SECURITIES AND EXCHANGE COMMISSION
- ------------------------------------------------
Washington, D.C. 20549
FORM 10-Q
---------------
(MARK ONE)
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
- ------ OF THE SECURITIES EXCHANGE ACT OF 1934
X FOR THE QUARTERLY PERIOD ENDED JULY 31, 1996
- ----- ------------------
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
- ----- OF THE SECURITIES EXCHANGE ACT OF 1934
- -----FOR THE TRANSITION PERIOD FROM TO
------ ------
COMMISSION FILE NUMBER 1-9299
------------------------------------------------
HARNISCHFEGER INDUSTRIES, INC.
(Exact Name of Registrant as Specified in Its Charter)
Delaware 39-1566457
- ---------------------------- -----------------------------------
(State of Incorporation) (I.R.S. Employer Identification No.)
13400 Bishops Lane, Brookfield, Wisconsin 53005 (414) 671-4400
- -----------------------------------------------------------------------------
(Address & Telephone Number of Principal Executive Offices)
Indicate by checkmark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months, and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
----- -----
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Class Outstanding at September 11, 1996
------ -----------------------------------------
Common Stock, $1 par value 49,118,457 shares
<PAGE>
HARNISCHFEGER INDUSTRIES, INC.
-------------------------------------------------
FORM 10-Q
---------------
JULY 31, 1996
-----------------
INDEX
--------
Page No.
-----------
PART I. Financial Information:
Statement of Income - 1-2
Three and Nine Months Ended
July 31, 1996 and 1995
Balance Sheet - 3-4
July 31, 1996 and
October 31, 1995
Statement of Cash Flows - 5-6
Nine Months Ended
July 31, 1996 and 1995
Statement of Shareholders' Equity - 7
Nine Months Ended
July 31, 1996 and 1995
Notes to Financial Statements 8-12
Management's Discussion and Analysis
of Results of Operations and Financial
Condition 13-18
PART II. Other Information 18-20
Signatures 21
<PAGE>
PART I. FINANCIAL INFORMATION
-------------------------------------------------
HARNISCHFEGER INDUSTRIES, INC.
--------------------------------------------------
<TABLE>
<CAPTION>
STATEMENT OF INCOME
----------------------------------
(Amounts in thousands except per share amounts)
(Unaudited)
<C> <S> <S> <S> <S>
Three Months Ended Nine Months Ended
July 31, July 31,
------------------------- --------------------------
1996 1995 1996 1995
----- ----- ----- -----
Revenues
Net Sales $779,752 $547,676 $2,151,945 $1,538,058
Other Income 6,943 9,681 20,162 22,955
----------- ---------- ---------- ----------
786,695 557,357 2,172,107 1,561,013
Cost of Sales 597,265 428,144 1,649,617 1,196,857
Product Development,
Selling and
Administrative Expenses 109,928 82,622 317,161 242,336
---------- -------- --------- ---------
Operating Income 79,502 46,591 205,329 121,820
Interest Expense - Net (16,967) (9,238) (46,004) (31,946)
------------ ------------ ------------- ------------
Income Before Joy
Merger Costs, Gain
On Sale of Measurex
Investment, Provision
For Income Taxes and
Minority Interest 62,535 37,353 159,325 89,874
Joy Merger Costs - - - (17,459)
Gain on Sale of
Measurex Investment - 23,023 - 29,657
Provision for
Income Taxes (22,450) (21,100) (57,300) (35,700)
Minority Interest (2,393) (1,664) (7,587) (4,522)
---------- ---------- --------- ---------
Income From Continuing
Operations (after
deducting $11,384 in
1995, net of
applicable income
taxes, related to
Joy merger costs and
adding $14,523
for the three months
and $18,657 for the
nine months ended
July 31, 1995, net
of applicable income
taxes, related to
the gain on sale of
Measurex investment) 37,692 37,612 94,438 61,850
Loss from and Net Loss
on Sale of Discontinued
Operation, net of
applicable income taxes - - - (24,410)
<PAGE>
Extraordinary Loss on
Retirement of
Debt, net of
applicable income
taxes - - - (3,481)
----------- ------------ ----------- ----------
Net Income $ 37,692 $ 37,612 $94,438 $ 33,959
======= ======== ======= =========
Earnings Per Share
Income from
continuing operations
(after deducting $0.24
per share in 1995 related
to Joy merger costs
and adding $0.31 and
$0.40 per share for the
three months and
nine months,
respectively,
related to the gain on
sale of Measurex
investment) $ 0.80 $0.81 $2.01 $ 1.34
Loss from and net loss
on sale of discontinued
operation - - - (0.53)
Extraordinary loss on
retirement of debt - - - (0.08)
-------- ------- ------- ----------
Net income $0.80 $0.81 $2.01 $ 0.73
==== ==== ===== =====
See accompanying notes to financial statements.
</TABLE>
<PAGE>
HARNISCHFEGER INDUSTRIES, INC.
- -------------------------------------------------
BALANCE SHEET
-----------------------
(Dollar amounts in thousands)
July 31 October 31,
1996 1995
--------- --------------
(Unaudited)
Assets
Current Assets:
Cash and cash equivalents $ 38,189 $ 239,043
Accounts receivable-net 683,236 499,953
Inventories 561,472 416,395
Other current assets 112,841 57,999
Businesses held for sale 26,479 -
------------ ----------
1,422,217 1,213,390
Property, Plant and Equipment:
Land and improvements 46,023 31,571
Buildings 294,750 233,788
Machinery and equipment 770,510 676,546
------------ -----------
1,111,283 941,905
Accumulated depreciation (484,506) (454,249)
------------- -----------
626,777 487,656
Investments and Other Assets:
Goodwill 494,125 147,943
Intangible assets 40,328 66,796
Other assets 101,326 124,982
------------- -----------
635,779 339,721
------------- -----------
$2,684,773 $2,040,767
========== =========
See accompanying notes to financial statements.
<PAGE>
HARNISCHFEGER INDUSTRIES, INC.
