which had become more agreeable to layoffs and revisions of
work rules. In three years the work force was reduced from 60,000 to 38,000 without a strike.
On July 11, 1983, no fewer than 50 senior executives were fired. The company's chief executive officer, Colin Marshall, hired in their place a team
of younger executives (mostly with nonairline business backgrounds). The new executive staff initiated a series of programs to improve punctuality
and service at the airline, whose BA acronym stood in many customers' minds for "Bloody Awful." They hired Landor Associates, a successful San
Francisco-based design firm with considerable experience with airlines, to develop an entirely new image for British Airways. The result was
controversial. The British Airways coat of arms and portion of the Union Jack on the airplane's tail fin was bound to upset the more politically
temperamental countries of the third world which the company serves. The familiar "Speedbird" logo which dates back to the days of Imperial
Airways was removed despite employee petitions to retain it.
British Airways also recognized a need to replace older airplanes in its fleet with more modern and efficient equipment. The company's Lockheed
TriStars were sold to the RAF for conversion into tankers, and the BAC-111s were sold because they would violate new noise regulations. British
Airways leased a number of airplanes until new purchases could be made after the privatization.
The company was plagued by its decision to retain separate European and overseas divisions. The result was a perpetuation of the previous
management regimes of BEA and BOAC. To rectify this problem the operation was further divided into eight regional groups involved in three
different businesses: cargo, charter, and tours. Each of the eight groups has increased autonomy and responsibility for its business and profitability.
The Laker Airways Skytrain, an initially successful cut-rate trans-Atlantic airline, was forced to close down due to what its chairman, Freddie Laker,
claimed was a coordinated attack by a number of airlines to drive the company into bankruptcy. Laker charged the companies, which included
British Airways, with violations of antitrust laws. He later settled out of court for $48 million, but in a subsequent civil suit British Airways was also
required to issue travel coupons to passengers who claimed they were hurt by the collapse of Laker Airways.
Ironically, in the mid-1980s the company began advocating the deregulation of European air fares in the belief that it could compete more
effectively than its rivals. But Air France and Lufthansa in particular were reluctant to participate, claiming that deregulation would endanger the
delicate market balance which took so many years to establish.
In 1985 British Airways was made a public limited company, but all its stock was retained by the government until such time that it could be
offered to the public. The privatization of British Airways (which was limited to a 51 percent sale) was delayed by a number of problems. The
company's chief domestic rival, British Caledonian, opposed British Airways' privatization claiming that the company already controlled 80 percent
of the domestic market and was too large to compete against. But British Airways' most significant obstacle to privatization involved reducing the
debt that it accumulated during the 1970s, and increasing the company's profitability. In February 1987 the privatization was finally consummated
when 720.2 million shares of British Airways stock were sold to the public for one billion pounds ($1.47 billion).
British Caledonian, or BCal, was formed in 1970 through the merger of Caledonian Airways and British United Airways. For many years, BCal was
British Airways' only large domestic competitor, fighting vigorously under the direction of Sir Adam Thompson for more favorable operating rights
from the British government. When Britain's Civil Aviation Authority recommended the reallocation of British Airways routes to BCal in 1984, Lord
King threatened to resign. Instead, British Airways was instructed to trade its profitable Middle East routes for some of BCal's less profitable Latin
American destinations. The Middle Eastern routes became much less popular during 1986 as a result of regional tensions and falling oil prices. BCal,
which had been generating a fair profit, started to lose money and was faced with bankruptcy.
In July 1987 British Airways acquired BCal for £237 million in stock. The new airline had almost 200 aircraft, and combined British Airways' 560,000-
kilometer route structure with BCal's largely unduplicated 110,000-kilometer network, forming one of the largest airline companies in the world.
Several smaller independent British airline companies unsuccessfully challenged the BA/BCal merger on the grounds that the new company would
dominate both London's Heathrow and Gatwick airports, forcing them to relocate to the less accessible and underdeveloped field at Stansted.
