Harnischfeger Industries, Inc. is a world leader in the manufacture, marketing, and servicing of mining equipment for both surface and underground operations. Until the year 2000, when it sold its Beloit Corporation subsidiary, Harnischfeger was also a major manufacturer of machinery for the pulp and paper industry. The company is represented in markets around the world, including Europe, Latin America, Australia, and Southeast Asia, and in South Africa, Canada, and the United States. Harnischfeger manufactures specialized equipment for underground mining of coal, as well as equipment for surface extraction of ores and minerals. A significant portion of the company's income comes from servicing mining equipment worldwide and providing spare parts. The company has a long history, punctuated in recent years by bankruptcy and near bankruptcy. After surviving a disastrous business downturn in the 1980s, the company made an impressive comeback, and then ended the 1990s in Chapter 11. Harnischfeger was forced to sell off its pulp and paper machinery manufacturing division to remain in business.

19th-Century Beginnings

Like many century-old American enterprises, Harnischfeger traces its origins to an industrious immigrant with a dream. In 1884 Henry Harnischfeger was working at a sewing machine company in Milwaukee. Born in Germany, Harnischfeger had worked previously as a locksmith, a machinist, and a machine maker. He was a foreman in the sewing plant when the company appeared about to go under. Forming a partnership with Alonzo Pawling, a pattern maker in the same plant, Harnischfeger launched a small machine and pattern shop in Milwaukee.

It was a modest beginning. The company had one milling machine, one drill press, one planer, and two lathes. After each snowstorm, someone had to shovel the flat roof so it would not collapse. Wind whistled in through the building's cracks. Milwaukee was bustling at the time, however, and before long Pawling and Harnischfeger's reputations as craftsmen brought business to their door. Located in the midst of many booming manufacturing companies on Walker's Point, Pawling and Harnischfeger soon were building machines for knitting, grain-drying, stamping, brick-making, and milking, as well as conducting their regular repair work. The company was called Pawling & Harnischfeger and was commonly known as P & H. Soon, the small shop was expanding.

Harnischfeger's dream was to build a line of machinery that the company could produce and market itself. His chance came in 1887 after a tragedy occurred at a nearby plant, when another manufacturer's overhead crane fell, killing a workman. An engineer at that plant, H.A. Shaw, designed a more durable, safer crane powered by three electric motors. P & H soon hired Shaw, and their first electric overhead crane was shipped in 1888. It was a risky investment for the small company, which had built a three-story brick plant and large foundry and hired more workers.

In 1892 Shaw left with his patent to form his own company, and 1893 saw the onset of a severe economic downturn. Struggling beneath debt and with little work, the foundry was kept in operation by an order from the Pabst Brewery for six grain-dryers. A few years later Shaw lost exclusive rights to manufacture the electric crane, and Pawling & Harnischfeger immediately jumped back into production. Adding a line of electric hoists--essentially, smaller versions of the crane&mdash well as electric motors and controls, the company was prospering by the turn of the century, with nearly 100 employees.

Growing Product Lines in the Early 20th Century

In 1903 a fire destroyed Harnischfeger's main shop; the following year the company built a new plant in West Milwaukee on land that had been purchased for expansion. Covering 20 acres, the plant was state-of-the-art at the time; it eventually became the world's leading manufacturer of overhead cranes. Soon after moving to the new facility, Harnischfeger began streamlining its operations and making the parts it had previously purchased from suppliers. Eventually the company designed, manufactured, and repaired every component of every product it sold, demonstrating self-reliance and accountability that brought repeat business from its customers.

Throughout the company's growth, Harnischfeger oversaw the business affairs while Pawling handled the engineering. Pawling's health declined in 1911, and he asked Harnischfeger to buy out his share of the business. Three years later, Pawling died and the company became Harnischfeger Corporation, retaining P & H as its trademark out of respect for its cofounder.

