Rosemount Inc.

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Rosemount Inc.

12001 Technology Drive
Eden Prairie, Minnesota 55344
U.S.A.
(612) 941-5560
Fax: (612) 828-7777

Wholly Owned Division of Emerson Electric Co.
Incorporated: 1956
Employees:
Sales: $600 million (1995 est.)
SICs: 3823 Process Control Instruments; 5049 Professional Equipment & Supplies

Rosemount Inc., which began as a space-age engineering company, designs and produces measurement instrumentation for industrial applications. The complex sensors and transmitters the company manufacturers are critical components of sophisticated energy, process, and manufacturing facilities. Purchased by Emerson Electric Co. in 1976, Rosemount proved to be a top performer for the century-old company. Rosemount was integrated with another Emerson acquisition, Fisher Controls International, in 1992. The combined operations of Fisher and Rosemount represent the largest supplier of process control equipment in the world.

Rosemount’s history is linked to the development of supersonic jet aircraft and the United States-Soviet Union space race. Dr. Frank D. Werner, a scientist and inventor, was involved in temperature and pressure sensor research at The Rosemount Research Center at the University of Minnesota when the U.S. Air Force asked him to manufacture the total temperature sensors he had developed for their high-performance aircraft. Werner asked Robert E. Keppel, an engineer at the aeronautical lab, and Vernon H. Heath, the business manager, to join him in the part-time project. With $8,000 in seed money the men incorporated Rosemount Engineering Company in 1956. They produced their first product in a building that had once been a chicken hatchery.

The total temperature sensors they produced could measure the air compression-caused heat which was generated during high speed flights. The technological breakthrough allowed test pilots to get precise readings on the speed of their prototype jets for the first time. The start-up company sold $30,000 worth of the sensors in their first year. The next year they had a full-time operation with 20 employees and sales of $196,000. In 1957 the Soviet Union launched the first artificial satellite, Sputnik I. The United States responded by accelerating the pace of their own space program, and Rosemount’s sensors were soon in demand for deep space exploration applications.

Rosemount Engineering was a custom business in those early days. The government supplied the company with sensor specifications, and Rosemount would fabricate them. Nearly all its sensors were used in aircraft and missiles. Its products were technologically advanced and produced at low volumes and high labor costs; in 1960, 24 of the company’s 144 employees were engineers. Sales reached $1.5 million in 1960, but the owners still needed a $300,00 bank loan to keep going. Expansion costs associated with new products, such as low-pressure sensors, were outpacing sales.

But revenues continued to rise steadily and reached $5.6 million by 1963 with earnings of $240,000. “By then we were also getting a little smug about our success,” said Vernon Heath in a March 1984 Star Tribune article. “We were innovative, we were growing, and we thought we could make anything happen if it involved technology.” The company made a stab at a consumer product line. It developed the first engineered, molded-plastic ski boot—which eventually found its way to a place in the Smithsonian Institution—but plagued the company with manufacturing problems and high costs.

High performance aircraft and the space program continued to be the forces propelling the company forward in the 1960s. McDonnell’s Gemini, North American’s Saturn and Apollo, Martin’s Titan Series, General Dynamics Fill, Lockheed’s C-141, Douglas’ DC9, Boeings’s 707, 720, and 727, and the European Supersonic Concorde all depended on Rosemount sensors. Rosemount celebrated the end of its first decade with sales of $8.5 million and a 19 percent increase in profits. By 1965 they had developed a British subsidiary, Rosemount Engineering Company Limited, which served the aircraft manufacturing market in England. Applications for temperature and pressure sensors were being expanded and associated equipment, such as airplane stall warning and ice detection systems, were added to the product line. But only seven percent of Rosemount sales were coming from the industrial market.

When Vernon Heath succeeded Werner as president of Rosemount Engineering Company in mid-1968, he faced changes in the industries it depended on for the vast majority of its sales. Heath attributed a 7.15 percent decrease in sales in 1969 to a shift in the defense industry. Net income had risen but only due to the sale of a manufacturing plant and the ski boot division. The ski boot line, which was sold to G. H. Bass & Co., had cost the company more than $2 million in losses. Undaunted, Rosemount rolled another high-tech project out and into a wholly owned subsidiary named Unifol Systems Co.

