MasterBrand Cabinets, Inc.

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MasterBrand Cabinets, Inc.

1 MasterBrand Cabinets Drive
Jasper, Indiana 47547
U.S.A.
Telephone: (812) 482-2527
Fax: (812) 482-9872
Web site: http://www.masterbrandcabinets.com

Wholly Owned Subsidiary of Fortune Brands, Inc.
Incorporated: 1998
Employees: 6,000
Sales: $1.5 billion (2004 est.)
NAIC: 337110 Wood Kitchen Cabinet and Counter Top Manufacturing

MasterBrand Cabinets, Inc. is part of the Home and Hardware products division of Fortune Brands, Inc. The Jasper, Indiana-based subsidiary is one of the largest cabinet manufacturers in the world, generating more than $1 billion in sales each year, trailing only Masco Corporation in market share in the United States. Through its various units, MasterBrand makes custom, semi-custom, stock, and ready-to-assemble kitchen cabinets, as well as bathroom vanities. Products are sold through specialty retailers, home centers, and lumber outlets. Brands include Aristokraft, Capital Cabinet, Decora, Diamond, Georgetown, HomeCrest, Kemper, Kitchen Classics, Kitchen Craft, Maple Creek, NHB, Omega, Dynasty, and Schrock. In addition, MasterBrand produces Thomasville cabinets on an exclusive arrangement with Home Depot.

Parent Company Lineage Dating to the 1800s

The creation of MasterBrand Cabinets in 1998 was part of a much larger story, the effort of a legendary tobacco company to divorce itself from the very product that made its founders and investors immensely wealthy. Before it became Fortune Brands, MasterBrand's parent was known as American Brands, the direct descendant of The American Tobacco Company, which spawned many of the nation's well-known tobacco companies.

American Tobacco was founded by James Buchanan (Buck) Duke, born in Durham, North Carolina, in 1856. The family farm was ravaged by the Civil War, leaving only a barn of bright leaf tobacco, which was becoming increasingly popular. His father, Washington Duke, sold the tobacco and decided to devote his entire farm to the production of bright leaf. In 1873 W. Duke & Sons built a factory in Durham and began shifting its focus from production to the manufacture and sale of tobacco, which at the time was divided between chewing and smoking tobacco, the latter for pipes or rolled into cigars, since cigarettes had yet to gain widespread popularity. In his early 20s, Buck Duke was already becoming a driving force in the family business, and in the 1880s he pushed the firm into cigarettes, taking advantage of the new mechanized rolling machines capable of turning out 200 cigarettes each minute. This advance, coupled with a modern approach to packaging and advertising, gave Duke a competitive edge. He moved to New York City, the heart of the cigarette business, and took on the leading companies of the day on their own turf. By the end of the 1880s, Duke conquered the U.S. cigarette market.

It was an era of trusts in the United States, led by the success of John D. Rockefeller's Standard Oil. Duke, still in his early 30s, looked to avoid the cutthroat competition that suppressed profits in the cigarette business by joining forces with his five largest competitors. In 1890 The American Tobacco Company was formed, with Duke serving as the president of the combination, which sold four out of every five cigarettes in the United States. Not content to rule only the comparatively small cigarette business, Duke assailed the other more popular sectors of the industry, engaging in price wars until opponents agreed to be swallowed by the industry behemoth, as American Tobacco, eventually, dominated snuff, smoking tobacco, and cigars. He employed the same techniques to challenge British tobacco companies, leading to an agreement between Duke and a British coalition to stay out of each other's country while teaming up to form the British-American Tobacco Company (later renamed B.A.T. Industries), two-thirds owned by Duke and his confederates, to tackle the world market. On the retail side, Duke was also dominant, operating a chain of more than 500 United Cigar Stores.

In the early years of the 1900s President Theodore Roosevelt sought to dismantle the powerful trusts that dominated American business, including American Tobacco. Legal wrangling between Duke's lawyers and the Justice Department came to an end in 1911 when the United States Supreme Court ordered the breakup of American Tobacco. The result was the creation of some of the century's most powerful tobacco companies: Liggett & Meyers, Lorillard, and R.J. Reynolds, as well as a reconstituted American Tobacco Company.

After the breakup, cigarettes finally began to challenge chewing tobacco in popularity, as the new tobacco companies began introducing national cigarette brands, led by the 1913 introduction of Camel by R.J. Reynolds. American Tobacco's chief brand became Lucky Strike. Fueled by tremendous levels of advertising, cigarette consumption soared, finally surpassing chewing tobacco in 1923. Two years later Duke died, but not before creating a philanthropic trust fund, much of which was used to found Duke University.