- ------------------------------------------------
BALANCE SHEET
-----------------------
(Dollar amounts in thousands)
July 31, October 31,
1996 1995
---------- --------------
(Unaudited)
Liabilities and Shareholders' Equity
Current Liabilities:
Short-term notes payable, including current
portion of long-term obligations $ 129,846 $ 22,802
Trade accounts payable 340,609 263,750
Employee compensation and benefits 136,506 100,041
Advance payments and progress billings 183,632 154,401
Accrued warranties 50,675 43,801
Other current liabilities 308,917 138,508
------------ -------------
1,150,185 723,303
Long-term Obligations 617,267 459,110
Other Liabilities:
Liability for postretirement benefits 86,756 101,605
Accrued pension costs 35,899 52,237
Other liabilities 22,213 20,820
Deferred income taxes 37,962 34,805
------------ -----------
182,830 209,467
Minority Interest 97,035 89,611
Shareholders' Equity:
Common stock ( 51,387,775 and
51,117,774 shares issued, respectively) 51,388 51,118
Capital in excess of par value 600,857 603,712
Retained earnings 133,308 53,560
Cumulative translation adjustments (57,115) (42,118)
------------ -----------
728,438 666,272
Less: Stock Employee Compensation
Trust( 1,572,243 and 1,920,100
shares, respectively) at market (48,740) (60,483)
Treasury stock (2,274,613 and
2,504,613 shares, respectively)
at cost (42,242) (46,513)
------------ -------------
637,456 559,276
------------- -------------
$ 2,684,773 $2,040,767
========= ==========
See accompanying notes to financial statements.
<PAGE>
<TABLE>
<CAPTION>
HARNISCHFEGER INDUSTRIES, INC.
-------------------------------------------------
STATEMENT OF CASH FLOWS
----------------------------------------
(Dollar amounts in thousands)
(Unaudited)
<C> <S> <S>
Nine Months Ended July 31,
------------------------------------
1996 1995
------ -----
Operating Activities
Net income $94,438 $33,959
Add (deduct) - Items not affecting cash:
Net loss on sale of discontinued operation - 24,410
Extraordinary loss on retirement of debt - 3,481
Gain on sale of investment in Measurex
Corporation-net - (18,657)
Depreciation and amortization 67,565 54,305
Minority interest, net of dividends paid 6,896 3,580
Deferred income taxes - net 16,038 18,371
Other - net (10,262) 11,027
Changes in working capital
(Increase) in accounts receivable - net (94,466) (25,261)
(Increase) in inventories (58,354) (22,250)
(Increase) in other current assets (2,036) (20,269)
Increase (decrease) in trade
accounts payable 16,538 (16,576)
(Decrease) in employee
compensation and benefits (20,222) (855)
(Decrease) increase in advance
payments and progress billings (16,566) 1,727
Increase (decrease) in
other current liabilities 27,833 (24,696)
------------- ------------
Net cash provided by
operating activities 27,402 22,296
------------- ------------
Investment and Other Transactions
Purchase of Dobson Park Industries
plc, net of cash acquired of $4,631 (325,369) -
Purchase of the Pulp Machinery
Division of Ingersoll-
Rand Company, net of cash
acquired of $3,962 (115,268) -
Net proceeds from sale of businesses 73,521 -
Sale of Joy Environmental Technologies 11,651 -
Proceeds from sale of investment
in Measurex Corporation - 96,004
Proceeds from sale of Syscon - 45,000
Property, plant and equipment - net (47,765) (41,391)
Investments and related costs (12,236) (22,836)
Other - net 3,493 3,953
------------ ------------
Net cash (applied to) provided
by investment and other transactions (411,973) 80,730
---------- ------------
Financing Activities
Dividends paid (14,149) (13,855)
Exercise of stock options 5,490 16,684
Purchase of treasury stock - (3,009)
<PAGE>
Issuance of long-term obligations 156,882 -
Redemption of long-term obligations (1,572) (93,147)
Increase (decrease) in short-term
notes payable 37,209 (326)
------------ -------------
Net cash provided by (applied to)
financing activities 183,860 (93,653)
--------- ------------
Effect of Exchange Rate Changes on
Cash and Cash Equivalents (143) 252
------------ -------------
(Decrease) Increase in Cash and Cash
Equivalents (200,854) 9,625
(Use) of Cash by Joy Technologies from
February 26, 1994 to November 1, 1994 - (23,706)
Cash and Cash Equivalents at Beginning
of Period 239,043 196,455
--------- -----------
Cash and Cash Equivalents at End of
Period $ 38,189 $182,374
====== =======
See accompanying notes to financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION> HARNISCHFEGER INDUSTRIES, INC.
-------------------------------------------------
STATEMENT OF SHAREHOLDERS' EQUITY
---------------------------------------------------------
(Dollar amounts in thousands)
(Unaudited)
<C> <S> <S> <S> <S>
Capital in Cumulative
Common Excess of Retained Translation
Stock Par Value Earnings Adjustments
---------- ---------- --------- -----------
Nine Months Ended July 31, 1996
- ------------------------------
Balance at October 31, 1995 $51,118 $603,712 $53,560 $(42,118)
Net income 94,438
Translation adjustments (14,997)
Exercise of 262,751 stock options 263 5,227
Dividends paid ($.30 per share) (14,690)
Dividends on shares held by SECT 541
Adjust SECT shares to market value 170
230,000 shares purchased by employee
benefit plans 2,964
Issuance of restricted stock 7 (11,757)
---------- --------- --------- ----------
Balance at July 31, 1996 $51,388 $600,857 $133,308 $(57,115)
====== ======== ======= =======
Nine Months Ended July 31, 1995
- --------------------------------
Balance at October 31, 1994 $50,506 $576,886 $19,936 $(39,194)
Adjustment related to Joy
Technologies
from February 26, 1994 to
November 1, 1994 13 182 (4,575) 1,742
--------- ---------- ----------- -----------
Adjusted Balance at November
1, 1994 50,519 577,068 15,361 (37,452)
Net income 33,959
Translation adjustments (4,519)
Exercise of 831,706 stock options 569 8,536
Dividends paid ($.30 per share) (14,344)
Dividends on shares held by SECT 489
Adjust SECT shares to market value 28,352
110,000 shares acquired as treasury
stock
457,991 shares transferred from treasury
stock to SECT
425,345 shares purchased by employee
benefit plans
---------- ---------- ---------- ------------
Balance at July 31, 1995 $51,088 $614,445 $34,976 $(41,971)
======= ======= ====== =======
See accompanying notes to financial statements.
