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, 1997
- ------ --------------
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.)
3600 South Lake Drive, St. Francis, Wisconsin
- ---------------------------------------------
(Address of principal executive offices)
53235-3716
- ---------------
(Zip Code)
(414)486-6400
- ---------------------------------------------------
(Registrant's Telephone Number, Including Area Code)
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, 1997
- ---------------- ---------------------------------
Common Stock, $1 par value 49,366,951 shares
HARNISCHFEGER INDUSTRIES, INC.
------------------------------
FORM 10-Q
-----------------
July 31, 1997
-----------------
INDEX
-----------
Page No.
---------
PART I. Financial Information:
Consolidated Statement of Income - 1
Three and Nine Months Ended
July 31, 1997 and 1996
Consolidated Balance Sheet - 2-3
July 31, 1997 and
October 31, 1996
Consolidated Statement of Cash Flows - 4-5
Nine Months Ended
July 31, 1997 and 1996
Consolidated Statement of
Shareholders' Equity - 6
Nine Months Ended
July 31, 1997 and 1996
Notes to Consolidated Financial
Statements 7-10
Management's Discussion
and Analysis
of Results of Operations
and Financial Condition 11-16
PART II. Other Information 17-18
Signatures 19
<TABLE>
<CAPTION>
PART I. FINANCIAL INFORMATION
------------------------------
HARNISCHFEGER INDUSTRIES, INC.
-----------------------------
CONSOLIDATED STATEMENT OF INCOME
--------------------------------
(Amounts in thousands except per share amounts)
(Unaudited)
Three Months Ended
July 31,
-------------------------
1997 1996
------- ------
<S> <C> <C>
Revenues
Net Sales $ 786,029 $779,752
Other Income 6,129 6,943
--------- --------
792,158 786,695
Cost of Sales 600,348 597,265
Product Development, Selling
and Administrative Expenses 116,540 109,928
---------- --------
Operating Income 75,270 79,502
Interest Expense - Net (18,569) (16,967)
---------- ---------
Income Before Provision For Income
Taxes and Minority Interest 56,701 62,535
Provision for Income Taxes (18,050) (22,450)
Minority Interest (2,761) (2,393)
---------- ----------
Net Income $ 35,890 $ 37,692
========== ==========
Earnings Per Share $ 0.75 $0.80
===== =====
</TABLE>
See accompanying notes to financial statements.
<TABLE>
<CAPTION>
HARNISCHFEGER INDUSTRIES, INC.
- -------------------------------
CONSOLIDATED STATEMENT OF INCOME
- ------------------------------
(Amounts in thousands except per share amounts)
(Unaudited)
Nine Months Ended
July 31,
-----------------------
1997 1996
----------- --------
<S> <C> <C>
Revenues
Net Sales $2,280,018 $2,151,945
Other Income 27,452 20,162
---------- ----------
$2,307,470 2,172,107
Cost of Sales 1,732,931 1,649,617
Product Development, Selling
and Administrative Expenses 340,396 317,161
----------- ----------
Operating Income 234,143 205,329
Interest Expense - Net (52,737) (46,004)
----------- ----------
Income Before Provision For Income
Taxes and Minority Interest 181,406 159,325
Provision for Income Taxes (61,675) (57,300)
Minority Interest (8,012) (7,587)
----------- -----------
Net Income $ 111,719 $ 94,438
=========== ===========
Earnings Per Share $2.34 $2.01
===== =====
</TABLE>
See accompanying notes to financial statements.
<TABLE>
<CAPTION>
HARNISCHFEGER INDUSTRIES, INC.
- ------------------------------
CONSOLIDATED BALANCE SHEET
- --------------------------
(Dollar amounts in thousands)
July 31, October 31,
1997 1996
- ----------- ------------
<S> <C> <C>
(Unaudited)
Assets
Current Assets:
Cash and cash equivalents $ 26,292 $ 36,936
Accounts receivable-net 835,493 667,786
Inventories 600,013 547,115
Other current assets 145,154 132,261
Businesses held for sale 14,705 26,152
---------- --------
1,621,657 1,410,250
Property, Plant and Equipment:
Land and improvements 59,092 48,371
Buildings 303,355 301,010
Machinery and equipment 812,353 776,332
---------- ----------
1,174,800 1,125,713
Accumulated depreciation (518,930) (491,668)
---------- ----------
655,870 634,045
Investments and Other Assets:
Goodwill 517,075 512,693
Intangible assets 32,130 39,173
Other assets 103,118 93,868
---------- ----------
652,323 645,734
---------- ----------
$2,929,850 $2,690,029
========== ==========
</TABLE>
See accompanying notes to financial statements.
