Kohler Company Business Information, Profile, and History

Company Perspectives:

From potteries in Mexico and China, to showrooms in Japan and France, KOHLER ideas, craftsmanship and technology are at work today leading the way to more gracious living in plumbing products, exquisite furniture, engines and generators, hospitality and real estate.

History of Kohler Company

Kohler Company is one of the largest privately operated firms in the United States. Unlike others that were once public companies but were taken private through debt-ridden leveraged buyouts, Kohler has always been owned and run by a circle of family members who descended from the founder. One of Wisconsin's largest employers, Kohler is best known for its line of baths, sinks, toilets, and other bathroom fixtures. The company is also a leading producer of electric generators and small engines, owns two distinguished furniture manufacturers, and operates successful hospitality and real estate businesses in Kohler, Wisconsin, where it has its corporate headquarters and largest manufacturing facilities.

Late 19th-Century Roots

The Kohler Company was established in 1873, at the beginning of a debilitating five-year economic depression. That year the company's founders, John Michael Kohler and Charles Silberzahn, purchased an iron foundry from Kohler's employer and father-in-law, Jacob Vollrath, for $5,000. Kohler, a 29-year-old Austrian immigrant, was the senior partner in the business, which was located in Sheboygan, Wisconsin.

In their first year, Kohler & Silberzahn were hit hard by the depression. But, as manufacturers of agricultural implements, such as watering troughs and scalding vats (to remove hair from animal carcasses), they had a good market: people had to eat, and farmers had to feed them.

In November 1878, at the end of the depression, Silberzahn sold his interest in the business to Herman Hayssen and John H. Stehn, who were employees of the enterprise. In 1880, with improved business prospects, the company established a newer, larger machine shop; however, this plant was destroyed by fire only months after opening, forcing the operation to move to a new location.

Rebounding from this costly setback, the small company introduced a line of unique enameled plumbing fixtures in 1883. While its significance was not yet fully realized, this line would propel Kohler into a period of strong growth. The company sold thousands of enameled sinks, cuspidors (spittoons), stove reservoirs, kettles, and pans, as well as the first Kohler bathtubs, fashioned from one of the company's watering troughs. By 1887, the year the company was formally incorporated, these products accounted for 70 percent of Kohler's revenues.

The Kohler Company encountered its first labor difficulties in March 1897, when 21 members of the AFL Iron Molder's Union struck over new pay rates. After some of the molders returned to work and others were replaced, the strike ended without any formal settlement.

Early 20th Century: Rocky Road to Industry Leadership

By 1900 Kohler employed more than 250 people, with 98 percent of its revenues coming from enameled iron products such as tubs, sinks, and water fountains. The factory in Sheboygan had become too small to meet growing production needs. Because it was not practical to expand the plant, which was now surrounded by homes, John Michael Kohler began building a new factory four miles west of Sheboygan in the small community of Riverside. The company entered a period of extraordinarily bad luck when John Michael Kohler died in November 1900 at the age of 56. Less than three months later, before a new chairman could be selected, the company's new iron foundry and machine and enamel shops burned down. Herman Hayssen and John Stehn's widow sold their interests in the company to the Kohler family, and in February 1902 the company was reorganized as the J.M. Kohler Sons Company under the leadership of Robert, Walter, and Carl Kohler, the oldest sons of John Michael Kohler. Two years later Carl died at the age of 24, and in 1905 Robert died at the age of 35, leaving the entire company to Walter Kohler.

Walter Kohler was a strong believer in corporate responsibility. As most of his employees were newly arrived immigrants, Kohler built the American Club, a stately boarding hotel where employees could live until they had enough money to purchase housing and send for their families. He established a benefit organization to provide employees with sickness and death benefits, and even provided lessons in civics, English, and American history so they could pass citizenship exams.

Kohler also laid plans to establish an entirely new community built around the company. He commissioned architects, city planners, and landscape architects, including the Olmsted Brothers (who designed New York's Central Park), to develop a city plan.

In 1911, after some years of stability, the workforce had grown to 950 and the company had ten sales offices, including one in London. That year the company introduced a revolutionary one-piece enamelware built-in bathtub with integral apron that was more sanitary than conventional two-piece tubs. The village of Kohler, meanwhile, had grown to 40 houses, and was incorporated in 1912 with a population of 254. In 1917 the Kohler Improvement Company began building houses in the planned community, selling them to Kohler Co. employees at cost. A second development was started in 1923, and others followed.

By the mid-1920s Kohler had become the third largest plumbing products company in the United States, adding such sales boosters as vitreous china toilets and wash basins and brass faucets, shower heads, and other fittings. The company also introduced a revolutionary new product called the 'electric sink.' Essentially a dishwasher, but 20 years ahead of its time, the device did not catch on. Shortly afterward, Kohler introduced a slightly more successful novelty, the electric clothes washer.