</TABLE>
<TABLE>
<CAPTION> HARNISCHFEGER INDUSTRIES, INC.
-------------------------------------------------
STATEMENT OF SHAREHOLDERS' EQUITY
---------------------------------------------------------
(Dollar amounts in thousands)
(Unaudited)
<C> <S> <S> <S>
Treasury
SECT Stock Total
----------- ------------- ----------
Nine Months Ended July 31, 1996
- --------------------------------
Balance at October 31, 1995 $(60,483) $(46,513) $559,276
Net income 94,438
Translation adjustments (14,997)
Exercise of 262,751 stock options 5,490
Dividends paid ($.30 per share) (14,690)
Dividends on shares held by SECT 541
Adjust SECT shares to market value (170) -
230,000 shares purchased by employee
benefit plans 4,271 7,235
Issuance of restricted stock 11,913 163
-------- -------- ----------
Balance at July 31, 1996 $(48,740) $(42,242) $637,456
======= ======= =======
Nine Months Ended July 31, 1995
- -------------------------------
Balance at October 31, 1994 $(53,760) $(52,009) $502,365
Adjustment related to Joy
Technologies
from February 26, 1994 to
November 1, 1994 (2,638)
---------- ------------ ------------
Adjusted Balance at November
1, 1994 (53,760) (52,009) 499,727
Net income 33,959
Translation adjustments (4,519)
Exercise of 831,706 stock options 7,579 16,684
Dividends paid ($.30 per share) (14,344)
Dividends on shares held by SECT 489
Adjust SECT shares to market value (28,352) -
110,000 shares acquired as treasury
stock (3,009) (3,009)
457,991 shares transferred from
treasury stock to SECT (8,505) 8,505 -
425,345 shares purchased by
employee benefit plans 11,034 11,034
----------- ---------- ----------
Balance at July 31, 1995 $(72,004) $(46,513) $540,021
======= ======= =======
See accompanying notes to financial statements.
</TABLE>
<PAGE>
HARNISCHFEGER INDUSTRIES, INC.
- --------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
- -------------------------------------------------
July 31, 1996
(Amounts in thousands unless indicated)
(a) Basis of Presentation
-------------------------
In the opinion of management, all adjustments necessary for the fair
presentation of the results of operations for the three and nine months
ended July 31, 1996 and 1995, cash flows for the nine months ended July
31, 1996 and 1995, and financial position at July 31, 1996 have been
made. All adjustments made are of a normal recurring nature. See notes
(b), (c), and (g) for discussions regarding acquisitions, divestiture of
discontinued operations and the fiscal 1995 extraordinary loss on
retirement of debt.
These financial statements should be read in conjunction with the
financial statements and the notes thereto included in the Company's
Current Report on Form 8-K filed December 8, 1995, which is
incorporated by reference in the Company's Annual Report on Form 10-K
for the year ended October 31, 1995.
The results of operations for any interim period are not necessarily
indicative of the results to be expected for the full year.
(b) Acquisitions
--------------
In early fiscal 1996, the Company completed the acquisition of Dobson
Park Industries plc ("Dobson") for a purchase price of approximately
$330,000 including acquisition costs, plus the assumption of debt of
approximately $75,300. The acquisition was accounted for as a purchase
transaction with the purchase price allocated to specific assets acquired
and liabilities assumed. This allocation was based on preliminary
estimates and may be revised at a later date. Resultant goodwill is being
amortized over 40 years.
Dobson, headquartered in the United Kingdom, was an industrial
engineering group with interests in underground mining equipment,
industrial electronic control systems, toys and plastics. Longwall
International ("Longwall"), one of the main subsidiaries of Dobson, is
engaged in the manufacture, sale and service of underground mining
equipment for the international coal mining industry. Longwall's
products include electronically controlled roof support systems, armored
face conveyors, pumps and belt conveyor components and systems.
The Company has formulated a plan to fully integrate Longwall's operations
into Joy Mining Machinery, thus enabling Joy Technologies Inc. ("Joy")
to offer integrated underground longwall mining systems to the
worldwide mining industry. As a result of this plan, the Company has
established purchase accounting reserves to provide for the estimated
costs of this effort. The costs to be incurred relate primarily to the
closure of selected manufacturing and service facilities. Company
management anticipates that the majority of these costs will be incurred
in fiscal 1996 and 1997. As of July 31, 1996, approximately $19,200 of
the reserves had been used. Longwall's operating results for the nine
months ended July 31, 1996 are included in the July 31, 1996
consolidated statement of income.
<PAGE>
The following unaudited pro forma results of operations give effect to
the acquisition of Dobson as if it had occurred on November 1, 1994:
Three Months Nine Months
Ended July 31, Ended July 31,
1995 1995
----------------- --------------------
Net Sales $637,222 $1,806,695
Income From Continuing
Operations 38,123 63,382
Net Income 38,123 35,491
======== =======
Earnings per share:
Income from continuing
operations $0.83 $1.38
Net Income 0.83 0.77
======= =======
The unaudited pro forma information is not necessarily indicative of
either results of operations that would have occurred had the purchase
been made on November 1, 1994, or of future results of operations of the
combined companies.
The industrial electronic and toys/plastics businesses are held for sale and
are separately classified as such on the Consolidated Balance Sheet.