The heavy equipment industry is notoriously cyclical, alternating boom with bust. The year Pawling's health began to fail was a bust year. During those times, the company was saved by an order from J.I. Case Company for 1,000 gasoline tractor engines. The demand for cranes resumed in 1913, then skyrocketed with the start of World War I a year later.

In the meantime, Henry Harnischfeger was looking for other products to help even out the cycles of the heavy equipment market, and he eventually settled on excavating and mining equipment. After the war, the company's engineers designed the world's first gasoline-powered dragline, a truck-mounted machine that could lift, pile-drive, clam, and drag. They also created a backhoe and a shovel-type excavator mounted on crawlers. With ample applications in both mining and construction, the products were instantly successful, and Harnischfeger became well known in those industries throughout the world. The main plant was expanded to handle this manufacturing; by 1930 the number of employees had grown to 1,500.

This modest diversification, however, did not offset the effects of the Great Depression. There was no market for Harnischfeger products, and the company lost money every year from 1931 to 1939. Harnischfeger was forced to offer used equipment--returned because customers could not afford to keep it--at fire-sale prices just to raise cash. In 1937 and 1938 the company's workers struck and, eventually, formed a union.

Founder Henry Harnischfeger had died in 1930, and his son Walter became president. Despite the weak market demand, Walter Harnischfeger continued to innovate and improve the company's products. Harnischfeger replaced the rivets in its cranes with all-welded design and fabrication in the 1930s, creating cranes and excavators that were stronger, lighter, and less costly. Harnischfeger also sought more ways to diversify in the 1930s and 1940s, making welding machines, welding electrodes, diesel engines, and even prefabricated houses. Other Harnischfeger innovations changed the industry, while not exactly becoming household words. These included the electromagnetic brake and control system, Magnetorque, designed by Harnischfeger's engineers in 1946.

World War II rocked the world, but revived the American economy. By 1940 Harnischfeger's plant was operating at full capacity again, and it had spent millions on plant additions. The company's cranes lifted tanks and heavy artillery in defense plants, its hoists positioned planes on aircraft carriers, and its excavators dug foundations for new buildings. Despite the burgeoning demand, chronic material shortages, a lack of skilled workers, and increased government regulation made it a difficult time for the company.

Postwar Expansion

Harnischfeger hit its stride during the postwar industrial boom. From $29 million in sales in 1946, Harnischfeger grew steadily to $86 million by 1957, despite periodic economic downturns. New plants were built in Michigan, Illinois, and California, and plants were added and expanded in Milwaukee. Harnischfeger also had developed a market overseas, and companies were licensed abroad to build Harnischfeger cranes and excavators. Agreements were signed with Rheinstahl Union Brueckenbau of West Germany in 1952 and Kobe Steel, Ltd., of Japan in 1955.

Growth begets growth. In 1951 Harnischfeger borrowed $5 million to develop better products. In 1956 it joined the American Exchange, opening itself up to more shareholders. Previously, the company had been primarily a family-owned company, though listed on the Midwest Stock Exchange.

In 1959 Walter Harnischfeger became chairman of the company and his son, Henry, became president. During this period industries were becoming more complex, and Henry Harnischfeger felt challenged to choose between being an average competitor in several tough fields or the leader in two or three. Between 1964 and 1968, Harnischfeger streamlined its operations. The prefabricated home and diesel engine lines were dropped, and road-building equipment and welding product divisions were all dropped or sold. By the late 1960s Harnischfeger had two divisions. The Construction and Mining Division produced digging and lifting machines, such as electric and hydraulic excavators, and truck- and crawler-mounted cranes, while the Industrial and Electrical Division manufactured overhead cranes and hoists, as well as the electrical motors and controls needed to power them. The two divisions were run, essentially, as separate companies, with individuated engineering and marketing responsibilities.

From there, product lines were broadened and improved, especially for the larger products. Between 1969 and 1979 the average capacity of Harnischfeger's mining equipment doubled. In 1964 the company introduced stacker cranes to serve material handling markets. In 1967 it offered a new line of hydraulic backhoes and cranes for the booming hydraulic construction equipment market. Easier to operate and more mobile, these machines were very successful in the industry.

