The Beloit Chronicles - Part 2
Events leading up to Chapter 11 announcement through June 7, 1999
This is part two in a six part series that chronicles
the events that led to the closing of Beloit CorporationThis information was compiled from various news sources including, but not limited to newspapers such as, The Beloit Daily News, The Rockford Register Star, The Janesville Gazette, The Milwaukee Journal Sentinel, Capital Times of Madison, WI, financial magazines and publications, Internet news and financial sites and personal e-mail contributions. All information is factual as published without personal commentary or judgment.
In the years of 1996 and 1997, Harnischfeger Industries had record earnings. The company stock traded in the $40 to $50 range per share. Harnischfeger Industries was known for high-quality products with a reputation for good service. Its papermaking-machinery subsidiary, Beloit Corporation, was considered the market leader in North America. In that period, four of six analysts rated Harnischfeger stock a buy at $44 a share. Harnischfeger appeared on a list of the world's top 50 of 1650 Blue Chip stocks studied. It ranked with companies like Coco-Cola, Disney, General Electric, Hewlett Packard, Nike and Intel, to name a few.
Harnischfeger's paper making revenue dropped 56% and mining sales dropped 28%. As a result of diversifying into making replacement parts for its equipment and providing service, Harnischfeger's sales and administration costs increased from 15% of revenues in 1996 to 25% in 1998. During the William Goessel years, Harnischfeger dept was reduced to 35% of total capital in the 80s and early 90s. Under Jeffery Grade, this dept increased. The company dept to overall-capital-ratio climbed from 45% in 1993 to 53% by the end of 1997, to 63% in 1998 to a whopping 69% at the end of the second quarter of fiscal 1999, April 30 that year.
In the waning years of the 20th century, The U.S. was in an unheard of economic boom. Contrary to this boom, the paper machinery sector was in a cycle of weak pricing and over capacity. The mining industry had similar problems. Coal mining equipment demands were at a low cycle and copper pricing were falling. Typically these cycles will come at different times, sometimes as much as a couple years between the bottoming out of various sectors of the economy. Unfortunately for Harnischfeger and it's employees, things were different this time around - the low cycles coincided. This phenomena, coupled with it's poor financial condition was more than Harnischfeger could handle. June 7th of 1999, Harnischfeger declared Chapter 11 bankruptcy. The following are some of the more significant events that led up to that declaration of filing.
April 29, 1998 - S&P places Harnischfeger debt on Credit Watch:
S&P puts Harnischfeger debt of $475 million of debt on watch after Harnischfeger Industries announced an additional $100 million in second-quarter charges associated Beloit Corp. papermaking machinery business. The most recent charges reflect cost overruns and possible accounting irregularities, and increase Harnischfeger's charges $225 million to $250 million.
September 14, 1998 - Harnischfeger hurt in both directions
The 15,500 workers of Harnischfeger Industries, got hurt in two ways. The company builds mining equipment and huge paper machines that produce 70% of the world's printing paper. Harnischfeger sales to Singapore and other troubled Pacific Rim countries dropped from $600 million a year to nearly zero. Its stock, at a high of $44 a share a year ago, was reduced in value to $16 in last week's market rout, putting a hole in the 401(k) retirement plans of many of its employees. Harnischfeger announced in late August that it soon will begin dismissing 3,100 employees, or a fifth of its work force
November 9, 1998 - Retirees see promise of health care erode.
Harnischfeger warned retirees five years ago that it was going to eliminate health benefits as of Jan. 1, 1999, but few believed they would cut them entirely. In fact, Harnischfeger is in the minority. Only about 4% of U.S. companies have eliminated retirees' benefits entirely, said AARP's Smolka. Most companies, she said, are either sharing the cost with employees and retirees or have capped the company contribution. In simple terms, this is a result of the aging of America and a lack of sufficient financial planning by both the companies and the government, said James R. Mueller, president of the employee benefits group of Frank F. Hack & Associates Inc., a Wauwatosa consulting firm.
December 8, 1998 - Harnischfeger reports losses: Losses of $38.6 million in the 3rd quarter and $38 million in the 4th quarter: "Beloit Corporation was part of these losses,'' said Harnischfeger spokesman David Brukardt. To offset the losses, Harnischfeger has enacted internal changes and job cuts, throughout the company. These cuts totaling 1,700 overall, have hit Beloit Corporation especially hard. And there may be more to come.
December 19, 1998 - Harnischfeger says, " Asian customer in default"
After Harnischfeger reported they were involved in healthy discussions with Asian Pulp & Paper to resolve issues over payment for machines, they surprised analysts late Tuesday, saying Asia Pulp and Paper Co. Ltd. is in default on nearly $300 million worth of contracts for two large papermaking machines. Jeffery T. Grade, Harnischfeger's chairman and chief executive officer, said in a statement that APP "has not acted in good faith and is unwilling to pay its obligations or is incapable of securing financing."
December 31, 1998 - Harnischfeger retired salaried workers file suit against company.