These businesses were originally valued at $100,000. Several of the
businesses have been sold, aggregating net proceeds of $73,521. The
remaining balance represents the net realizable value including the
expected cash flow from the remaining businesses held for sale which are
expected to be sold within the next year.
On March 27, 1996, the Company's Beloit Corporation subsidiary
purchased the assets of the Pulp Machinery Division of Ingersoll-Rand
Company ("IMPCO") for $119,230, including acquisition costs. The
acquisition was accounted for as a purchase transaction with the
purchase price allocated to specific assets acquired and liabilities
assumed. This allocation was based on preliminary estimates and may be
revised at a later date. Resultant goodwill is being amortized over 40
years.
On November 29, 1994, the Company completed the acquisition of Joy
through a stock-for-stock merger with the acquisition accounted for as
a pooling of interests. Joy's Mining Group is a leader in the worldwide
development, manufacture, distribution and servicing of underground
mining equipment for the extraction of coal and other bedded materials.
Effective November 1, 1994, the fiscal year of Joy was conformed to the
Company's fiscal year. Transaction costs related to the Joy merger of
$17,459 ($11,384 net of tax or $0.24 per share) were charged to income
during the first quarter of fiscal 1995.
<PAGE>
(c) Divestitures and Discontinued Operations
-----------------------------------------
In December, 1995, the Company completed the sale of substantially all
of the assets of Joy Environmental Technologies, Inc. to Babcock and
Wilcox, an operating unit of McDermott International, for $11,651. The
loss on sale, net of applicable income taxes, was recorded in the fourth
quarter of fiscal 1995.
On February 16, 1995, the Company completed the sale of Syscon
Corporation (the remaining unit of the Systems Group) to Logicon, Inc.
for a cash price of $45,000. In connection with this sale, the Company
recorded a loss on sale of discontinued operations, net of applicable
income taxes, in the first quarter of fiscal 1995.
(d) Inventories
------------
Consolidated inventories consisted of the following:
July 31, October 31,
1996 1995
------------ --------------
Finished goods $214,742 $ 211,555
Work in process and purchased parts 265,640 170,027
Raw materials 145,188 106,999
------------ -------------
625,570 488,581
Less excess of current cost over stated
LIFO value (64,098) (72,186)
----------- -------------
$561,472 $416,395
======= =======
Inventories valued using the LIFO method represented approximately
59% and 80% of consolidated inventories at July 31, 1996 and October
31, 1995, respectively.
(e) Research and Development Expense
---------------------------------
Research and development costs are expensed as incurred. Such costs
incurred in the development of new products or significant improvements
to existing products amounted to $9,772 and $7,914 for the three months
and $26,096 and $22,748 for the nine months ended July 31, 1996 and
1995, respectively. Certain capital expenditures used in research activities
are capitalized and depreciated over their expected useful lives.
(f) Interest Expense - Net
--------------------------
Net interest expense consisted of the following:
<TABLE>
<CAPTION>
<C> <S> <S> <S> <S>
Three Months Ended Nine Months Ended
July 31, July 31,
------------------------ ------------------------
1996 1995 1996 1995
----- ------- ------ ------
Interest income $ 1,471 $ 2,967 $ 4,910 $ 6,733
Interest expense (18,438) (12,205) (50,914) (38,679)
--------- ---------- ----------- -----------
Interest expense -
net $(16,967) $(9,238) $(46,004) $(31,946)
======== ======= ======= ========
</TABLE>
<PAGE>
(g) Long-Term Obligations
---------------------------
Long-term obligations at July 31, 1996 and October 31, 1995 consisted
of the following:
<TABLE>
<CAPTION>
<C> <S> <S>
July 31, October 31,
1996 1995
------------ --------------
10 1/4% Senior Notes due 2003 $188,380 $188,380
8.9% Debentures, due 2022 75,000 75,000
8.7% Debentures, due 2022 75,000 75,000
7 1/4% Debentures, due 2025
(net of discount of $1,264 ) 148,736 -
Senior Notes, Series A through D, at
interest rates of between 8.9% and
9.1%, due 1996 to 2006 75,000 75,000
Industrial Revenue Bonds, at interest
rates of between 5.9% and 8.8%,
due 1996 to 2017 34,654 28,428
Other 24,580 21,183
----------- ------------
621,350 462,991
Less: Amounts payable within one year 4,083 3,881
------------ -----------
$617,267 $459,110
======= =======
</TABLE>
The 7 1/4% Debentures were issued on December 19, 1995 at 99.153%
in connection with the Company's acquisition of Dobson. The
debentures mature on December 15, 2025, are not redeemable prior to
maturity and are not subject to any sinking fund requirements. Interest
on the debentures is payable semi-annually on June 15 and December 15
of each year.
In the first quarter of fiscal 1995, as a result of the repayment of the Joy
Bank Facility and the partial redemption of the 10 1/4% Senior Notes,
the Company recorded an extraordinary loss on debt retirement, net of
applicable income taxes, of $(3,481) or $(0.08) per share consisting
primarily of unamortized financing costs and redemption premiums.
In November, 1993, the Company entered into a four-year Revolving
Credit Facility Agreement with certain domestic and foreign financial
institutions that allowed for borrowings of up to $150,000 at rates
expressed in relation to LIBOR and other rates. In November, 1994, the
facility was increased to $240,000 and was extended to November,
1998. In December, 1995, the Agreement was amended to provide for
an expiration date of November, 2000. A facility fee is payable on the
Agreement. At July 31, 1996, there were no direct outstanding
borrowings under the Facility. Commercial paper borrowings are
considered a utilization of the Facility, which, as of July 31, 1996,
amounted to $46,023.
(h) Contingent Liabilities
--------------------------
At July 31, 1996, the Company was contingently liable to banks,
financial institutions, and others for approximately $275,000 for
outstanding letters of credit securing performance of sales contracts and
other guarantees in the ordinary course of business. The Company may
also guarantee performance of its equipment at levels specified in sales
contracts without the requirement for letters of credit. Performance
guarantees are a normal part of the Company's business.
