Fansteel Inc. History

Company History:

Fansteel Inc. is a manufacturer of specialty-metals products, including cutting and milling tools, toolholding devices, coal-mining tools and accessories, construction tools, wear-resistant parts, powdered-metal components, sand-mold castings, investment castings, forgings, and special wire forms. These products are divided by Fansteel into two business lines--industrial tools and metal fabrications--and are used in metalworking; the automobile, aircraft, aerospace, and weapons industries; coal mining; gas and oil drilling; and agricultural machinery and electrical equipment industries. Interturbine Fansteel, Fansteel's joint-venture company with Interturbine Holland, manufactures, repairs, and markets parts for jet engines in Europe, the Middle East, and the Far East. The company, whose headquarters are in North Chicago, Illinois, operates from nine manufacturing facilities located in various parts of the United States. It calls itself an "industrial company serving industry."

The Early Years: Pfanstiehl Electrical Laboratories

The development of Fansteel Inc., founded in 1917 by Carl A. Pfanstiehl, parallels the growth of American industry and technology from World War I to the present. Born in 1888 in Columbia, Missouri, Pfanstiehl was raised and educated in Highland Park, Illinois. While still in high school, he exhibited an interest in science and technology. He was responsible for building the first X-ray machine in the area and was frequently called on to perform X rays at surrounding hospitals. At age 16 he attended the Armour Institute of Technology, where he met his future partner, James M. Troxel. Together, with an initial capital stock of $10,000, they launched the Pfanstiehl Electrical Laboratories in January 1907. During this same period Pfanstiehl had also developed a unique induction coil and was selling the coils for medical use. Troxel believed that the emerging automobile industry could use Pfanstiehl's coils for the construction of ignitions.

The early years were less than a stunning financial success. According to Robert Aitcheson, an early bookkeeper for the company (and later a Fansteel president), the company in the beginning "was just a little business and in five years they were in trouble with practically all of their accounts receivable in hock." Still, the company had a good reputation in the automotive field, and until World War I it produced various parts for that industry, including magnetos, master vibrators, starter coils, and transformer coils. It also manufactured an electric household iron, one of the company's few attempts to enter the consumer market.

Especially important to the company was its development of automotive contact discs, made with tungsten, at the time a new metal. Introduced just before the war, these Pfanstiehl contacts soon became common in automotive ignition systems. They also helped boost profits from $49,152 in 1914 to $361,909 in 1917. During this period, in 1914, the company was incorporated as the Pfanstiehl Company of Delaware with an initial $150,000 of preferred stock and $150,000 of common stock.

After the war, because of the anti-German sentiment in the United States, the company's name was changed to Fansteel Products Company, Inc. The new name was a simple Anglicizing of the Dutch spelling. Thus, although the company was in the metal-fabricating business, the name reflected only by chance the metals it developed for industrial use.

Production during World War I

During World War I Pfanstiehl spent much of his time in the laboratory. He patented a method of welding steels of different "analyses," and he also received a patent for a tungsten target for X-ray tubes.

During the war years the company profitably produced tungsten for use in electrical contact points and was operating at high capacity. Much of the company's production, in fact, was in the manufacture of tungsten spark gaps for wireless apparatus and special strip contacts of tungsten for signaling equipment used during the war. It was also producing the metal cerium, as well as a cerium-iron alloy, which were used to make miners' lamps and munitions.

For its Tungsten products Fansteel initially purchased tungsten rods, but difficulties with the purchased metal led the company to produce its own. It was to help him with this job that Pfanstiehl decided to contact Dr. Clarence Balke, a University of Illinois chemistry professor who was conducting research on rare metals, including tantalum (a metal that would become important to the growth of Fansteel). In 1916 Balke became the research director at Fansteel.

Pfanstiehl also worked on the development of specialty chemicals needed for medical treatments during the war. Rare sugars and amino acids that had been supplied by Germany before the war were in short supply. To tackle this problem, Pfanstiehl established the Specialty Chemicals Company, which was located in the basement of his home. From 1919 until his death in 1942, he devoted himself to this laboratory, leaving the management of Fansteel in the hands of others. He developed a tooth paste, a pen nib, a new dental drill, and an improved phonograph needle. He had 135 patents issued in his name in areas as diverse as metallurgy, chemistry, and electronics.