Global Company in the 1960s and 1970s

Harnischfeger's global presence also grew, with 25 percent of its production being exported in 1965 and 40 percent of American output being exported a decade later. The company's licensed overseas partners and subsidiaries continued to grow, the largest being Harnischfeger GmbH, based in Germany, with distribution in Europe, the Middle East, and North Africa.

The restructuring of the 1960s left the company well poised for growth in the 1970s. After the oil embargo of 1973, new coal reserves were opened and oil pipelines and mass transit systems were built, increasing sales of Harnischfeger machinery. Annual sales grew from $150 million in 1970 to $646 million in 1981, excluding nearly $200 million sourced from overseas licensees. The company's stock was listed on the New York Stock Exchange for the first time in 1971. The company continued to borrow funds to fuel growth, pouring nearly $200 million into upgrading its plants and equipment, as well as into research and development, between 1975 and 1980. In the late 1970s, however, economic recession and high interest rates hit the company hard. Unhappy with its balance sheet, Harnischfeger sought to bring its debt-equity ratio into better focus by lowering capital requirements and cutting production costs. In 1979 Harnischfeger's interest bills alone came to about $28 million, and debt was roughly 40 percent of total capital in 1980.

From Bust to Boom in the 1980s

The heavy equipment industry was hit hard by the recession, and Harnischfeger lost money for the first time since the end of the Depression in 1938. Harnischfeger also fell victim to political change abroad: the company had been about to ship a $20 million order to Iran when the Ayatollah Ruhollah Khomeini came to power, halting all trade between Iran and other countries. At the same time, the inflated deutsche mark was dulling the competitive edge of Harnischfeger's German subsidiary.

The recession spread across the globe and by 1981 had depressed many of Harnischfeger's primary markets. In 1982 sales dropped by a third, and the company reported a $77 million loss; staving off bankruptcy, the company went into technical default on some of its loan agreements. In 1983 sales fell to less than half of 1981 sales and the company lost another $35 million, some of the losses due to plant closings and discontinued product lines. The company's workforce plunged from 8,000 in 1979 to 3,800 in 1982. Harnischfeger was no longer concerned about growth; it was concerned about survival.

In 1982 Henry Harnischfeger became chairman and CEO, and the position of president was assumed by William Goessel, formerly of Beloit Corporation, a manufacturer of papermaking machinery headquartered in Beloit, Wisconsin. For the first time in its nearly 100 years, Harnischfeger's president was not a Harnischfeger. The year Goessel became president was one of the company's darkest, with some plants operating at less than 20 percent of capacity. In his first week on the job, Goessel was told the company would run out of cash in six weeks; then he learned that the company was in technical default on $175 million of debt. Goessel closed some operations, slashed the workforce, sold off excess inventory, and set about restructuring Harnischfeger's finances. He shifted the focus of operations from old technologies to computerized systems. The ailing construction equipment business, which had accounted for about half of Harnischfeger sales at one point, was sold.

The heavy equipment industry was going through vital changes at the same time, with the crane market shrinking while competition was increasing both at home and abroad. Leveraged buyouts and closings threatened several of the major construction crane manufacturers. In 1984 Harnischfeger announced that it would be buying virtually all of its construction cranes from Kobe Steel, which then owned about ten percent of Harnischfeger's stock. Family interest in Harnischfeger had been reduced to five percent. Between debt restructuring, public stock offerings, and cash from liquidations, Harnischfeger was able to pay its debts to private lenders by 1984 and report a profit that year. With the wolves gone from the door, at least until the ten-year notes came due in 1994, the company was again free to shift its focus back to growth.

The new focus was material handling. In 1983 sales of mining, construction, and material handling equipment and systems were about equal, but the automated factory systems market seemed to be booming. Many factories were modernizing and retooling, using computerized systems to upgrade efficiency in production lines. In 1984 Harnischfeger formed a new subsidiary--Harnischfeger Engineers&mdashø tap this market; by year's end General Motors and Nabisco Brands were customers.