<PAGE>
In addition, the Company provides a back-up bonding guarantee facility
for certain bid, performance and other contract bonds issued by H-K
Systems, Inc., formerly Harnischfeger Engineers, Inc. The amount of
guarantees outstanding cannot exceed $70,000 during fiscal 1996, with
the maximum amount decreasing to zero by November, 1998.
Outstanding contract bonds under the guarantee arrangement totaled
approximately $47,800 at July 31, 1996; H-K Systems, Inc. typically
requires similar bonds from its major subcontractors. Such guarantees
have been part of H-K Systems' business in the past and have not
resulted in significant cash outlays. The back-up facility may not be used
for new types of business or for projects outside of North America, nor
does it permit exposure to consequential damages on commercial
contracts.
The Company is a party to litigation matters, claims and performance
guarantees which are normal in the course of its operations and large
damages are at times sought in litigation against the Company. While
the results of litigation, claims and guarantees cannot be predicted with
certainty, management presently believes that the final outcome of such
matters will not have a materially adverse effect on the Company's
consolidated financial position or results of operations.
The Company is also involved in a number of proceedings and potential
proceedings relating to environmental matters. Although it is difficult to
estimate the potential exposure to the Company related to these
environmental matters, the Company believes that these matters will not
have a materially adverse effect on its consolidated financial position or
results of operations.
(i) Sale of Measurex Stock
----------------------------
On December 29, 1994, Measurex Corporation ("Measurex")
repurchased 2,026,900 shares of its stock which had been purchased by
the Company. On June 23, 1995, Measurex repurchased the remaining
1,613,100 shares of its stock. These transactions resulted in a combined
pretax gain of $29,657 in fiscal 1995. Measurex continues to have
cooperative agreements with Beloit.
(j) Equity
--------
In fiscal 1996, the Company issued 347,857 shares of restricted stock to
buy out the employment contracts of certain senior executive officers.
Shares are forfeited if the officer voluntarily terminates employment
before age 55.
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
THREE AND NINE MONTHS ENDED JULY 31, 1996 AND 1995
------------------------------------------------
(Amounts in thousands unless indicated)
The following discussion contains forward-looking statements. When used
in this document, terms such as "anticipate," "believe," "estimate," "expect,"
"indicate," "intends," "may be," "objective," "plan," "predict," and "will be"
are intended to identify such statements. Forward-looking statements are
subject to certain risks, uncertainties and assumptions which could cause
actual results to differ materially from those projected, including those
described in Item 5. Other Information - "Cautionary Factors" in Part II of
this report.
Net income for the three and nine months ended July 31, 1996 amounted to
$37,692, or $0.80 per share, and $94,438, or $2.01 per share, as compared
to net income of $37,612, or $0.81 per share, for the three months and net
income of $33,959, or $0.73 per share for the nine months ended July 31,
1995. Income from continuing operations amounted to $37,692, or $0.80 per
share, for the three months and $94,438, or $2.01 per share, for the nine
months ended July 31, 1996 as compared to income of $37,612, or $0.81 per
share, for the three months and $61,850, or $1.34 per share, for the nine
months ended July 31, 1995.
Net results for the nine months ended July 31, 1995 were reduced by charges
of $(24,410), or $(0.53) per share for losses from discontinued operations
(Joy Environmental Technologies, Inc. and Syscon). Results for the nine
months ended July 31, 1995 were also reduced by a charge of $(3,481), or
$(0.08) per share, for the extraordinary loss on retirement of debt related to
repayment of the Joy Bank Facility and some Joy 10 1/4% Senior Notes.
Per share calculations for the first nine months of 1996 and 1995 were based
on 47,075 and 46,064 average shares outstanding, respectively.
Significant factors contributing to the $32,588 increase in income from
continuing operations for the first nine months of 1996 as compared to 1995
included: (1) a $83,509 increase in operating income as described in the
Segment Information section which follows, and (2) Joy merger costs of
$17,459 in fiscal 1995, offset by (3) a $14,058 increase in interest expense
resulting from additional debt incurred from the Dobson and IMPCO
acquisitions, (4) a $21,600 increase in the provision for income taxes due to
higher pre-tax income, (5) a $3,065 increase in minority interest in 1996 due
to higher after-tax results of certain operations owned in part by other
entities and (6) the $29,657 gain on sale of the Measurex investment in 1995.
In December, 1995, the Company completed the sale of substantially all of
the assets of Joy Environmental Technologies, Inc. to Babcock and Wilcox,
an operating unit of McDermott International, for $11,651. The loss on sale
of discontinued operation, net of applicable income taxes, was recorded in the
fourth quarter of fiscal 1995.
On February 16, 1995, the Company completed the sale of Syscon
Corporation to Logicon, Inc. for a cash price of $45,000. In connection with
this sale, the Company recorded a loss on sale of discontinued operations, net
of applicable income taxes, in the first quarter of fiscal 1995.