<TABLE>
<CAPTION>
HARNISCHFEGER INDUSTRIES, INC.
- ------------------------------
CONSOLIDATED BALANCE SHEET
- --------------------------
(Dollar amounts in thousands)
July 31, October 31,
1997 1996
----------- ------------
(Unaudited)
<S> <C> <C>
Liabilities and Shareholders' Equity
Current Liabilities:
Short-term notes payable, including current
portion of long-term obligations $ 80,052 $ 49,633
Trade accounts payable 468,743 346,056
Employee compensation and benefits 126,429 160,488
Advance payments and progress billings 116,020 155,199
Accrued warranties 47,016 50,718
Other current liabilities 266,961 315,033
--------- ----------
1,105,221 1,077,127
Long-term Obligations 752,697 657,765
Other Liabilities:
Liability for postretirement benefits 60,419 78,814
Accrued pension costs 33,006 39,902
Other liabilities 11,484 14,364
Deferred income taxes 72,772 54,920
--------- ---------
177,681 188,000
Minority Interest 100,598 93,652
Shareholders' Equity:
Common stock (51,542,373 and
51,406,946 shares issued, respectively) 51,542 51,407
Capital in excess of par value 626,747 615,089
Retained earnings 245,085 148,175
Cumulative translation adjustments (26,425) (37,584)
Less: Stock Employee Compensation
Trust (1,433,147 and 1,533,993
shares, respectively) at market (61,804) (61,360)
Treasury stock (2,139,297 and
2,274,613 shares, respectively)
at cost (41,492) (42,242)
--------- ---------
793,653 673,485
--------- ---------
$2,929,850 $2,690,029
=========== ==========
</TABLE>
See accompanying notes to financial statements.
<TABLE>
<CAPTION>
HARNISCHFEGER INDUSTRIES, INC.
- -------------------------------
CONSOLIDATED STATEMENT OF CASH FLOWS
- ------------------------------------
(Dollar amounts in thousands)
(Unaudited) Nine Months Ended
July 31,
--------------------------------
1997 1996
------- -----
<S> <C> <C>
Operating Activities
Net income $111,719 $ 94,438
Add (deduct) - Items not affecting cash:
Depreciation and amortization 72,411 67,565
Minority interest, net of dividends paid 7,800 6,896
Other - net 4,038 5,776
Changes in working capital
(Increase) in accounts receivable - net (173,332) (94,466)
(Increase) in inventories (46,854) (58,354)
(Increase) in other current assets (12,934) (2,036)
Increase in trade accounts payable 122,993 16,538
(Decrease) in employee compensation
and benefits (35,894) (20,222)
(Decrease) in advance payments and progress
billings (39,832) (16,566)
(Decrease) increase in other
current liabilities (53,794) 27,833
-------- ---------
Net cash (applied to) provided
by operating activities (43,679) 27,402
--------- ---------
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 $6,858 - (112,372)
Other acquisitions, net of cash acquired (17,112) (12,236)
Net proceeds from sale of Dobson Park
Industries plc
non-core businesses 10,572 73,521
Net proceeds from sale of
New Philadelphia Fan Co. 18,051 -
Net proceeds from sale of Castings Division 7,229 -
Net proceeds from sale of Joy
Environmental Technologies - 11,651
Property, plant and equipment acquired (103,646) (56,705)
Property, plant and equipment retired 23,630 8,940
Other - net (18,105) 597
-------- --------
Net cash (applied to) investment
and other transactions (79,381) (411,973)
-------- ---------
Financing Activities
Dividends paid (14,374) (14,149)
Exercise of stock options 5,148 5,490
Purchase of treasury stock (3,138) -
Issuance of long-term obligations less discount 149,989 156,882
Redemption of long-term obligations (55,468) (1,572)
Increase in short-term notes payable 29,422 37,209
-------- ---------
Net cash provided by financing
activities 111,579 183,860
-------- ----------
Effect of Exchange Rate Changes on Cash and
Cash Equivalents 837 (143)
--------- ----------
(Decrease) in Cash and Cash Equivalents (10,644) (200,854)
Cash and Cash Equivalents at Beginning of Period 36,936 239,043
--------- ----------
Cash and Cash Equivalents at End of Period $ 26,292 $ 38,189
========== ==========
</TABLE>
See accompanying notes to financial statements.<TABLE>
<CAPTION>
HARNISCHFEGER INDUSTRIES, INC.