With its dominance of the home market secure for the time being, British Airways aggressively expanded in Europe, North America, and the Pacific
Rim over the next several years, aiming to become a global airline. Its first foray into the lucrative U.S. market came in 1988 when it formed a
marketing alliance with United Airlines designed to feed customers from one carrier to the other and vice versa. This partnership set the pattern
for British Airway's expansion--it would not be based on forming new airlines outside England or acquiring them, but rather through strategic
alliances. Nevertheless, this first partnership collapsed a little more than two years later when United became a direct competitor to British
Airways once it had gained access to Heathrow in 1991, along with American Airlines. The two strongest airlines in the United States had purchased
the Heathrow rights from the floundering Pan Am and TWA, immediately increasing competition in British Airways' home market.
While the alliance with United was still operating, British Airways suffered losses in Europe in 1990 and 1991 because of the Gulf crisis in the
Mideast. Shortly after, in July 1991, it entered into an alliance with Aeroflot in Russia to create a new airline called Air Russia. After several false
starts over the next few years, this venture never got off the ground. Additional proposed alliances failed in 1992 for other reasons. Officials from
British Airways and KLM Royal Dutch Airlines held extensive discussions about a merger in 1991 and 1992, but talks broke down over the valuation of
the two firms. Later in 1992, British Airways attempted to purchase 44 percent of USAir Inc. for $750 million. American, United, and Delta Air Lines
(the U.S. "Big Three") vigorously lobbied against the deal and demanded enhanced access to the British market if the deal was to be approved by
the U.S. government. In December the purchase was blocked.
That same month the first in a string of alliances was struck when the airline paid $450 million for 25 percent of Qantas, the Australia-based
international airline. In 1993, British Airways gained a 49.9 percent stake in the leading French independent carrier TAT European Airlines, then
launched a start-up in Germany called Deutsche BA with 49 percent ownership. Through these alliances, British Airways had enhanced its position in
the Pacific Rim and Europe. It now refocused its attention across the Atlantic where it restructured its offer for a piece of USAir into a $400 million
purchase of 25 percent of the company. This alliance received U.S. government approval. The government also approved a code-sharing
arrangement that enabled the partners to offer their customers a seamless operation when they use both airlines to reach their destination.
While all this dealmaking was going on abroad, British Airways faced an embarrassing and potentially costly fight at home with Richard Branson's
upstart Virgin Atlantic Airlines. Since starting operations in the early 1980s, Virgin had made some inroads against British Airways primarily by
focusing on customer service, something "Bloody Awful" BA had neglected for years. Branson filed suit against British Airways in 1991 alleging that
British Airways had smeared Branson and his airline and conducted "dirty tricks" such as spreading rumors about Virgin's insolvency. In 1993 the suit
was settled out of court with British Airways offering a public apology and paying £500,000 to Branson and £110,000 to Virgin. The case also led to
the resignation of Lord King. Second-in-command Colin Marshall took over as chairman. Further litigation followed between the two rivals, most
seriously a $1 billion antitrust suit brought by Virgin in the United States. Various suits damaged British Airways' reputation and led to comments
such as the following from the Economist: "BA now looks ... like an anxious, overbearing giant trying to squash a feisty little rival."
With its Virgin difficulties continuing, British Airways' overseas partners suffered huge losses: in 1993 Qantas lost $271 million, while in 1994 TAT
lost $60 million and USAir lost $350 million. The situation at USAir was so grim that British Airways declared that they would hold back an additional
$450 million investment in the firm until the carrier was in the black. In May 1995 British Airways was forced to take a $200 million charge to write
down the value of its USAir investment.
Even though British Airways was struggling with its alliance strategy, the real test of its global strategy lay ahead with the long-awaited 1997
deregulation of the European airline industry. It approached that date as one of the most profitable airlines in the world, despite the faltering
alliances, and had been in the black every year since privatization.