<PAGE>
Segment Information
- ------------------------
Operating results of the Company's business segments for the third quarter
and first nine months of 1996 and 1995 are summarized as follows:
<TABLE>
<CAPTION>
<C> <S> <S> <S> <S>
Third Quarter Net Sales Operating Income
- ----------------- ------------------ ------------------------
1996 1995 1996 1995
----- ------ ------ ------
Mining Equipment $383,519 $233,115 $52,473 $29,629
Papermaking Machinery and
Systems 314,330 253,377 24,076 15,253
P&H Material Handling 81,903 61,184 8,056 5,997
---------- -------- --------- ---------
Total Business Segments $779,752 $547,676 84,605 50,879
======= ======== ====== ======
Corporate Administration (5,103) (4,288)
---------- ----------
Operating Income before Interest expense - net,
Provision for Income Taxes, Minority Interest, and
1995 Gain on Sale of Measurex Investment $79,502 $46,591
====== ======
Nine Months Net Sales Operating Income
- --------------- ------------------------ -----------------------
1996 1995 1996 1995
------ ------ ------ -------
Mining Equipment $1,056,564 $685,338 $133,805 $86,505
Papermaking Machinery and
Systems 868,730 681,288 65,936 33,765
P&H Material Handling 226,651 171,432 20,734 15,546
---------- --------- ----------- -------
Total Business Segments $2,151,945 $1,538,058 220,475 135,816
======== ======== ======= =======
Corporate Administration (15,146) (13,996)
------------ -----------
Operating Income before Interest expense - net,
Provision for Income Taxes, Minority Interest, 1995
Joy Merger Costs and Gain on Sale of Measurex
Investment $205,329 $121,820
======= =======
</TABLE>
Segment Information
- ------------------------
Operating results of the Company's business segments for the third quarter
and first nine months of 1996 and 1995 are summarized as follows:
<TABLE>
<CAPTION>
<C> <S> <S> <S> <S>
Third Quarter Orders Booked Backlog at
- ---------------- ----------------- -------------
1996 1995 7/96 4/96
----- ----- ----- -------
Mining Equipment $388,345 $246,274 $ 399,245 $ 394,419
Papermaking Machinery
and Systems 379,941 255,043 744,117 678,506
P&H Material Handling 77,488 53,794 149,489 153,904
--------- ---------- ---------- ------------
Total Business
Segments $845,774 $555,111 $1,292,851 $1,226,829
======= ======== ======== =========
Nine Months Orders Booked Backlog at
------------------- -------------
1996 1995 7/96 10/95
----- ------ ----- -------
Mining Equipment $1,002,774(A) $ 679,941 $ 399,245 $ 221,540
Papermaking
Machinery and
Systems 901,438(B) 749,289 744,117 679,625
P&H Material
Handling 245,261 169,496 149,489 130,879
------------- -------- ------------ ----------
Total Business
Segments $2,149,473 $1,598,726 $1,292,851 $1,032,044
======== ========= ========= =========
(A) Does not include backlog assumed in the purchase of Longwall International totaling $231,495.
(B) Does not include backlog assumed in the purchase of IMPCO totaling $31,784.
</TABLE>
<PAGE>
Segment Information - Continuing Operations
- -------------------------------------------
Net sales of the Mining Equipment segment amounted to $1,056,564 and
$685,338 for the first nine months of 1996 and 1995, respectively,
representing a 54% increase in 1996 as compared to 1995. The sales increase
is primarily due to the acquisition of Longwall and to increases in both
original equipment and aftermarket activity for both surface and underground
mining operations. Operating profit increased to $133,805 for the first nine
months of 1996 as compared to $86,505 in 1995. The increase in operating
profit is primarily due to the acquisition of Longwall and strong surface
mining results. Bookings for the first nine months of 1996 amounted to
$1,002,774 as compared to $679,941 for the same period in 1995. Markets
for surface mining products were strong worldwide, particularly in Australia,
and are expected to continue. The markets for underground mining
equipment likewise were strong, especially outside the United States, and are
also expected to continue.
The Papermaking Machinery and Systems segment contributed sales and
operating profit of $868,730 and $65,936, respectively, for the first nine
months of 1996, as compared to net sales of $681,288 and operating profit
of $33,765 for the corresponding period in 1995. Sales increased 28% in
1996 over 1995 due primarily to an increase in sales of original equipment
and rebuilds. Operating profit reflected stronger sales and improved
margins. Bookings for the first nine months of 1996 amounted to $901,438
as compared to $749,289 for the same period in 1995, with particular
strength in the Pacific Rim.
The Material Handling segment contributed sales and operating profit of
$226,651 and $20,734, respectively, for the first nine months of 1996, as
compared to sales of $171,432 and operating profit of $15,546 for the
comparable period in 1995. Sales increased primarily due to increases in
original equipment and aftermarket sales. Operating profit increased as a
result of increased sales and improved margins. Bookings for the first nine
months of 1996 and 1995 amounted to $245,261 and $169,496, respectively,
due to an increase in worldwide machine bookings.
Income Taxes
- ------------
The Company's estimated annual effective tax rate for continuing operations
for the first nine months of 1996 was 36% compared to a 35% federal
statutory tax rate. The principal reason for the difference between the
effective rate and the statutory tax rate is nondeductible goodwill partially
offset by the availability of tax credits.
Liquidity and Cash Flows
- ------------------------
The Company's capital structure at July 31, 1996 and October 31, 1995 was
as follows:
<PAGE>
July 31, October 31,
1996 1995
------------ --------------
Short-term notes payable $ 125,763 $ 18,921
Long-term obligations, including
current portion 621,350 462,991
------------ -----------
747,113 481,912
Liability for postretirement benefits
(after tax) 55,524 66,043
Minority interest 97,035 89,611
Shareholders' equity, excluding SECT 686,196 619,759
------------- -----------
Total capitalization $1,585,868 $1,257,325
======== =========
Debt to capitalization ratio 47.1% 38.3%
===== =====
Cash Flow from Operating Activities
- -----------------------------------
Cash flow provided by operating activities was $27,402 for the nine months
ended July 31, 1996 compared to cash flows provided by operating activities
of $22,296 for the comparable period in 1995. The increase in cash flows
between periods is primarily the result of increases in net income, accounts
payable and other current liablities offset by increases in accounts receivable
and inventories.
Net working capital, exclusive of businesses held for sale, decreased
$244,534 during the nine months ended July 31, 1996 primarily due to
increases in short-term notes payable and a decline in cash and cash
equivalents resulting from the acquisitions of Dobson and the Pulp Machinery
Division of Ingersoll-Rand Company.
Cash Flow for Investment Activities
- ------------------------------------------
Cash flow applied to investment activities was $411,973 for the nine months
ended July 31, 1996 compared to cash flow provided by investment activities
of $80,730 for the comparable period in 1995. The change is due to the
$330,000 acquisition of Dobson in early fiscal 1996 and the $119,230
acquisition of the Pulp Machinery Division of Ingersoll-Rand Company in
March, 1996, offset by proceeds of $73,521 from the sale of certain of the
industrial electronic and toys/plastics businesses of Dobson.