Unifol was a computer controlled, air pressure levitated and propelled personal rapid transit (PRT) system. A Honeywell researcher, who had worked on and then purchased the rights for the project, interested Frank Werner in pursuing its development. Rosemount had hoped to fund the project with public financing or equity participation by another firm, but even with renewed federal interest in public transportation Rosemount had trouble funding Uniflo. A joint effort with Northrup Corp. to win a Department of Transportation (DOT) contract for a demonstration mass transit system at Dulles International Airport failed. The DOT passed over the Uniflo project for more conventional mass transit systems. Uniflo later received two other federal research grants but made no sales. The project, which was abandoned in 1973, cost Rosemount about $1 million.

Rosemount did have one successful spin-off from its main concern in those early days. The company’s rapid growth had left it with a space crunch, but the owners could not afford to buy themselves office cubicles. So Frank Werner assembled panels from lumberyard hollow-core doors and molded casings. The office partitions worked so well the company decided to begin selling them. In 1966 Rosemount created a subsidiary, Rosemount Partitions Inc., to manufacture the movable office partitions called “Rotopanels.” They later expanded into desks, storage areas, and other office furniture.

But Rosemount’s other efforts to reduce its dependency on the U.S. space and defense programs proved to be the most profitable. In the late 1960s it had devised a plan to move temperature and pressure measurement instruments into areas of the industrial market which had a need for high accuracy measurement. It got off to a good start increasing industrial sales by 33 percent from 1969 to 1970. Heath said in a December 1972 Corporate Report Minnesota article, “We feel the financial results for fiscal 1972 are good indicators of the progress we are making in our carefully planned program of applying proven Rosemount technology to new markets.”

The basic research which Rosemount used to develop space and defense technology was applied to products for commercial aviation, synthetic fiber, petrochemical, and nuclear and conventional power production needs. The company opened five new sales offices in Europe and three in the United States. New marketing efforts commenced in South America and Canada. Rosemount Engineering Company changed its name to Rose-mount Inc. The company wanted to declare that it had expanded beyond its instrument engineering roots to become a producer and seller of engineering instruments on multi-industry and multi-national level. To cap things off, 1972 was the company’s first million-dollar profit year.

During the ten years from 1963 to 1973, Rosemount’s sales rose at a compound annual rate of 16 percent with earnings rising at a rate of 19 percent. It also expanded its facilities four times during that time period. By the end of its second decade, in 1975, sales were more evenly distributed between the defense, space, and commercial aviation market and the energy, process, and manufacturing market. In spite of an economic recession, Rosemount sales for fiscal year 1975 increased 26 percent to $41 million, and earnings per share were $3.30, up from $1.66 the previous year. International and export sales grew 42 percent and comprised over 25 percent of total sales. The company had more than 1,300 employees in the United States, Switzerland, West Germany, England, France, Denmark, Canada, and Japan.

Rosemount’s earnings nearly doubled from 1974 to 1975, and its success cost the company its independence. In a March 1984 Star Tribune article Dick Youngblood wrote, “The response on Wall Street—down on small companies in general and wary of Rosemount’s tendency to veer into off-the-wall business—was to value the company’s stock at a peak of eight times earnings per share.” Takeover threats by billion-dollar corporations moved Heath to accept a friendly merger. Emerson Electric Co., a St. Louis-based $4 billion conglomerate with a reputation for giving autonomy to the companies it acquired, bought Rosemount Inc. in 1976 for $54 per share, double its trading level. Stockholders received $54 million in Emerson stock. Heath was named head of the consolidated aerospace and industrial control operations.

Rosemount, which was once referred to by Youngblood as “a small company with an impressive talent for making space-age sensing instruments—and an absolute genius for diluting that effort with unrelated, unprofitable ventures,” had a new image by the early 1980s. Rosemount was no longer small nor diverted by technological challenges like PRT systems and ski boots. Aerospace know-how had been balanced by industrial acumen. Rosemount’s 1983 revenues, which had been consolidated with Emerson’s, were estimated to exceed $250 million. Operating profits were about $50 million, and return on assets was between 18 and 20 percent. By 1985 government contracts had been reduced to 20 percent of sales.

Although Rosemount clearly had moved the majority of its business into the industrial segment its products still had an important presence in the U.S. space effort. The first “reusable-returnable” space craft, the space shuttle, relied on Rosemount instruments. A pair of Rosemount sensors assisted pilots with determining the shuttles’s angle of re-entry into the earth’s atmosphere. Other sensors in the shuttle’s rocket motor had a matter of seconds to response to temperatures changes of 2000 degrees Fahrenheit that occurred during the crucial launch phase. For Rosemount Inc. testing devises such as wind tunnels and environmental chambers were just tools of the trade.