Principal Subsidiaries: British Airways Capital Ltd. (89%); British Airways Finance BV; British Airways Holidays Ltd.; Caledonian Airways Ltd.; Qantas
Airways Ltd. (25%, Australia); TAT European Airlines S.A. (49.9%, France); Deutsche BA L.m.b.H. (49%, Germany); Air Russia (31%); Bedford
Associated, Inc. (U.S.); British Airways (U.S.); Galileo International Partnership (14.6%, U.S.); USAir Group, Inc. (24.6%, U.S.).

Postfach 80 11 09
81611 Munich
Fax: +89 6 07-3 42 39

Public Company
Incorporated: 1989
Employees: 50,784
Sales: DM 15.03 billion
Stock Exchanges: Munich
SICs: 3721 Aircraft; 3724 Aircraft Engines & Engine Parts; 3728 Aircraft Parts & Equipment, Not Elsewhere Classified; 3761 Guided Missiles & Space
Vehicles; 3764 Space Propulsion Units & Parts; 3669 Communications Equipment, Not Elsewhere Classified

Company Perspectives:

Because we are a company active in the field of high technology, the way we see the future determines our entrepreneurial activity. Decisions that
we take today will affect every aspect of our lives in the 21st century. At Daimler-Benz Aerospace we are committed to securing the wellbeing of
mankind in the world of tomorrow.

Company History:
With less than a decade under its belt, Daimler-Benz Aerospace AG has transformed the German aircraft industry from a bit player on the global
scene into a leading star of the European aerospace industry. Commonly known as DASA, this affiliate of Germany's Daimler-Benz designs and
manufactures both military and civilian aircraft, including missiles, helicopters, space, and commercial vehicles. DASA's Deutsche Airbus subsidiary
is a lead partner in the pan-European Airbus consortium via a 37.9 percent share. Led by Group President Hartmut Mehdorn in the mid-1990s, DASA
struggled to become consistently profitable. DASA was created in May 1989 through the merger of Messerschmitt-Böelkow-Blohm (MBB), Dornier
GmbH, Motorenund Turbinen Union (MTU), and Telefunken System Technik (TST). The newly-formed conglomerate took a controlling (80 percent)
interest in Deutsche Airbus that December.
Background and Development ofGerman Aerospace Industry
Although DASA wasn't formed until the late 1980s, its creation is intimately linked to several trends that characterized the German aerospace
industry in the post-World War II era. Before the First World War, Germany had been an influential player in the aircraft industry. And afterwards,
despite prohibitions against military development, German companies continued to create civilian and military aircraft. In fact, the country's build-
up prior to World War II was distinguished by innovative technical and production capabilities.
After the Second World War, however, German aircraft companies were truly hamstrung. In his book Airbus Industrie, David Weldon Thornton noted
that "after the defeat of the Third Reich Germany found itself prohibited from having an indigenous aviation capability." Although the advent of the
Cold War helped revive the industry, at least in the Federal Republic of Germany (West Germany), the divided country's many aerospace companies
continued to lag behind their contemporaries in Great Britain and France throughout the mid-20th century.
Regional rivalries within the German aviation industry exacerbated each company's inability to compete on a continental, let alone global, scale.
Specifically, the German aircraft industry didn't start to consolidate until the mid-1960s, much later than did France, Britain, or most significantly,
the United States. The pace of mergers quickened after 1968, when the West German parliament formally declared that it would use direct and
indirect subsidies "to induce the enterprises to combine into larger, and thus competitive units."
But by that time, such American aerospace giants as Boeing Company, McDonnell Douglas Corporation, and Lockheed Corporation dominated the
global market for commercial passenger aircraft. In order to compete more effectively, the federal governments and aerospace companies of
France, Great Britain, and Germany began to investigate ways to pool their resources.
Four years of negotiations resulted in the December 1970 formation of G.I.E. Airbus Industrie, a consortium headquartered and incorporated in
France. Founding members were France's Aérospatiale and Deutsche Airbus GmbH, a German joint venture created with contributions from five
companies: Messerschmitt, Dornier, Blohm-Hamburger Flugzebau (HFB), Vereinigte Flugtechnische Werke (VFW), and Siebel. Each took a 20 percent
share in the Airbus affiliate, which was created in 1967.