Cash Flow from Financing Activities
- -------------------------------------------
The $183,860 cash provided by financing activities in the first nine months of
fiscal 1996 was due to the issuance of $150,000 of 7 1/4% debentures, and
a $37,209 increase in short-term notes payable in connection with the
acquisition of the Pulp Machinery Division of Ingersoll-Rand Company and
Dobson.
Financing activities for the nine months of fiscal 1995 included $95,458 for
redemption of Joy's remaining Bank Facility and partial redemption of Joy's
10 1/4% Senior Notes. As a result of the redemptions of the Bank Facility
and Senior Notes, the Company recorded an extraordinary loss on debt
retirement, net of applicable taxes, of $(3,481), or $(0.08) per share
consisting primarily of unamortized financing costs and redemption
premiums.
<PAGE>
The Statement of Cash Flows for the nine month period ended July 31, 1995
reflects the $23,706 use of cash by Joy during the period February 26, 1994
to November 1, 1994.
The Company maintains the ability to expand its borrowings in several ways,
including the following:
(1) A Revolving Credit Financing Facility Agreement expiring November,
2000, between the Company and certain domestic and foreign financial
institutions that allows for borrowings of up to $240,000 at rates
expressed in relation to LIBOR and other rates. At July 31, 1996,
there were no direct outstanding borrowings under the Facility.
Commercial paper borrowings are considered a utilization of the
Facility, which, as of July 31, 1996, amounted to $46,023.
(2) Short-term bank credit lines of foreign subsidiaries of approximately
$136,800, of which approximately $29,740 was outstanding at July 31,
1996.
(3) In April, 1996, the Company filed a shelf registration with the
Securities and Exchange Commission for up to $200,000 of debt
securities. To date, no securities have been issued under this
registration.
The Company believes its available cash and borrowing capacity provide
adequate liquidity to meet its short-term and long-term obligations.
The Company has no significant capital commitments as of July 31, 1996; any
future capital commitments are expected to be funded through cash flow from
operations and, if necessary, available borrowings.
The Company intends to continue to expand its businesses, both internally
and through acquisitions. It is expected that new acquisitions would be
financed primarily by internally generated funds or additional borrowings.
Acquisitions
- ---------------
In early fiscal 1996, the Company completed the acquisition of Dobson for
a purchase price of approximately $330,000 including acquisition costs, plus
the assumption of debt of approximately $75,300. The acquisition was
accounted for as a purchase transaction with the purchase price allocated to
specific assets acquired and liabilities assumed. This allocation was based on
preliminary estimates and may be revised at a later date. Resultant goodwill
is being amortized over 40 years.
Dobson, headquartered in the United Kingdom, was an industrial engineering
group with interests in underground mining equipment, industrial electronic
control systems, toys and plastics. Longwall International, one of the main
subsidiaries of Dobson, is engaged in the manufacture, sale and service of
underground mining equipment for the international coal mining industry.
Longwall's products include electronically controlled roof support systems,
armored face conveyors, pumps and belt conveyor components and systems.
The Company has formulated a plan to fully integrate Longwall's operations
into Joy Mining Machinery, thus enabling Joy to offer integrated underground
longwall mining systems to the worldwide mining industry. As a result of
<PAGE>
this plan, the Company has established purchase accounting reserves to
provide for the estimated costs of this effort. The costs to be incurred relate
primarily to the closure of selected manufacturing and service facilities.
Company management anticipates that the majority of these costs will be
incurred in fiscal 1996 and 1997. As of July 31, 1996, approximately
$19,200 of the reserves had been used. Longwall's operating results for the
nine months ended July 31, 1996 are included in the July 31, 1996
consolidated statement of income.
The industrial electronic and toys/plastics businesses are held for sale and are
separately classified as such on the Consolidated Balance Sheet. These
businesses were originally valued at $100,000. Certain of the businesses have
been sold, aggregating net proceeds of $73,521. The remaining balance
represents the net realizable value including the cash flow from the remaining
businesses held for sale which are expected to be sold within the next year.
On March 27, 1996, the Company's Beloit Corporation subsidiary purchased
the assets of the Pulp Machinery Division of Ingersoll-Rand Company for
$119,230, including acquisition costs. The acquisition was accounted for as
a purchase transaction with the purchase price allocated to specific assets
acquired and liabilities assumed. This allocation was based on preliminary
estimates and may be revised at a later date. Resultant goodwill is being
amortized over 40 years.
On November 29, 1994, the Company completed the acquisition of Joy
through a stock-for-stock merger with the acquisition accounted for as a
pooling of interests. Effective November 1, 1994, the fiscal year of Joy was
conformed to the Company's fiscal year. Transaction costs related to the
merger of $17,459 ($11,384 net of tax or $0.24 per share) were charged to
income during the first quarter of fiscal 1995.
Sale of Measurex Stock
- ----------------------------
On December 29, 1994, Measurex Corporation repurchased 2,026,900 shares
of its stock which had been purchased by the Company. On June 23, 1995,
Measurex repurchased the remaining 1,613,100 shares of its stock. These
transactions resulted in a combined pretax gain of $29,657 in fiscal 1995.
Measurex continues to have cooperative agreements with Beloit.
PART II. OTHER INFORMATION
--------------------------------------------
Item 4 Submission of Matters to a Vote of Security Holders
---------------------------------------------------
The information called for by this Item was previously reported in
response to Item 4 of Harnischfeger's report on Form 10-Q for
the quarterly period ending April 30, 1996.
Item 5 Other Information "Cautionary Factors"
--------------------------------------
This report and other documents or oral statements which have
been and will be prepared or made in the future contain or may
contain forward-looking statements by or on behalf of the
Company. Such statements are based upon management's
expectations at the time they are made. In addition to the
assumptions and other factors referred to specifically in
connection with such statements, the following factors, among
others, could cause actual results to differ materially from those
contemplated.