In 1929 the company's products were chosen on the basis of their excellent design for inclusion in an exhibition at New York's Museum of Modern Art celebrating 'the artistic qualities of the bath.' The following year Kohler began manufacturing cast iron boilers and radiators for increasingly popular hot water and steam heat systems.

As one of the leaders in Wisconsin industry, Walter Kohler held substantial political power. In 1929 he ran successfully as a Republican for governor of Wisconsin. Distinguished for his administrative acumen rather than his political instincts, he was termed a 'poor politician.' He vigorously supported the unpopular President Herbert Hoover in 1932, a move that undoubtedly caused him to lose reelection to a second term.

Inspired by the growth of electrical appliances but faced with poor electrical distribution, Kohler began developing small electrical generators. The first unit, introduced in 1920 as the 'automatic power and light,' provided 1,500 watts of 110-volt DC power from a generator driven by a four-cylinder gasoline engine. The small generator marked a significant improvement over existing generators, which merely charged batteries at 32 volts and were not as portable.

While the generators were intended for farm electrification, they were pressed into service by maritime and railroad companies, European castle owners, and others in need of portable power sources. Admiral Richard Byrd later took five Kohler generators with him on his first expedition to the South Pole in 1926, and took seven Kohler generators with him on his return in 1933. Revisiting his original base station on the frozen continent, his team found the generators from the first expedition in perfect working order. Byrd named an Antarctic mountain range for Kohler and later became a close friend of the family.

Great Depression and World War II: Adjusting to New Circumstances

By 1932, however, residential building rates had fallen to just 11 percent of their 1928 levels, and Kohler was facing the prospect of massive employee layoffs. Because the company was not in debt and retained favorable terms for raw materials, Kohler resolved to keep the company in operation, and to stockpile whatever products could not be sold. This full employment policy had the effect of saving the local economy from ruin.

The company was revisited by labor unrest in July 1934 when a portion of the workforce struck Kohler for the right to be represented by the Federal Union. The strike was canceled later that year when the union lost an employee vote to represent all of Kohler's production and maintenance employees. In arbitration, however, the National Labor Relations Board instructed the company to recognize a smaller, independent union, the Kohler Workers' Association.

In 1940 Walter Kohler died, and a battle for control of the firm broke out between Walter's children and their father's younger brother, Herbert Kohler, who was running the company. While the children argued for strict hereditary succession, the situation was further complicated by the fact that Herbert's mother and Walter's mother were sisters. In the end, Herbert prevailed.

When the United States became involved in World War II, much of Kohler's commercial operations ground to a halt. Iron, brass, and chrome supplies were diverted for war use by the government, which asked Kohler to resume production of military wares (during World War I Kohler had made mine anchors, projectiles, and shells). The company's first military products were precision valves and fittings for use in aircraft, such as the DC-3 and B-29. Kohler also built a variety of electric generators for the armed forces.

Based on Kohler's experience in precision crafted metallurgy, the government asked the company to produce 105mm and three-inch artillery shells, as well as forgings for rockets and other shells, fuses, torpedo tubes, piston rings, shell rotating bands, and engine bearings. After the war, Kohler discontinued much of its military production, but resumed building 105mm shells during the Korean War. The company did, however, continue to manufacture precision products and generators, albeit for different markets.

Postwar Developments

Given the occasional unreliability of utility-supplied power, many hospitals, banks, and other offices had to have their own emergency standby power, but required larger capacities than the ten megawatt models Kohler manufactured. Eager to supply this market, Kohler began development of 100 kilowatt diesel-powered systems. As the market continued to grow, Kohler introduced a 230 kilowatt model and, some years later, a massive 500 kilowatt system.

Kohler also manufactured small gasoline engines, which were first built to power the company's electric generators. During the 1950s, the small engines found an explosive market in Thailand and Vietnam, where they were used to power boats, pump water on rice paddies, and drive air compressors. Virtually all the air-cooled engines in Southeast Asia at this time were made by Kohler and sold through a distributor in Hong Kong.

In 1951 Walter Kohler, Jr., a former officer and director of the company, followed in his father's footsteps to become the governor of Wisconsin. He was reelected twice, serving until 1957. At the company, labor trouble arose again in April 1954 when the UAW-CIO local called a walkout to protest changes in union shop rules, seniority, and pay increases without regard to merit. Seeing these demands as unfair and potentially crippling to the profitable operation of the corporation, the company resisted. The strike continued until September 1960, when bargaining resumed, and a new contract was concluded two years later. The strike earned a place in the Guinness Book of World Records as the longest strike in American history.