Future DASA member MBB was formed through the union of Messerschmitt and Böelkow, two southern German interests that had themselves
merged in the fall of 1968 with Blohm-Hamburger Flugzebau (HFB), a northern German manufacturer. By the late 1980s, only MBB and VFW still
held stakes in Deutsche Airbus. Dornier, another major aircraft manufacturer and future DASA member located in southern Germany, was
characterized as "jealously independent" in Thornton's 1995 study.
During the 1970s, German firms participated in several trans-European collaborations, but because of their small size German participants often
had secondary roles and made most of the compromises.
Formation of DASA in the Late 1980s
In 1987, German automaker Daimler-Benz had several reasons for acquiring and consolidating the German aerospace industry's largest players. First,
Daimler-Benz leader Edzard Reuter hoped that DASA would help diversify his company from its core in luxury cars and heavy-duty trucks. He also
believed that the aerospace business would complement the automotive operations by providing insights into new technologies and engineering.
Perhaps more importantly, it was expected that the amalgamation would return Germany's aerospace industry to the position of leadership it had
enjoyed in the early 20th century.
Daimler-Benz acquired controlling interests in MBB, Dornier, and MTU and merged them with its own Telefunken System-Technik (TST) electronics
unit in May 1989. That December, the carmaker bought a controlling (80 percent) interest in Deutsche Airbus. The parent company organized these
companies under Daimler-Benz Luftund Raumfahrt Holding (Daimler-Benz Aerospace Holding), a holding company 85 percent owned by Daimler-
Benz and the rest by state and local governments. The carmaker also tried to add shipbuilding interests to the mix, but was prevented from doing
so by the federal antitrust department.
Jürgen E. Schrempp, formerly a top executive with Mercedes' truck-building unit, was selected to lead the new company. Schrempp vowed to "wean
Airbus from government subsidies" and "make DASA a bottom-line company," according to a May 1993 Business Week article. In 1990, he
told Aviation Week & Space Technology's Michael Mecham that he wanted to transform DASA--and by extension the German aerospace industry--
from "a junior partner" to "an equal partner" in the European sphere.
But the amalgamation did not proceed as smoothly as Daimler-Benz might have planned. The hurdles were both political and cultural. Rivalries
between the former competitors endured, despite their new alliance. Moreover, the Federal Cartel Office opposed Daimler-Benz's effort to bring
Messerschitt-Beilkow-Blohm into the fold. The automaker had to bypass the ministry, applying directly to the Kohl administration to approve the
merger. Critics in the German antitrust department, as well as remaining domestic aircraft manufacturers, worried about the concentration of
power and government subsidies and contracts. Other more objective observers feared that Daimler-Benz had "overextended itself."
1990 was DASA's first year to operate as a fully consolidated corporation but it took until 1993 for the company to integrate all the member
companies. Although Airbus Industrie made its first profit ever that year, Deutsche Airbus's loss heavily influenced DASA's DM135 million shortfall on
DM12.5 million in revenues. Deutsche Airbus' 1991 profit helped carry its parent to a net income of DM50 million (US$31.25 million).
Profitability was fleeting, however, as a number of factors converged on the German aerospace industry. European economic unification influenced
the consolidation of the continental market. The end of the Cold War and German reunification reduced military budgets and direct government
subsidies in favor of economic restructuring and rebuilding the East German infrastructure. Military purchasing in Germany slashed 60 percent in
the early 1990s, and civil markets also declined, as commercial airlines struggled to profit as well. The decline of these two major market segments
demanded consolidation and intensified competition.