The suit is filed by 182 of Harnischfeger's retirees and their spouses charging that the company's elimination of their health care benefits Jan. 1, 1999, violates the Employee Retirement Income Security Act.. Five years ago, the firm told all retirees it was going to eliminate health benefits as of Jan. 1, 1999. However, it set up a system that assured retirees they could receive group group medical rates from outside insurers if they signed up in time through the company. Harnischfeger spokesman David Brukardt said Wednesday that company officials have not yet seen the suit and declined to comment on it.January 5, 1999 - Beloit employees return to work.
Many Beloit employees returned to work after being off since December 21, 1999 when the company ceased many of it's operations. Most of the employees received no pay except for pay for four Christmas Holiday. Beloit Corp., and its parent company, Harnischfeger Industries Inc., Beloit's parent company suffered serious financial setbacks reporting losses the last two quarters of 1998. 3,100 employees in the Harnischfeger group were terminated including 1,700 from Beloit Corporation.
February 3, 1999 - Harnischfeger moves annual meeting
Pulp and papermaking equipment shareholders will meet with Harnischfeger in Tucson, Ariz., Feb. 23. "We're not running away from anything," Jeffery Grade CEO said of the tough times in 1998. "If shareholders are mad at you they don't necessarily come to a meeting. They write you nasty notes," he said. Harnischfeger's two units were hurt last year by Asian economic problems and low coal and copper prices.
February 21, 1999 - Harnischfeger gets operating loan
A loan has been arranged by Harnischfeger Industries, Inc for $225 million. The loan was secured by Chase Manhattan Corp. and will provide the company with financial flexibility and working capital. ``This won't have any direct effect on our subsidiaries,'' Harnischfeger Industries, Inc., David Brukardt said. ``This is good for Harnischfeger. and will help our day-to-day operations.''
February 24, 1999. More layoffs at Beloit
Beloit announced a lay off of 150 employees. The layoff is a result of a slowdown in sales in Asia, causing less work at the Corp., reported Bill Hackett, president of operations. The mood at the company was grim but some had expected it and were not surprised. This reduces the workforce of 1700 employees a year ago by 25%.
March 1, 1999 - Harnischfeger third consecutive quarterly loss
Harnischfeger Industries Inc. posted a first-quarter loss of $16.4 million, or 36 cents a share, from $21.6 million, or 53 cents, a year ago. Revenue fell 18 percent for the quarter ended Jan. 31, to $456.3 million from $557.8 million. The company has eliminated nearly 2,800 jobs and closed nine plants as part of of a cost-cutting plan launched last August.
March 9, 1999 - Beloit Corp. employees number less than 1400 in the Stateline area.
Beloit Corporation staff of over 2,000 employees in the Stateline area has been reduced by drastic cutbacks over the last few years to less than 1400 workers. Laid off employees find that good jobs are difficult to come by and expect some rough times ahead.
April 13, Harnischfeger buyout offer?
Harnischfeger's stock rose 93.75 cents to close at $10.938. Last week it jumped from $6 a share to $10 and was the Standard & Poor's 500 top performer of the week. It had been S&P's worst performing stock for the year. Rumors and stories abound of a buyout offer for Harnischfeger.
May 25, 1999 Harnischfeger replaces CEO Grade
Harnischfeger has appointed John Hills Hanson as chief executive officer and Robert B. Hoffman, as its new chairman. Francis M. Corby Jr., and Jeffery Grade have resigned. Hoffman said the changes were "primarily the consequence of the adverse changes in Harnischfeger's business environment over the past two years." He thanked both Grade and Corby for their work. This move was expected as there was pressure applied in some circles for such a move.
June 1, 1999 More losses posted by Harnischfeger.
Harnischfeger reported a loss of $74.3 million in its second quarter or $1.60 per diluted share. Harnischfeger's stock dived to $5 a share to a new 52-week low of $2.563 from the previous 5.25 low. Financial reactions were all grim, such as:
"They're now on bankruptcy's doorstep,"
"They've moved another step toward the brink,"
Harnischfeger continues to "explore strategic alternatives for the company and its businesses" and is working with lenders to improve its liquidity.
June 6, 1999 - Harnischfeger on brink of bankruptcy
The news that Harnischfeger posted a $74.3 million second quarter loss spread around financial institutions and the pulp and paper industry swiftly. The financial people were the first to know. Newspapers, TV and Internet news outlets followed up quickly and carried the story to the public.
This was the first that many people were aware that something important was happening. Others waited anxiously to see what the outcome would be. Many knew the story would not get better. On the brink was better than knowing it happened! Outsiders were not yet aware of how serious the situation was.
The following day Harnischfeger Industries announced a Chapter 11 filing.
This series of articles is authored by: Luigi Bagnato, retired from Beloit in 1989 after 29 years of service.
Proceed to Part 3 of the Beloit Chronicles
Return to: The Beloit History Page
Visit the: The Paper History Channel
Visit the: The Paper Industry Web