Entering the 1960s, the company's engine division, still strong in Asia, gained momentum in the United States, where Kohler motors were used to power lawnmowers, garden tractors, construction equipment, and even snowmobiles. International Harvester, John Deere, Wheel-Horse, Jacobsen, and Bombardier (inventor of the snowmobile) incorporated Kohler engines in their products. By 1963 Kohler was one of the leading small engine suppliers in the industry.

In order to keep pace with this growing demand, Kohler established two new production facilities, in Mexico City and Toronto. The company ran into strong competition, however, from Japanese and German manufacturers who had extensive experience with two- and four-stroke engines. Kohler suffered market share loss, but won back a significant share of the market by introducing higher technology two-cycle engines in 1968. It later won a suit against market leader Briggs & Stratton, which had tried to coerce its distributors to stop handling Kohler engines.

The company experienced another leadership crisis in 1968 when Kohler's president, J.L. Kuplic, died unexpectedly. Only six days later, Herbert Kohler, Sr., chairman and CEO of the company for 28 years, also died. Herbert Kohler, Jr., heir to the company, was at the time a self-described 'hippie,' pursuing a career outside the company. He later told Supply House Times, 'By preplanning my life, my father removed my right to fail. As a result, for a portion of my life I experienced nothing but failure. That led me to become a substantial rebel.'

Company directors elected to pass over the younger Kohler, and named an interim chairman. In an unusual departure from company traditions, the directors named nonfamily members Lyman Conger and Walter Cleveland as chairman and president, respectively. When Conger retired in 1972, Herb Kohler was appointed chairman, and two years later he succeeded Cleveland as company president. In 1978, concerned about the company slipping from family control, Kohler engineered a 1-for-20 reverse stock split, which reduced the number of shareholders in the private company from more than 400 to about 250 and the number of outstanding shares from 161,105 to about 8,000. The maneuver also forced a number of nonfamily shareholders to sell out at $412.50 per share, leaving the Kohler family with 96 percent of the voting shares.

Late 20th Century: Growth Through Acquisition

Under Herb Kohler's leadership, Kohler Company more than tripled in size to an estimated $1.34 billion in annual sales by the late 1980s. After 110 years of strictly internal growth, much of the expansion came from the company's new venture into acquisitions. In 1984 the company acquired the Schaumburg, Illinois-based Sterling Faucet Company. Two years later, Kohler purchased Baker, Knapp & Tubbs, a high-end furniture manufacturer headquartered in Grand Rapids, Michigan, and Jacob Delafon, a plumbing products manufacturer headquartered in Paris. The company also established a Japanese subsidiary. In 1989 Kohler purchased the McGuire Furniture Company, a San Francisco-based manufacturer, Oakland-based Kallista, Inc., Portland-based Ann Sacks Tile and Stone, and Dupont Sanitaire-Chauffage, in Paris.

By this time, Kohler had also expanded into the leisure industry, turning the company's one-time workers' hotel, the American Club, into a successful full-scale convention and recreation resort hotel. Having poured about $50 million into the resort from 1978 through the mid-1990s, Kohler created the only resort in the Midwest to receive AAA's top five-diamond rating. The resort's centerpiece was Blackwolf Run, which offered two world championship golf courses created by a top course designer, Pete Dye. Blackwolf Run hosted the 1998 U.S. Women's Open Championship. The bathrooms in the American Club's fancy guest rooms also served as showcases for Kohler Company products. Serving a similar function was the Kohler Design Center, which opened in Sheboygan in 1985 as a 36,000-square-foot showcase of Kohler plumbing fixtures, faucets, engines, and generators; Baker and McGuire furniture; Ann Sacks tile and stone; and other company products.

Kohler continued to expand in the 1990s through acquisition, increasingly venturing overseas to do so. In 1993 the company acquired Sanijura, S.A., a French maker of bathroom cabinets. The following year, Kohler purchased Osio, a maker of enamel baths based in Italy. The company ventured further into the cabinet sector through the 1995 acquisition of Pennsylvania-based Robern, Inc., which specialized in mirrored cabinets, lighting fixtures, and accessories; and the 1996 addition of Canac Kitchens, Ltd., a maker of wood kitchen cabinets based in Ontario, Canada. Another France-based firm, Holdiam, S.A., was added in 1995, bringing to Kohler the leading French maker of acrylic baths, whirlpools, synthetic kitchen sinks, and artistic faucets. In the late 1990s the company established Kohler China Ltd., which had locations in Shanghai, Beijing, and Guangzhou province, from which it manufactured and distributed throughout the People's Republic a full line of plumbing products.