Automated material handling systems are computer controlled complexes of machinery that unload raw materials at the receiving dock, steer work through the factory, and send finished goods out for shipping. The systems include stacking cranes that retrieve parts in inventory and vehicles that are automatically guided by electric wires embedded in a factory floor. Harnischfeger seemed an unlikely competitor in the industry, but by the end of 1984 Harnischfeger Engineers was building a $5 million automated warehouse at a General Electric jet engine plant in Massachusetts.

One of the company's most notable milestones was the 1986 acquisition of Beloit Corporation. A manufacturer of pulp and papermaking machinery, Beloit was founded in 1858 and was also family run. The purchase was made for $175 million during a down cycle in the paper industry. About seven months later, at the onset of a boom in papermaking equipment and pulp and paper systems, the newly formed holding company, Harnischfeger Industries, sold a 20 percent stake in Beloit to Mitsubishi for $60 million. By 1988 Beloit was Harnischfeger's largest and most profitable unit, and by 1990 Beloit's sales were nearly $1.1 billion. It was a brilliant acquisition for Harnischfeger Industries and gave the parent company cash to reinvest in all its units.

Also purchased that same year was Syscon Corporation, for $92 million. This company provided software to the defense industry and was a leader in information systems integration. Harnischfeger's Systems Group--which included Syscon and Harnischfeger Engineers--was conceived as a counterbalance to the cyclical nature of mining equipment and papermaking machinery sales. Much of Syscon's work was with the U.S. Department of Defense, making it vulnerable to military cutbacks, but the company's work increasingly involved computer-based information systems designed to reduce paperwork and, therefore, could be of use in all federal departments as well as large companies. By 1990 Syscon was developing systems for the U.S. Departments of Labor and Education.

Harnischfeger was prospering in 1988, thanks to these acquisitions, the paper boom, and the improving climate in the mining industry. It was a record year, ending with doubled earnings. Two more common stock offerings were made in 1987 and 1988 to help bolster the balance sheet. In 1989 income from operations was up 65 percent over 1988. By 1990 roughly 60 percent of Harnischfeger's sales and earnings stemmed from papermaking machinery. Beloit equipment was used in producing 70 percent of the world's newsprint and writing and printing grade papers, as well as half of the world's tissues, towels, and napkins. Replacement parts for these machines was a thriving business as well.

Harnischfeger had clearly weathered its storms. The company announced in 1990 that it was shopping for new acquisitions. That same year, the paper cycle began a cyclical downturn. Although orders for papermaking machines dropped, a quarter of Beloit's paper machine manufacturing had been subcontracted to avoid the expense of expanding, so even with business decreasing, Beloit maintained presentable margins. Meanwhile, the Mining Equipment Division was still expanding, with sales of its massive electric-powered shovels growing nearly 20 percent in the first half of 1990. The poorest performing unit was still the material handling business, which supplied overhead cranes and hoists. Harnischfeger announced plans to buy a stake in Measurex Corporation in 1990, but not more than 20 percent due to a seven-year 'standstill' agreement between the companies. A Cupertino, California company, Measurex made industrial process-control systems, primarily for the paper industry. Beloit and Measurex entered a joint agreement on marketing, sales, and development.

Tumultuous 1990s

William Goessel passed the reins to Jeffery T. Grade in 1991. Grade, then president, became CEO, and Goessel stayed on as chairman of the board. The paper slump continued and Beloit's paper machine orders suffered in 1992, hurt by industry overcapacity and a lingering global recession. Mining equipment sales were strong that year, while the material handling division had an increase in sales but a dip in operating profits. Stalled defense contracts hurt Syscon in 1992, but caused the company to broaden its commercial and federal agency business bases. Goessel retired as chairman in early 1993, and Grade became chairman and CEO.

