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Kronos, Inc. is the leading manufacturer of work place timekeeping systems and also produces similar data-collection systems. The integrated hardware and software systems that it engineers, manufactures, and distributes collect and process information designed to increase productivity in the work place. The company also maintains an extensive service and support organization for its customers. Kronos enjoyed uninterrupted revenue growth throughout the 1980s and into the mid-1990s, with profits increasing every year since 1988.
Development and Early Years, 1977-84
Kronos (the Greek word for time) was founded in 1977 by Mark S. Ain, a computer science and engineering graduate of the Massachusetts Institute of Technology with an M.B.A. from the University of Rochester whose work experience consisted of stints at Esso International, Digital Equipment Corp., and a Concord, New Hampshire, consulting firm. Working out of his home in Newton, Massachusetts, Ain and inventor Larry Baxter had been planning since 1974 to introduce a microprocessor-based product for a technologically backward industry. Ain and his partner considered 150 possible products and narrowed this field to 12 before choosing the time-clock business, which had remained essentially unchanged since 1888. In place of the standard electromechanical time clock, used for payroll purposes, Baxter devised an electronic time clock. The year 1978 was devoted to funding the endeavor, and the Kronos electronic time clock was introduced in December 1979. The first one in the United States, it sold for under $1,000, compared to about $400 for electromechanical time clocks.
Electromechanical time clocks, some still in operation after 40 years, recorded only the hour and minute that workers punched in and out, leaving to clerks the tedious and error-prone task of totaling the numbers every week or two. By contrast, electronic clocks delivered a total each day, printed on the time card, and could be linked to other computers to total the numbers for the payroll period electronically. Nevertheless, developing their clock took Ain and Baxter nearly three years instead of the six months they expected, mainly because the software had to accommodate hundreds of different corporate policies on such matters as how overtime was calculated and how late a worker would be permitted to punch in before being docked.
Kronos's first customer was a small copy shop on Broadway in New York City, so small, Ain recalled to a Boston Globe reporter, "that the only place for the clock was in the restroom." Another early customer, he added, was a frustrated convenience dairy owner in a tough section of Brooklyn who "called and said that he was about to use an ax on 'the clock' or on one of our servicemen" and whose second clock caught on fire. Business was so poor that on three occasions Ain told his employees not to cash the paychecks he distributed. In the fall of 1980, however, the company received $500,000 in venture-capital investment. By 1981 Kronos had sales of about $2 million a year, and in 1984, when sales reached $9 million, the company was making a modest profit and was able to move to Waltham from leased quarters in Cambridge near Harvard University's business school.
Growth But No Profits, 1985-87
By mid-1985 Kronos's models had advanced considerably in sophistication. They could be programmed to keep workers from clocking in (now by magnetic ID card) too early or out too late and thus earning unauthorized overtime. They could break down labor costs by worker, department, overtime hours, and shifts and calculate labor costs every day to keep them from outstripping sales. The company's clientele included restaurants, retailers like Montgomery Ward (its biggest customer in 1986), hospitals, factories, and even brokerage houses and law firms. The Marriott hotel chain was installing $4 million worth of Kronos's most advanced system, one linked to an IBM computer, in all 150 of its hotels and was expecting to save at least $6.5 million a year, mostly in labor expenses.
In 1987 Kronos introduced its Jobkeeper Central system, which automated a company's production data, recording such items as billable time, job status, and production efficiency. Another system introduced in this period was Timekeeper Central, which fed the data from time clocks to a mainframe computer that calculated a company's pay rates and work rules for the payroll program. This enabled managers to track their employees at any moment and avoid overtime by scheduling first the ones who had not worked a full week. By early 1987 Kronos had installed nearly 30,000 time clocks in about 25,000 companies.