<PAGE>
The Company's principal businesses involve designing,
manufacturing, marketing and servicing large, complex machines
for the mining, papermaking and capital goods industries. Long
periods of time are necessary to plan, design and build these
machines. With respect to new machines and equipment, there are
risks of customer acceptances and start-up or performance
problems. Large amounts of capital are required to be devoted by
the Company's customers to purchase these machines and to
finance the mines, paper mills, steel mills and other facilities that
use these machines. The Company's success in obtaining and
managing a relatively small number of sales opportunities can have
a material effect on the Company's financial performance. In
addition, many projects are located in developing economies
where business conditions are less predictable. In recent years,
approximately 46% of the Company's total sales occurred outside
the United States.
Other factors that could cause actual results to differ materially
from those contemplated include:
- Factors affecting purchases of new equipment, rebuilds, parts
and services such as: production capacity, stockpiles and
production and consumption rates of coal, copper, iron, gold,
fiber, paper/paperboard, recycled paper, steel and other
commodities; the cash flows of customers; the cost and
availability of financing to customers and the ability of
customers to obtain regulatory approval for investments in
mining, papermaking, steel making, automotive
manufacturing and other heavy industrial projects; the ages,
efficiencies and utilization rates of existing equipment; the
development of new technologies; the availability of used or
alternative equipment; consolidations among customers;
work stoppages at customers or providers of transportation;
and the timing, severity and duration of customer buying
cycles, particularly in the paper and mining businesses.
- Factors affecting the Company's ability to capture available
sales opportunities, including: customers' perceptions of the
quality and value of the Company's products as compared to
competitors' products; the existence of patents protecting or
restricting the Company's ability to offer features requested
by customers; whether the Company has successful reference
installations to show customers, especially for papermaking
and mining equipment; customers' perceptions of the health
and stability of the Company as compared to its competitors;
the Company's ability to offer competitive seller financing
programs; the availability of manufacturing capacity at the
Company's factories; and whether the Company can offer the
complete package of products and services sought by its
customers.
- Factors affecting the Company's ability to successfully
manage sales it obtains, such as: the accuracy of the
Company's cost and time estimates for major projects; the
Company's success in completing projects on time and within
budget; the Company's success in recruiting and retaining
managers and key employees; wage stability and cooperative
labor relations; plant capacity and utilization; and whether
acquisitions are assimilated and divestitures completed
without notable surprises or unexpected difficulties.
<PAGE>
- Factors affecting the Company's general business, such as:
unforeseen patent, tax, product, environmental, employee
health or benefit or contractual liabilities; nonrecurring
restructuring charges; changes in accounting or tax rules or
regulations; and reassessments of asset valuations such as
inventories.
- Factors affecting general business levels, such as: political
conditions and economic growth in major markets such as
the United States, Canada, Europe, the Far East, South
Africa, Australia and Chile; environmental and trade
regulations; and the stability and ease of exchange of
currencies.
Item 6 Exhibits and Reports on Form 8-K
--------------------------------
(a) Exhibits:
11 Statement re: Calculation of Earnings Per Share
(b) Reports on Form 8-K
None
<PAGE>
FORM 10-Q
- ---------
SIGNATURES
-------------------
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
HARNISCHFEGER INDUSTRIES, INC.
------------------------------------------------
(Registrant)
/s/ Francis M. Corby, Jr.
----------------------------------------------------
Francis M. Corby, Jr.
Executive Vice President for Finance
Date September 12, 1996 and Administration and Chief Financial
- ----------------------- Officer
/s/ James C. Benjamin
------------------------------------------------------
James C. Benjamin
Vice President and Controller
Date September 12, 1996 and Chief Accounting Officer
- -----------------------
<PAGE>
Exhibit 11
HARNISCHFEGER INDUSTRIES, INC.
-------------------------------------------------
CALCULATION OF EARNINGS PER SHARE
- ---------------------------------------------------------
(Amounts in thousands except per share amounts)
Three Months Ended Nine Months Ended
July 31, July 31,
------------------------ ------------------------
1996 1995 1996 1995
----- ----- ---- ------
Average Shares
Outstanding 47,367 46,456 47,075 46,064
===== ===== ===== ======
Income from Continuing
Operations $37,692 $37,612 $94,438 $ 61,850
Loss from and Net Loss
on Sale of
Discontinued Operation,
net of applicable
income taxes - - - (24,410)
Extraordinary Loss on
Retirement of Debt,
net of applicable
income taxes - - - (3,481)
--------- ---------- ---------- -----------
Net Income $37,692 $37,612 $94,438 $33,959
====== ====== ====== ======
Earnings Per Share
Income from
continuing operations $ 0.80 $0.81 $2.01 $ 1.34
Loss from and net
loss on sale
of discontinued
operation - - - (0.53)
Extraordinary loss
on retirement of debt - - - (0.08)
------- ------- ------- --------
Net income $ 0.80 $0.81 $ 2.01 $ 0.73
===== ===== ===== ======
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> OCT-31-1996
<PERIOD-END> JUL-31-1996
<CASH> 38,189
<SECURITIES> 0
<RECEIVABLES> 692,710
<ALLOWANCES> 9,474
<INVENTORY> 561,472
<CURRENT-ASSETS> 1,422,217
<PP&E> 1,111,283
<DEPRECIATION> 484,506
<TOTAL-ASSETS> 2,684,773
<CURRENT-LIABILITIES> 1,150,185
<BONDS> 617,267
0
0
<COMMON> 51,338
<OTHER-SE> 586,068
<TOTAL-LIABILITY-AND-EQUITY> 2,684,773
<SALES> 2,151,945
<TOTAL-REVENUES> 2,172,107
<CGS> 1,649,617
<TOTAL-COSTS> 1,966,778
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 46,004
<INCOME-PRETAX> 159,325
<INCOME-TAX> 57,300
<INCOME-CONTINUING> 94,438
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 94,438
<EPS-PRIMARY> 2.01
<EPS-DILUTED> 2.01
</TABLE>