From the 1920s through World War II

For years Fansteel conducted research on tantalum, the rare metal in which Clarence Balke had focused much of his energy as a professor. One commercial result was the company's Balkite Tantalum Rectifier, or radio, which in the early 1920s became hugely popular, though demand for the product would not last long. In 1923 Fansteel was manufacturing rectifiers and "B" power units in the millions and establishing distribution outlets throughout the country. From 1923 to 1924 sales of the rectifier jumped from $73,263 to $918,237. Fansteel sponsored the first New York Symphony Orchestra broadcast over radio. By 1926 sales at Fansteel had nearly reached the $5 million mark, most of it coming from radio and railway use of rectifiers. But in 1927 the rectifier was replaced by the AC (alternating current) tube, and Fansteel found itself in a downhill slide. It had tried not to be dependent on the automobile industry after World War I, and now it had become too dependent on the radio industry. The company, however, retained sustaining products in rectifiers for railway signals, telegraph and telephone uses, and fire and burglar alarm systems. Tungsten and molybdenum production for radio tubes also helped production at Fansteel during the late 1920s.

The collapse of the radio market left the company with a $322,828 net loss in 1928, and the stock market crash of 1929 and the subsequent Depression pushed Fansteel to a more desperate position. Research at this time, however, had continued on shortwave and ultra-high frequency tubes, which would become important products for Fansteel during World War II. Moreover, in 1930 Fansteel began to market carbide tools and dies that the company had developed from tantalum and tungsten carbides. Perhaps the most important development during the 1930s was the company's redefinition of itself--"an industrial company serving industry." Metallurgy was the business Fansteel knew best, and in 1935 it changed its name to Fansteel Metallurgical Corporation.

One way Fansteel was to serve industry was finding industrial outlets for the metal tantalum. In the early 1930s the company produced it for VASCO, an alloys steel company, which was later merged into a subsidiary of Fansteel. Fansteel's tantalum capacitors, developed in 1930, seemed destined to grow with the electronics industry. Throughout the 1930s tantalum production continued to help Fansteel grow, helping the company move from a $218,900 net loss in 1932 to a profit of $35,409 in 1933. By 1942 the company had installed more than 70 tantalum units for the absorption of hydrochloric acid in plants across the United States, Canada, South America, Australia, and India. Besides its use in acid plants, tantalum products for medical and surgical uses became an important part of Fansteel production. Many skull and nerve injuries were repaired during World War II using tantalum implants and tantalum wire for sutures. During the 1930s Fansteel produced a metal alloy that was used in the manufacture of tools in hundreds of metal-cutting operations.

Also notable during this period was a sit-down strike staged by employees in 1937. The strike led to the dismissal of 37 employees after they had caused considerable damage to the physical plant. Most of the employees, however, were forgiven and rehired.

The short supply of weapons and metals at the beginning of World War II proved to be a boon for Fansteel, and by 1943 it was able to list 135 uses and applications for its metals and products. It was involved in fabricating tantalum and other specialty metals, electrical contacts, cutting tools, powder metallurgy products, rectifiers, acid-plant chemical equipment, arresters, and surgical products. As a result, Fansteel experienced exceptional growth--216 percent in 1941, 354 percent in 1942, and 701 percent in 1943. Because of the labor shortage during the war, Fansteel had to mechanize more of its equipment, a development that also added to its financial growth. Fansteel was one of many companies that received the Award for Chemical Engineering Achievement from the U.S. government for work on the atomic bomb.

Although Fansteel benefited from the war, it still faced the challenge of finding peacetime uses for many of its products. One area that seemed poised for Fansteel's products was the rapidly growing aerospace industry. Peacetime uses for the company's wartime discoveries would also be found in the areas of electronics, radar, television, plastics, and the X-ray. In 1946 Fansteel had an operating loss of $438,000. In 1947, when it posted a net profit of $61,000, the company was able to buy on extremely favorable terms a tantalum plant the government had constructed during the war. In the aftermath of World War II, Fansteel had solid productive capacity, but again it needed to redefine its markets.

Postwar Growth

As the economy recovered after World War II, Fansteel began to benefit from the high demand of products that used its metals and metal parts. Among these products were automobiles, airplanes, electronic equipment, home appliances, and business machines. Its acid-proof process equipment produced drugs, dyes, petrochemicals, plastics, and food products. Its carbide tools were used in the mining, construction, and machining industries.

As Fansteel recovered with the postwar boom, so, too, did it find itself with increased competition. In the early 1950s Fansteel was the only company producing tantalum. By 1960 it had nine competitors. As a result, by the early 1960s the company's sales of tantalum were not producing profits, and in 1965, Fansteel sold all its inventory and production equipment in this area. The company recognized that it had come to the end of an era and needed a new strategy for growth.