Company revenue came to $17 million in fiscal 1986 (the year ended September 30, 1986). This represented a compounded annual growth rate of more than 60 percent since the first 1979 shipment. However, Ain pointed out that Kronos had received $6 million in venture capital and $1.5 million and $2.5 million from a private equity placement. The company, he told the Boston Globe, "has only been at the break-even point for the last three years or so. We're now transitioning to profitability, looking to go public a year from now."
This assessment was rather optimistic if, as a Forbes article reported, Kronos had accumulated losses of $2 million by 1987. During that year Ain raised $3 million more by another private stock placement but chose not to take the company public. When the stock market crashed in October 1987, Ain's irritated backers believed the company had missed its chance to raise as much as $50 million from the sale of stock.
During fiscal 1987 Kronos's revenues grew to $20.3 million, but the company lost $176,000. At this point disgruntled board members, who included investors from Drexel Burnham's venture-capital unit and New England Capital, pressured Ain into hiring Yagiv Kadar, a Boston paper-company executive, as chief operating officer. Kadar immediately fired 15 longtime employees hired by Ain and made the underperforming sales staff meet quotas 60 percent higher than before.
The Path to Public Ownership, 1988-92
Kronos had net income of $316,000 on revenues of $25.9 million in fiscal 1988; net income of $1.4 million on revenues of $32.9 million in 1989; net income of $1.5 million on revenues of $39.6 million in 1990; and net income of $2.3 million on revenues of $47.8 million in 1991. In June 1992 the company made its initial public stock offering, raising $9.9 million. Ain again was in full control of his company as president, chairman, and chief executive officer. Clients included such corporate giants as General Motors, Nabisco Brands, American Express, Coca-Cola, and Sony Pictures. One customer said Kronos products had paid for themselves within six months. About 25,000 units were being shipped a year.
Originally offered for $12 a share, Kronos stock traded as high as $24 in 1992. The underwriter estimated that Kronos had great potential for growth because only an estimated 15 percent of the 650,000 U.S. businesses with 25 or more hourly employees were operating with computerized time clocks. The company posted revenues of $58.1 million (about 10 percent from international operations) and net income of $3.6 million in fiscal 1992. Ain told a Wall Street Journal reporter that sales had remained strong despite the recession of the early 1990s because "We tend to get big orders when a company gets in trouble, because that's when they want to control costs. We received four or five big orders the last two years from companies that had just filed bankruptcy."
Growing Sales and Profits, 1993-96
During fiscal 1993 Kronos earned $4.1 million on net revenues of $67.1 million. Its biggest client at this time was NationsBank, with whom it had signed a multi-year deal worth $5 million to $6 million. Kronos also had won a $3.2-million contract in 1992 with Chicago's Board of Education to install equipment tracking staff attendance, labor costs, and bus movements. Its Timekeeper systems were selling for between $1,300 and $250,000, depending on how many employees a company had and the type of operating system being used. Applying similar technology, new company products also were tracking inventories and managing shipping and receiving. Customers now included General Electric, Pillsbury, and Sears stores.
Kronos made several acquisitions in 1993 and 1994. These were the technology and certain assets of Computer Recovery, Inc. a time-accounting software-development concern; ShopTrac Data Collection Systems, a manufacturer of software; all the territories covered by Bay Area Realtime Systems, Inc.; all the territories covered by Midwest Time Accounting Systems, Inc.; certain territories covered by Interboro Systems Corp.; and all of the southern California territories covered by Compu-Cash Corp. Kronos moved its manufacturing facility from Lowell, Massachusetts, to Chelmsford, Massachusetts in 1994.
Kronos had net revenues of $92.9 million in fiscal 1994 and $120.4 million in fiscal 1995. Net income came to $4.9 million and $8.4 million, respectively. In fiscal 1996 the results were even better: $148 million and $11.4 million, respectively. In January 1995 the company adopted a shareholder-rights plan to defend against a hostile takeover. Shares of its common stock traded for as high as $50 during the year. Ain held 6.4 percent of the stock in 1995; institutions held 83 percent of the company's common stock in 1996. Kronos had no long-term debt in June 1996.