American Tobacco grew Lucky Strike to new heights during World War II and also pioneered the "king size" cigarette with the introduction of Pall Mall, which soon challenged Camel and Lucky Strike as America's top cigarette brand. The company's cigarette business peaked in the early 1950s, after which it failed to answer R.J. Reynolds's first filtered cigarette, Winston, and assumed an increasingly diminished role in the cigarette industry.

American Tobacco Becoming
American Brands in the 1960s

In the mid-1960s American Tobacco began to dip into its coffers to diversify, acquiring non-tobacco assets such as James B. Beam Distilling Company, Sunshine Biscuits, and Duffy-Mott Co., maker of Mott's apple sauce and apple juice. In keeping with the shift away from tobacco, American Tobacco changed its name to American Brands in 1969. As its share of the domestic tobacco market declined, the company continued to diversify, transforming itself into a true conglomerate. Over the next 20 years, American Brands acquired and divested a wide variety of assets. It became involved in office products, financial services, valves and pumps, golfing products, lighting, security through Pinkerton's, and locks through Master Lock Company. American Brands also added to its distilled spirits holdings with the acquisition of seven Seagram Company brands, making Jim Beam America's third largest spirits company.

In 1988 American Brands acquired 15 companies in one stroke with the $1.1 billion acquisition of E-II Holdings Inc, spun off from Beatrice Co. a year before. Although American Brands subsequently cast off most of the assets, including Samsonite luggage and Culligan water treatment, it kept four companies that made hardware and home products, which the company planned to make one of its core businesses—joining tobacco, distilled spirits, financial services, and office products. One of the former Beatrice companies American Brands elected to keep was Aristokraft Inc., marking the company's entry into the kitchen cabinetry field.

Aristokraft was founded in 1954 as United Cabinet Corporation by Stanley G. Krempp. It started out in a small 50-foot by 100-foot building in Celestine, Indiana, then in 1963 moved to Jasper, Indiana, home to many furniture companies, prompting the town to bill itself as the "Nation's Wood Office Furniture Capital." In 1971 the company's Jasper plant became the first in the nation to open an industrial ultraviolet curing line. Growth was so strong that United Cabinet opened two more plants, catching the attention of Beatrice Foods, which bought the company in 1974. Two years later United Cabinet established the Decora semi-custom division to serve the more upscale home owner. The stock cabinet division operated under the Aristokraft name, which in 1983 replaced United Cabinets as the company name, becoming Aristokraft, Inc.

American Brands folded Aristokraft and Decora into a new subsidiary called MasterBrand Industries, the name drawn from the group's most prestigious brand, Master Lock. For the next ten years American Brands did not add to the cabinetry sector. In the meantime it attempted to revive its domestic tobacco business through the introduction of low-price brands. Then, in 1994 in a surprise move, American Brands sold its American tobacco interests to its once-removed corporate cousin, B.A.T. Industries, essentially leaving just British cigarette maker Gallaher in its portfolio (albeit Gallaher represented more than $6 billion in annual revenues). A few months later, American Brands cast off its only financial service asset, Franklin Life Insurance Co., opting to concentrate on consumer goods. The last vestiges of tobacco were removed in 1997 when the company's international tobacco operations were spun off as Gallaher Group PLC in a demerger and the remaining company assumed the name Fortune Brands. No longer involved in the tobacco business, management wanted to further remove the company from its American Tobacco heritage and the stigma investors attached to it. Two years earlier, for example, the company's stock price tumbled on the news of a different tobacco company losing a jury award.

Although Fortune Brands had not added cabinetry assets after acquiring Aristokraft, it had continued to build up Master-Brand Industries' slate of hardware and home-improvement assets, including the Moen brand of kitchen and bathroom faucets. Management's strategy was to focus only on top brands in a category and then leverage the power of the brand to convince consumers to "trade up." For example, Master Lock used its reputation with padlocks to become involved in door locks in 1992, and almost immediately became the number three player in the field. Jim Beam used its brand recognition to introduce more expensive premium bourbons.

Company Perspectives:

At MasterBrand Cabinets, Inc. we make more than cabinets; we make dreams come true.