While Rosemount strived to apply the rigorous standards of the highly technical aerospace industry to the industrial market, Heath seemed equally committed to creating a atmosphere that fostered a committed and involved work force. Heath said in a 1985 Corporate Report Minnesota article, “For us, success is a matter of identifying common goals and establishing a culture that feeds itself and builds upon its.” People as well as profit were important to him, and that philosophy elevated Rosemount to a position among the world’s largest manufacturers of precision measurement and control instruments.

Rosemount revenues doubled over the five year period from 1983 to 1988 and reached the $500 million mark. Likewise, the employment figure nearly doubled in that time period to about 4,500 workers. Then in 1987 four Emerson instrument divisions were consolidated as the Rosemount Measurement and Control Instrumentation Group. The new group, which was managed by Heath, had 9,000 employees world wide and an estimated $1 billion in sales. Rosemount not only grew larger but continued improving its products. The company earned a place on the Fortune magazine “100 Products That America Makes Best” list in 1988—and again in 1991—for its “pressure transmitters for industrial power plants.”

Rosemount, like many other international businesses, had its share of problems in the 1980s. United States trade sanctions short circuited a sales agreement with a French company for pressure transmitters. The Reagan administration had banned sales destined for a Soviet natural gas pipeline to Europe. Rosemount was concerned not only with the broken contract but with losing in market share and good will it had built up in Europe. Rosemount was also struggling in the Far Eastern markets. Rosemount-designed pressure transmitters were already being used in nuclear power plants in China, but Chinese government regulations and shortage of capital were inhibiting sales in that huge market. And in Japan a joint venture begun in 1975 was stalled by the company’s inability to crack through the Japanese distribution system. Despite roadblocks the consolidated Rosemount group entered the 1990s accounting for about one-sixth of Emerson’s total sales volume.

In 1991 Heath left his position as CEO but remained on as chairman. Rosemount revenues were about $1.1 billion at the time. Instrumentation-related acquisitions which were rolled into the company and the steady development and improvement of products facilitated Rosemount’s rapid growth. Rosemount consistently was its parent company’s greatest generator of stockholder value. In a move to further enhance its position in the process control market, Emerson purchased Fisher Controls International in 1992 for $1.25 billion. According to Emerson, the combined Fisher and Rosemount businesses created, “with one move, a marketing and technology leadership position in a $15 billion global industry.” Fisher’s strength was in control valve products and Rosemount’s in measurement instrumentation. Emerson expected the new division to make half its sales outside the United States.

In 1993 Rosemount Inc. came under the scrutiny of the Nuclear Regulatory Commission (NRC). A utility company engineer implicated Rosemount in a 1988 coverup of faulty transmitters in a Connecticut nuclear power plant. According to the engineer, Rosemount corrected the transmitter failure warning problem but pressured the utility to keep the problem quiet. Nuclear industry vendors are required to report problems with products. At the time, both Rosemount and Emerson officials declined to comment on the investigation, and the company was seeking to have the suit dismissed. Rosemount held more than 40 percent of the worldwide market for pressure transmitters. That same year a Rosemount facility was named one of “America’s 10 Best Plants” by Industry Week. The pressure transmitters produced in the plant, which was opened in 1990, were used to measure pressure in everything from oil pipelines and power plants to beer vats. Honeywell Incorporated, one of Rosemount’s largest competitors, also had a plant on the list.

Rosemount’s long-time relationship with the aerospace industry ended in 1993. Emerson sold the Rosemount Aerospace unit to B. F. Goodrich Company for $300 million in cash. The division, which manufactured aircraft temperature and pressure sensors, had sales of $130 million in fiscal year 1993, with 60 percent of that revenue from commercial and 40 percent from military aircraft. More employee layoffs, in addition to those related to the integration with Fisher, followed the elimination of the aerospace division. Another of Rosemount’s earliest divisions was sold in 1995. Vernon Heath, who had retired from his chairmanship position with Rosemount in 1994, bought Office Systems Inc. The office furniture business’s 1994 revenues were $20 million; the company had been profitable for nearly its entire existence.

Rosemount Inc.’s history was one of transformations. From its aerospace roots, through misguided attempts at diversification, and finally success in the industrial marketplace Rosemount seemed like a classic American success story. In spite of ups and downs the company gravitated back to what it did best. Emerson had brought in money for research and capital equipment and improved asset management, but the company had remained much the same. But in the 1990s Emerson was moving towards consolidating its operations, and Rosemount Inc. went under another transformation. The company faced the 21 st century identified as part of a process control system division, rather than as an independent manufacturer. Whether this would have an impact on its future remained to be seen.