Key Safety Systems, Inc. Business Information, Profile, and History

Company Perspectives:

Key Safety Systems is among the automotive industry's leaders in the design and production of airbags, seatbelts, steering wheels and fully integrated safety systems. Its products are used in more than 300 vehicle models produced by over 45 automobile manufacturers throughout North America, Europe and Asia. Key Safety Systems' customers include General Motors, DaimlerChrysler, Ford, Fiat, Hyundai, PSA, Volkswagen and many others. Key Safety Systems' global outreach consists of 32 manufacturing, technical and sales facilities located in 12 countries. The company has operations in seven states in the U.S.

History of Key Safety Systems, Inc.

Key Safety Systems, Inc. is a leading producer of automotive equipment such as airbags, seat belts, steering wheels, and interior trim parts. Key Safety was known as Breed Technologies before 2003, when it was acquired by Carlyle Management Group (CMG). It is an affiliate of Carlyle's Key Automotive Group.

Origins

Key Safety Systems, Inc. was founded in 1987 as a spinoff of Breed Corp. Breed Corp. had been started in 1961 as a producer of ammunition components, including mortar fuses.

Company founder Allen K. Breed was born in 1927 in Chicago. According to Inc., his father was an oncologist credited with pioneering radiation therapy. Allen Breed would himself become an acclaimed innovator.

Breed graduated from Northwestern University in 1950. Five years later, after working for RCA as an engineer, he launched a defense-oriented joint venture, Waltham Engineering, with Gruen Watch Company, a maker of gears. Breed left that company in 1961 after a falling out with investors.

Breed developed an electromechanical airbag sensor using his fuse technology in 1968. However, the auto industry did not embrace the airbag concept until prompted by a mid-1980s federal mandate to develop passive restraint systems. Breed delivered its first automotive crash sensor in 1984.

The airbag sensor business was spun off as Breed Automotive Corp. in 1986. Within a couple of years, Breed would be supplying airbag sensors for most Ford and General Motors automobiles.

Sales were $27 million in 1989, noted a retrospective in Florida Trend. Breed Automotive lost $8 million. Allen Breed recalled that he and his wife were personally responsible for the company's debt of $43 million.

Public in 1992

In 1991, Congress decreed that all new cars for sale in the United States be equipped with airbags by 1997. During the year, the company's name was changed to Breed Technologies, Inc. Breed went public on the New York Stock Exchange in November 1992 (ticker symbol: BDT). The public offering raised $67 million, most of which went to pay off bank debt of $48.4 million. Sales for 1992 were $88.6 million. Breed accounted for 59 percent of the airbag sensor market for U.S.-built vehicles in the 1993 model year.

Breed relocated its headquarters from Boonton Township, New Jersey, to Lakeland, Florida, in 1993. It had begun to shift manufacturing there three years earlier to a former Sooner Defense plant. The rural location on a 488-acre campus was suited to the company's new business of making airbag inflators, which incorporated small amounts of explosives.

In 1995, the company more than doubled the size of its facilities in Florida to 382,000 square feet. Breed also had three plants in Mexico, one in Turin, Italy, and sales and engineering sites near Detroit, Dayton, Ohio, and Coventry, England.

In the mid-1990s, Breed offered airbag-equipped replacement steering wheels as retrofits for 16 different car models made between 1987 and 1994. Breed tapped Midas Muffler as a retail distribution partner, starting with a test run in Florida. The aftermarket airbags were priced at $900.

Unlike most airbag systems, the retrofits included the crash sensor in the steering wheel itself, rather than up front in the engine compartment. Jaguar, Fiat, and Toyota used this system as original equipment on certain models; Jeep began using this all-mechanical, self-contained airbag system in its Cherokees during the 1995 model year.

Mid-1990s Acquisition Drive

In 1995, Breed had sales of $401 million, up from $278 million in 1994. The company had 4,800 employees and net income was $72.3 million, both figures up roughly 50 percent from the previous year. Breed airbag sensors were found in many brands of vehicle, including Ford and General Motors (which together made up 72 percent of Breed's sales), Mazda, Nissan, Fiat, Toyota, Chrysler, and Jaguar. Not only were airbags becoming more prevalent among passive restraint systems (the other main type being automated seat belts), but the market for cars and trucks was booming in the United States. Inc. magazine named Allen Breed its Entrepreneur of the Year in 1995.

However, the market was becoming more competitive, with Ford and GM developing their own electronic airbag sensors to replace Breed's electromechanical ones. Breed had developed its own electronic sensor, and was working on the next generation of inflators as well.

Breed set out on an acquisition drive in order to become a supplier of complete automotive safety systems. In August 1994, the company acquired Hamlin, Inc., a Lake Mills, Wisconsin producer of reed switch products, including airbag crash sensors. Founded in 1949, Hamlin had 1,300 employees and sales of $46 million in 1994. The Finnish Company VTI Hamlin Oy, another maker of sensors, was acquired in June 1995.