During the 1960s Fansteel tried to reshape itself through acquisitions. In 1961 it purchased the Wesson Tool Company, which gave the company four new plants. These plants produced cutting tools that Fansteel was able to add to its existing product line. In 1963 Fansteel agreed to acquire the metals division of the Stauffer Chemical Company, providing Fansteel with four electron-beam vacuum furnaces. Between 1963 and 1968 the company made 15 acquisitions, in the process significantly increasing its sales. Its 1966 sales were $53,745,550. In general, the company hoped not only to manufacture rare metals but to use these metals to produce finished parts for industry. On May 1, 1968, it adopted a new name, Fansteel Inc.

During the 1970s Fansteel continued to reshape itself. Most importantly, it diversified its product lines, producing such items as artificial limbs, golf club heads, surgical instruments, and insulation and structural products for the building industry. In addition, the company continued to produce some of its traditional products--such as a wide range of electrical contacts from tungsten&mdash well as parts for the aerospace industry. Tantalum was also a source of revenue for the company through the 1970s. Along with these changes came increased sales, from $90 million in 1973 to $104 million in 1976, the year when Fansteel was acquired by H.K. Porter Company, Inc., of Pittsburgh, Pennsylvania. H.K. Porter would own Fansteel for just seven years, and in 1983, it distributed all its Fansteel shares to its shareholders, thus restoring Fansteel as an independent company.

Declining Sales and Recovery: The 1980s and 1990s

For Fansteel the 1980s were years of mixed fortune. The company began the decade with its purchase in 1980 of Pasco Gear & Machine, Inc., for $5 million. In 1984 and 1985 it made two purchases--Hydro Carbide Corp. and Custom Technologies Corp., respectively. Hydro Carbide was a producer of high-quality tungsten carbide products, such as saw blades, dies, and oil-well drilling nozzles. Custom Technologies specialized in large aluminum and magnesium sand castings used in missile systems, helicopters, and gas turbine engines. Also in 1985 the company divested itself of the Advance Casting plant and Federal Stampings Inc.

During the 1980s net sales for Fansteel at first appeared promising but then entered a period of instability. Sales of $153 million in 1983 bumped up to $180 million in 1984 and $208 million in 1985. But sales of $210 million in 1986 would be a high point. The following year sales dipped $33 million, in part because a sharp decline in orders from companies manufacturing space systems, aircraft, and weapons systems.

It was this decline in military-related orders, combined with the recession of the late 1980s, that proved disastrous for the company. Under the guidance of Keith R. Garrity, Fansteel's chief executive officer (formerly president of H.K. Porter), sales began to totter then plummet. Sales of $168 million in 1989 fell to $134 million in 1991 and $127 million in 1992. In the following year the bottom seemed to fall out, and the company managed sales of only $89 million.

Some of this fall in sales can be attributed to divestment of the company's metal products business in 1989. This segment had been faring poorly for some time, and the proceeds from its sale went to retire completely the company's term debt. In the 1991 annual report, moreover, Fansteel conceded that its losses were also the result of "costs to remediate certain environmental problems related to operations previously discontinued." Even during the worst of Fansteel's troubles, however, the company was essentially sound, especially because it remained "unencumbered by any significant amount of debt."

Fansteel began to dig its way back up in the mid-1990s, and, with the help of a capital-spending program, it started to reduce its dependence on military markets and to position itself to serve commercial ones. The company also made its manufacturing facilities more efficient and improved its marketing strategies. No doubt an improved economy helped as well, as sales, still at $89 million in 1994, jumped to $102 million in 1995 and $120 million in 1996. Sadly, in 1995, at the age of 63, Keith Garrity died. By the following year William D. Jarosz had become the company's chairman, president, and chief executive officer.

Principal Subsidiaries: American Sintered Technologies; Custom Technologies Corporation; Fansteel Holdings Incorporated; Fansteel Sales Corporation, Inc. (Barbados).

Further Reading:

• Leach, Mark, "Metal Fabricating Industry," Value Line Investment Survey, January 3, 1997, p. 578.
• Petry, Corinna C., "Fansteel Profits Rise 28% on Higher Sales," American Metal Market, February 5, 1997, p. 3.
• Tennyson, Jon R., $2500 and a Dream: The Fansteel Story, Chicago: Fansteel Inc., 1982.

Source: International Directory of Company Histories, Vol. 19. St. James Press, 1998.