In 1993 Kohler Company sales reached a record $1.53 billion; earnings stood at $15.5 million, a figure substantially reduced by a $33 million charge resulting from a change in accounting for retiree health benefits. By 1997 earnings had increased to $88 million on sales of $2.2 billion. Concerned again about the loss of family control as well as anticipating the need to hold down estate taxes, Herb Kohler proposed another restructuring of the company's stock in early 1998. At the time, there were 7,445 shares outstanding, with 75 percent of them controlled by Herb and his sister, Ruth DeYoung Kohler. Over the years, about four percent of the stock had fallen into the hands of nonfamily members through the sale of the thinly traded stock by family members. In April 1998 Kohler shareholders approved a plan whereby all the nonfamily shareholders would be bought out at $52,700 per share. The plan also offered other family members the option of cashing in their stock or taking a mix of voting and nonvoting shares, with the added stipulation that if they chose the latter they could only sell their shares at a later date back to the company. At the end of 1997 Kohler stock had a book value of about $100,000 per share and shares had been selling in early 1998 for as high as $135,000 per share. The plan therefore angered the outside shareholders, some of whom felt the stock was worth as much as $400,000 per share, as well as dissident members of the Kohler family, who bristled both at the buyback offer and at the plan's restrictions on selling to outsiders. Under Wisconsin law, shareholders had the ability to take a disputed stock valuation to court and ask a judge to increase the per share offer. A trial was therefore set for April 2000 in Sheboygan County Circuit Court to determine the value of Kohler Company stock, with owners of 811 shares asking for redress. Meanwhile, dissident shareholders also filed suit in U.S. District Court in Milwaukee to stop the entire reorganization plan, with a trial set for late 1999. The outcome of these lawsuits seemed certain to play a key role in determining Kohler's direction well into the 21st century, both in terms of ownership control and financial health--the latter because a substantial valuation increase could prove quite costly to the company.

Principal Subsidiaries: Baker Knapp & Tubbs, Inc.; McGuire Furniture Company; Crosswinds Furniture Company; Dapha, Ltd.; Sterling Plumbing; Ann Sacks Tile & Stone, Inc.; Robern, Inc.; Canac Kitchens, Ltd. (Canada); Kallista, Inc.; Jacob Delafon, S.A. (France); Jacob Delafon, Espana, S.A. (Spain); Jacob Delafon, Maroc, S.A. (Morocco); Jacob Delafon, Italia, S.r.l. (Italy); Holdiam, S.A. (France); Sanijura, S.A. (France); KOHLER China, Ltd.; KOHLER de Mexico, S.A. de C.V.; Helvex, S.A. de C.V.; P.T. Artcraft (Indonesia); P.T. Port Rush (Indonesia); KOHLER Europe (France); Foshan Kohler, Ltd. (China); Beijing Kohler, Ltd. (China); Shanghai Kohler, Ltd. (China); KOHLER Power Systems Asia Pacific (Singapore).

Principal Competitors: American Standard Companies Inc.; Armstrong World Industries, Inc.; Bassett Furniture Industries, Incorporated; The Black & Decker Corporation; Briggs & Stratton Corporation; Chicago Faucet Company; Cooper Industries, Inc.; Crane Co.; Dal-Tile International Inc.; The Dyson-Kissner-Moran Corporation; Elkay Manufacturing Company; Falcon Building Products, Inc.; Fortune Brands, Inc.; Gerber Plumbing Fixtures Corporation; Honda Motor Co., Ltd.; Klaussner Furniture Industries Inc.; LADD Furniture, Inc.; Leggett & Platt, Incorporated; Masco Corporation; Mueller Industries, Inc.; Newell Rubbermaid Inc.; NIBCO Inc.; Premark International, Inc.; Tecumseh Products Company; TOTO Ltd.; Triangle Pacific Corp.; U.S. Industries, Inc.; Waxman Industries, Inc.; Yamaha Motor Co. Ltd.

Chronology

• Key Dates:

• 1873: Kohler & Silberzahn is established.
• 1883: Line of enameled plumbing fixtures makes its debut.
• 1887: Company is incorporated as Kohler Company.
• 1905: Cofounder's son, Walter Kohler, takes over company leadership.
• 1912: Village of Kohler is incorporated.
• 1920: Production of small electrical generators begins.
• 1940: Walter's younger brother, Herbert Kohler, takes control of company.
• 1954: Six-year-long strike against the company begins.
• 1968: Nonfamily members lead the company for the first time.
• 1972: Herbert Kohler, Jr., is named chairman of Kohler Company.
• 1984: Sterling Faucet Company of Schaumburg, Illinois, is acquired.
• 1985: The Kohler Design Center opens.
• 1986: Company enters furniture manufacturing through acquisition of Grand Rapids, Michigan-based Baker, Knapp & Tubbs.
• 1989: San Francisco-based McGuire Furniture is acquired.
• 1993: Company expands into cabinetmaking with acquisition of Sanijura, S.A. of France.
• 1998: Ownership reorganization plan meets with resistance from dissident shareholders.