Company leader Schrempp employed several key strategies in the face of this difficult environment. First, he planned to forge joint ventures that
would spread the costs, risks, and government subsidies among the partners, particularly in the development of new aircraft. The European Fighter
Aircraft (EFA) project, for example, united the efforts of British, Italian, Spanish, and German manufacturers for what Aviation Week & Space
Technology called "the continent's most ambitious program." The German government held a 33 percent stake in the project, but threatened
several times to pull out and reduced its aircraft order from 250 to 200 in 1992. That same year, German defense minister Rühe announced that the
country would abandon the EFA, but he was quickly forced to recant. Although CEO Schrempp wanted to reduce DASA's dependence on military
contracts, he didn't want Germany to abandon the EFA. He was adamant that the country remain engaged, tellingInteravia/Aerospace World's Brian
Davidson that abandoning the project "could mean the loss of 10,000 jobs and a severe loss from the technological standpoint." DASA and Germany
were still participating when the EFA made its first test flight in 1994.
Outside of the EFA project, Schrempp sought to reduce DASA's dependence on the rapidly dwindling defense market from 45 percent of sales to 25
percent by 1997. He set out to accomplish that goal in a roundabout way, decreasing DASA's military emphasis by increasing its presence in civilian
aircraft through the US$393 million acquisition of a controlling interest in Holland's Fokker in 1992. The purchase came after more than a year of
negotiations with labor unions and politicians, during which DASA agreed to allow its newest affiliate to remain independent through 1995, when
the Dutch government would sell its remaining 22 percent stake to the German company.
Fokker gave its new parent greater access to the American market via its strengths in the development of small (80- to 100-seat) regional aircraft.
Although Fokker gained a much-needed infusion of capital, it lost US$77 million in 1993. Chairman Jan Nederkoorn, who had been in that post since
1988, resigned in the wake of that decline. In 1994, Fokker's board of management decided to begin the company's third major reorganization in as
many years, cutting production by one-third and slashing the work force from 13,500 in 1990 to less than 9,000 by mid-decade.
It was a trend felt throughout the global aerospace industry. DASA reduced employment from 83,605 in 1991 to 81,872 in 1993 and expected to
eliminate another 7,500 and close six plants by the end of 1994. While laudable, these efforts did not significantly improve DASA's position. The
corporation lost a total of over DM1 billion (US$620 million) in 1992 and 1993, in spite of sales increases from DM12.4 billion (US$7.75 billion) in
1991 to DM18.6 billion (US$10.8 billion) in 1993. The new gush of red ink prompted a flurry of speculation that Daimler-Benz would end its airborne
experiment. Aviation Week & Space Technology's Anthony Velocci noted that "Some aerospace analysts in the United States and Europe have been
questioning Daimler's long-term commitment to DASA, and a few industry observers in Germany actually expect Daimler to sell its aerospace
business within the next two years." But a sale wasn't forthcoming.
Schrempp and his mentor, Reuter, thought that an expansion of cooperative efforts would help turn DASA around, but Judy Bolinger, an analyst
with Goldman Sach's London office, gave the corporation a threefold prescription for improved health in a 1993 Aviation Week & Space
Technology article. She suggested that the company "improve MTU's weak market position" (it was then fifth among the world's eight aircraft engine
manufacturers); downsize to fit its shrunken markets; and reduce its diversification to a few core competencies.
Principal Subsidiaries: Daimler-Benz Aerospace Airbus GmbH; Dornier Luftfahrt GmbH (Germany); Eurocopter S.A. (France); Dornier
Satellitensysteme GmbH (Germany); LFK-Lenkflugkorpersysteme GmbH; Dornier GmbH; Elekluft GmbH; E.S.T.-Entsorgungs-und Sanierungstechnik
GmbH; Bayern-Chemie, Gesellschaft fur flugchemische Antriebe mbH; TDA Armements S.A.S. (France); CMS Inc. (U.S.); The company also lists
subsidiaries under the Daimler-Benz Aerospace name in Austria, France, Greece, Spain, Portugal, Italy, Mexico, China, South East Asia, Turkey, the
United Arab Emerates, Belgium, Brazil, India, Japan, Korea, South Africa, and the United States.

Related Interests