Grade was by all accounts a dashing and flamboyant leader, who claimed to have been a fighter pilot in Vietnam, hero of dangerous night landings on aircraft carriers, who had been shot down deep in enemy territory and fought his way to safety. He was a notoriously flashy dresser, with three company cars and a company jet at his disposal. He enraged Wall Street by continually falling short of earnings expectations, a feat he accomplished for 14 out of 24 quarters while he was CEO. A profile in Barron's for July 12, 1999 revealed that Grade had no Navy record, and Grade revised his story to say that he had been a passenger on some practice flights while a college student enrolled in the Navy ROTC. By the time his false war record was exposed, Grade already had led Harnischfeger into bankruptcy.

Part of Harnischfeger's 1990s disaster came about because a string of acquisitions led to unwieldy debt. The company bought Joy Technologies in 1994, a company that made equipment for underground mining. This was a new area for Harnischfeger, but Grade's ultimate goal was to get into areas that would balance the dangerous cyclicity of its paper equipment and other product lines. In 1996, Harnischfeger bought an ailing British mining equipment firm, Dobson Park Industries, for $322 million. Neither Dobson nor Joy were doing particularly well, and Joy's slump caused it to close nine plants in 1996. Whereas Grade's predecessor William Goessel had cut Harnischfeger's debt as much as he could, Grade expanded it. The company's debt-to-overall-capital ratio climbed to 45 percent at the end of Grade's first year as CEO, up to 53 percent by 1997. That year Harnischfeger launched an unsuccessful hostile takeover bid for a machine-tool manufacturer, Giddings & Lewis, taking the company to court to force its board to consider the deal. Harnischfeger's stock began to fall in spite of record quarterly earnings, and Grade insisted Wall Street was overreacting to an announced year-end earnings shortfall. 'We are the global leaders in everything we do. ... We haven't lost any customers; we haven't lost any market share,' Grade insisted to the Milwaukee Journal Sentinel (May 22, 1997). Nevertheless, the company's stock slid as news came in of a disastrous deal the company had undertaken in Indonesia. Harnischfeger had sold the Singapore-based Asia Pulp & Paper four huge paper making machines, and the company was so eager to make the sale that it agreed to manage construction of the plants in Indonesia for which the machines were destined. This was not something Harnischfeger had done before, and soon complications forced sizable cost overruns, leading Asia Pulp & Paper to stall on payments. The Asian economic downturn of 1998 made the situation worse. A disastrous third quarter loss in 1998 led Harnischfeger to lay off 20 percent of its workforce. By January 1999, Harnischfeger's stock was ranked the worst-performing on the S & P 500. In May 1999, Jeffery Grade was out, and in June Harnischfeger filed for reorganization under Chapter 11 of the U.S. bankruptcy code. John Nils Hanson succeeded Grade and worked to put the company back together.

In 1998 Harnischfeger had sold off 80 percent of its material handling division to Chartwell Investments. The company's mining equipment division was still profitable, though far less so in 1998 than it had been in 1997, dropping from more than $200 million in operating profit to $82 million. The pulp and paper division, stung by the ongoing Indonesian fiasco, lost more than $368 million. To get out of bankruptcy, Harnischfeger put its pulp and paper division, Beloit Corp., up for sale. Beloit was sold off piecemeal in 2000, with proceeds going to the company's creditors. By late 2000, Harnischfeger had filed a plan to emerge from Chapter 11 as a pared-down company concentrating on the manufacture of mining equipment. Its two principal divisions were P & H Mining Equipment, for surface mining, and Joy Mining Machinery, making and servicing equipment for underground mining. The company's stock moved off the New York Stock Exchange and began trading over the counter. Even without its paper making equipment unit, Harnischfeger remained a large company with a strong global presence. It seemed possible that Harnischfeger could move on from its disastrous 1990s and prove itself all over again in the next century.

Principal Subsidiaries: Harnischfeger Corporation; Harnischfeger Engineers, Inc.; Syscon Corporation.

Principal Divisions: Joy Mining Machinery; P & H Mining Equipment; Mining Group.

Principal Competitors: Caterpillar Inc.; Bucyrus International, Inc.
 
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