The next year, Breed bought circuit board manufacturer Italtest, S.r.l. and MOMO S.p.A. and G. Holding, S.r.l. (MOMO), a maker of steering wheels and alloy wheels. Gallino Plasturgia S.r.l., which produced trim and plastic parts, was also acquired. Gallino, purchased from IAO Industrie Riunite S.p.A., had annual sales of about $250 million.

Sensor producer Force Imaging Technologies, Inc. (FIT) was added in May 1996, as was the steering wheel business of United Technologies. Breed bought a small crash pulse technology company, Artistic Analytical Methods, Inc., in November.

Breed acquired BTI Investments Inc., the holding company for Custom Trim Group, in February 1997. Custom Trim produced leather-wrapped steering wheels at plants in Canada and Mexico. That October, Breed paid $710 million for SRS, AlliedSignal's airbag and seat belt units, which had sales of $900 million a year. The buy, the company's largest, made Breed the leading safety belt producer in the United States; Breed was also billed as the world's largest steering wheel producer. The firm had about 11,000 employees in 1997, when sales were $795 million. Finally, HS Technik and Design, a seatbelt technology developer, was acquired in May 1998.

BSRS Restraint Systems International, a 50-50 joint venture with the Automotive Systems Group of German electronics firm Siemens AG, was created in 1998. As part of the arrangement, Siemens took a 13 percent share in Breed Technologies (the Breed family owned 46 percent).

Siemens was one of several electronics companies looking for a piece of the airbag sensor business. The future of airbag development, according to automakers, seemed to be in electronic "smart bags" that could adjust to the size and weight of passengers. Breed was also studying inflatable seat belts, designed for minivans and SUVs, as well as curtain walls and other next-generation restraint devices.

Johnnie Cordell Breed, wife of company founder Allen Breed and a successful entrepreneur in her own right, had become Breed's CEO in 1997 when Allen Breed retired from the position. There were serious challenges to face at the time. Breed was on its way to posting a massive loss for fiscal 1998. Extensive layoffs followed. Breed had spent $1.1 billion, most of it borrowed, in accumulating 11 companies between 1994 and 1998; total debt was $1.6 billion.

The company filed for Chapter 11 bankruptcy protection in September 1999. The bankruptcy discharged half of Breed's $1 billion debt; the rest was converted to equity, turning ownership of the company to the company's lenders. Auto components suppliers Harvard Industries and EGI Corp. had submitted unsuccessful takeover offers.

Company founder and Chairman Emeritus Allen Breed died in December 1999, having patented more than 90 inventions during his life. His wife, Johnnie Breed, and President and COO Charles Speranzella would leave Breed Technologies during the reorganization. John Riess, former head of Gates Rubber Co., became the firm's new CEO.

Revenues were about $1.4 billion in 2000 and 2001 and fell to $1.1 billion in 2002 and 2003. The number of employees, which peaked at 16,000 after the acquisition drive, dropped to 10,000 in 2003.

New Owners, New Name in 2003

Carlyle Management Group (CMG), an affiliate of the Washington, D.C. area investment firm, bought Breed on April 27, 2003, for a reported $300 million to $315 million. Analysts considered the acquisition a good sign for the company's long-term survival. Carlyle Management specialized in turning around troubled companies. CMG CEO Bernie Edward Ewing, a former turnaround specialist with General Dynamics and Lockheed Martin, was named CEO and chairman of Breed.

Ewing noted that Breed had been losing $50 million a year since emerging from bankruptcy. In May 2003, a restructuring was announced that aimed to cut costs by $200 million a year. Overhead was slashed, about 3,500 jobs were cut worldwide, and the company worked with suppliers to lower its material costs. Breed was reorganized into four divisions according to region and product lines: North America; Europe; Asia; and Hamlin, Inc. The Lakeland, Florida home office, which had employed 230 people, was soon closed and administrative operations moved to a suburb of Detroit. Sixty management employees were relocated.

Breed changed its name to Key Safety Systems, Inc. in October 2003, reinforcing its identity as part of Carlyle's Key Automotive Group LLC, which also included Key Plastics LLC, acquired two years earlier during its own bankruptcy. Key Automotive Group had 14,000 employees and sales of $1.7 billion.

Projects in development included a dual-stage airbag inflator and inflatable knee cushions. Breed was also working on a seat belt using a special Honeywell International fiber, Securus, designed to stretch somewhat in the event of an accident.

Principal Operating Units: North America; Europe; Asia; Hamlin, Inc.

Principal Competitors: Autoliv Inc.; Takata Corp.; TRW Automotive Inc.

Chronology

• Key Dates:
• 1961: Defense contractor Breed Corp. is formed.
• 1968: Allen Breed develops electromechanical airbag sensor.
• 1984: First airbag sensor is delivered to auto industry.
• 1986: Breed Automotive is spun off from Breed Corp.
• 1991: Company name is changed to Breed Technologies, Inc.
• 1992: Breed goes public on the New York Stock Exchange.
• 1993: Headquarters are relocated from New Jersey to Florida.
• 1998: Eleven companies are acquired in mid-1990s acquisition drive.
• 1999: Breed undergoes Chapter 11 reorganization.
• 2003: Company is acquired by Carlyle Management Group, renamed Key Safety Systems.