Kronos Products in the Mid-1990s
Among the major systems offered by Kronos in 1995 were Timekeeper Central, Timekeeper/AS, ShopTrac Data Collection, and Workforce Management. The Timekeeper systems automatically calculated employee hours data and then consolidated information into a number of standard labor management reports. The ShopTrac Data Collection System captured labor and material data for manufacturers to provide real-time information on cost, location, and completion time. This included time and attendance data to provide information for the basis of managing labor resources. The Workforce Management System, developed for the retail and hospitality markets, consisted of several integrated modules that generated the correct staffing level required for the expected level of business, then combined this data with detailed employee information to produce a complete, detailed work schedule. This information was then integrated with the Timekeeper Central System to enable management to compare actual labor costs to budgeted costs.
Optional software modules offered by Kronos included Scheduling, which assisted in creating employee schedules; CardSaver, which recorded employees' in-and-out data for wage and hour inquiries; Accruals, which calculated each employee's available benefit time; and Attendance Tracker, which recorded and documented employee absences. It also offered the Archive Program, automatically performing long-term record keeping. These modules and the program were all designed to expand and enhance the range of functions performed by Kronos's time-and-attendance and shop-floor data-collections systems. The company also was marketing standard, "off-the-shelf" interface software, including Time Bank (purchased from a third party), Kronos Database Poster (an interface from Timekeeper Central to industry-standard X-Base databases), and DKC/Datalink, an interface between Datakeeper Central and popular MRP systems.
Kronos's Datakeeper Central System was collecting and formatting data and transmitting it to MRP and other related applications or host systems. Its TimeMaker System was designed to give smaller businesses the advantage of automated time and attendance. Gatekeeper was being used to control employee access to a facility. Kronos TeleTime System allowed customer telephones to serve as data input devices. The company also was marketing ACES and ACES PLUS, obtained from a third party, to read data from forms and transmit that data to a time-and-attendance database.
Kronos also was manufacturing a complete family of intelligent data-collection terminals to collect and verify data and communicate this data to a computer for use with the company's application software. Some of these terminals--wall-mounted, desk-mounted, and hand-held--were designed to operate in harsh environments. It was also marketing a number of accessories to its products, including badges, badge-making equipment, time cards, bar-code labels, and modems.
Kronos's extensive service and support organization accounted for 27 percent of its net revenues in fiscal 1995. This organization relocated from corporate headquarters in Waltham to a new Customer Support Center in Chelmsford during 1996. The company had 21 direct sales and support offices in the United States in 1995. It also had two such offices in Canada, one in Great Britain, and one in Mexico. In addition to about 50 independent dealers in the United States actively selling and supporting Kronos's products, the company also had such dealers in Argentina, Australia, Canada, Guam, Guatemala, Hong Kong, Jamaica, Mexico, Netherlands Antilles, Panama, Puerto Rico, Singapore, South Africa, Venezuela, and the West Indies. In 1996 it opened subsidiaries in Australia and South Africa. Kronos also had a joint-marketing agreement, established in 1993, with ADP, Inc., under which this company marketed "Total Time," a proprietary version of Kronos's PC-based time-and-attendance software, together with data-collection terminals manufactured by Kronos.
Kronos was leasing its headquarters in Waltham and its manufacturing facility in Chelmsford in fiscal 1995. In November of the calendar year the company signed a 10-year agreement allowing it to lease another facility in Chelmsford and simultaneously relocated its manufacturing operations to the new facility. Kronos also was leasing 46 sales and support offices in North America and Europe during 1995.
Principal Subsidiaries:Kronos Computerized Time Systems, Inc. (Canada); Kronos de Mexico, S.A. de C.V. (Mexico); Kronos International Sales Corp. (U.S. Virgin Islands); Kronos Securities Corporation; Kronos S/T Corporation; Kronos Systems Limited (United Kingdom).
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