Forming MasterBrand Cabinets in 1998

In 1998 MasterBrand Industries acquired struggling Schrock Cabinet Company, selling under the Schrock, Kemper, and Diamond brand names to U.S. home centers and kitchen and bath specialty dealers. Schrock was folded into a newly created subsidiary, MasterBrand Cabinets, Inc., in effect, to create a new major cabinet brand to exploit. In one stroke, the $107.5 million purchase from Electrolux A.B. subsidiary White Consolidated Industries turned MasterBrand Cabinets into the second largest cabinet maker in the United States, after Masco Corporation. Schrock was founded in Arthur, Illinois, in 1961 as Schrock Brothers Manufacturing, specializing in handcrafted cabinetry, while Kemper was founded in Richmond, Indiana, in 1926, and upscale Diamond Cabinets started out as Diamond Industries in Grants Pass, Oregon, in 1970. All three became part of White Industries, which Electrolux acquired in 1986.

In its first year MasterBrand Cabinets posted sales of more than $400 million. To support the growing business, the company added two factories in 1999, opening a new Schrock Cabinet production facility in Auburn, Alabama, and buying a 600,000-square-foot plant in Kingston, North Carolina, to make Aristokraft brand cabinets. Well positioned in the value, better-best, and semi-custom cabinet categories, MasterBrand Cabinets looked to fill out its product lines through the October 1999 acquisition of NHB Group Ltd., a Canadian cabinet manufacturer that was strong in the ready-to-assemble and do-it-your-self, frameless kitchen and bathroom cabinet categories, adding about $60 million a year in sales. Moreover, NHB gave Master-Brand Cabinets a presence in the Canadian market, and also strengthened ties to the major home centers to which it sold. Along with the NHB brand, MasterBrand Cabinets added NHB's Kitchen Classics and the Georgetown Collection to its stable of cabinet brands.

MasterBrand Cabinets reached $500 million in sales in 1999 and grew that number to more than $800 million in 2001. The next major step in growing the company was taken in April 2002 when it acquired Waterloo, Iowa-based The Omega Group for $538 million, including the assumption of $127 million in debt. Omega's brands of kitchen and bathroom cabinets—Omega, Kitchen Craft, and Home Crest—generated $325 million in sales in 2001. The company was launched in a barn in 1977 by Bob Bertch, then opened a plant in 1984 and expanded until it encompassed more than 400,000 square feet. It also operated plants in Goshen, Indiana; Clinton, Tennessee; and Winnipeg, Manitoba. Omega was considered a good fit for MasterBrand Cabinets for several reasons. The lines complemented one another, with the Omega brands more involved in the remodeling business rather than new construction. Master-Brand also hoped to take advantage of Omega's relationship with high-end dealers and upscale design centers, such as EXPO Design Centers and The Great Indoors. Further, the addition of Omega created economies of scale, allowing MasterBrand Cabinets to consolidate its purchases of raw materials. It also expanded the company's presence in Canada. Of importance as well in 2002 was an exclusive agreement reached with Home Depot to manufacture the Thomasville cabinet line.

MasterBrand Cabinets grew further through acquisitions with the August 2003 purchase of Capital Cabinet Corp., a company founded in 1946, doing about $30 million in sales to homebuilders in Las Vegas and Southern California, fast-growing parts of the country that management was targeting. MasterBrand Cabinets also continued to grow internally, opening new plants and expanding others. With about $1.5 billion in sales, MasterBrand Cabinets was making a sizable contribution to Fortune Brands' Home and Hardware division, which in 2004 generated nearly $3.8 billion of the parent company's $7.3 billion total revenues. In light of the United States' aging population, a demographic given to home improvement projects, and increasing new home sales, which generally led to more remodeling projects, MasterBrand Cabinets was likely to continue its pattern of strong growth for the foreseeable future.

Principal Operating Units

Aristokraft; Capital Cabinet; Decora; Diamond; Georgetown; HomeCrest; Kemper; Kitchen Classics; Kitchen Craft; Maple Creek; NHB; Omega; Dynasty; Schrock.

Principal Competitors

American Woodmark Corporation; Armstrong World Industries, Inc.; Masco Corporation.

Key Dates:

1954:: Aristokraft is launched as United Cabinet Company.
1969:: American Tobacco Company changes its name to American Brands.
1988:: American Brands acquires AristoKraft.
1997:: American Brands changes its name to Fortune Brands.
1998:: Fortune Brands acquires Schrock Cabinet Company, forming MasterBrand Cabinets, Inc.
1999:: NHB Group Ltd. is acquired.
2002:: Omega Group is acquired.
2003:: Capital Cabinet is acquired.