- ------------------------------
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
- ----------------------------------------------
(Dollar amounts in thousands)
(Unaudited)
Capital in
Common Excess of
Stock Par Value
-------- ----------
<S> <C> <C>
Nine Months Ended July 31, 1997
- -------------------------------
Balance at October 31, 1996 $51,407 $615,089
Net income
Translation adjustments
Exercise of 236,273 stock options 135 3,033
Dividends paid ($.30 per share)
Dividends on shares held by SECT 435
Adjust SECT shares to market value 2,424
209,373 shares purchased by employee
and director benefit plans 4,582
Purchase of treasury stock
Amortization of unearned compensation
on restricted stock 1,184
------- ---------
Balance at July 31, 1997 $51,542 $626,747
======= =========
Nine Months Ended July 31, 1996
- -------------------------------
Balance at October 31, 1995 $51,118 $603,712
Net income
Translation adjustments
Exercise of 262,751 stock options 263 5,227
Dividends paid ($.30 per share)
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
======= =========
</TABLE>
See accompanying notes to financial statements.
<TABLE>
<CAPTION>
HARNISCHFEGER INDUSTRIES, INC.
- ------------------------------
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
- ----------------------------------------------
(Dollar amounts in thousands)
(Unaudited)
Cumulative
Retained Translation
Earnings Adjustments
--------- -----------
<S> <C> <C>
Nine Months Ended July 31, 1997
- -------------------------------
Balance at October 31, 1996 $148,175 $(37,584)
Net income 111,719
Translation adjustments 11,159
Exercise of 236,273 stock
options
Dividends paid ($.30 per share) (14,809)
Dividends on shares held
by SECT
Adjust SECT shares to
market value
209,373 shares purchased
by employee
and director benefit plans
Purchase of treasury stock
Amortization of unearned
compensation
on restricted stock
--------- ----------
Balance at July 31, 1997 $245,085 $(26,425)
========= ==========
Nine Months Ended July 31, 1996
- -------------------------------
Balance at October 31, 1995 $53,560 $(42,118)
Net income 94,438
Translation adjustments (14,997)
Exercise of 262,751 stock options
Dividends paid ($.30 per share) (14,690)
Dividends on, shares
held by SECT
Adjust SECT shares to market value
230,000 shares purchased
by employee
benefit plans
Issuance of restricted stock
--------- ----------
Balance at July 31, 1996 $133,308 $(57,115)
========= ==========
</TABLE>
See accompanying notes to financial statements.
<TABLE>
<CAPTION>
HARNISCHFEGER INDUSTRIES, INC.
- ------------------------------
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
- ----------------------------------------------
(Dollar amounts in thousands)
(Unaudited)
Treasury
SECT Stock
---------- -------------
<S> <C> <C>
Nine Months Ended July 31, 1997
- -------------------------------
Balance at October 31, 1996 $(61,360) $(42,242)
Net income
Translation adjustments
Exercise of 236,273
stock options 1,980
Dividends paid ($.30 per share)
Dividends on shares held by SECT
Adjust SECT shares to
market value (2,424)
209,373 shares purchased
by employee
and director benefit plans 3,888
Purchase of treasury stock (3,138)
Amortization of
unearned compensation
on restricted stock --------- ---------
Balance at July 31, 1997 $(61,804) $(41,492)
========= =========
Nine Months Ended July 31, 1996
- -------------------------------
Balance at October 31, 1995 $(60,483) $(46,513)
Net income
Translation adjustments
Exercise of 262,751
stock options
Dividends paid ($.30 per share)
Dividends on, shares held
by SECT
Adjust SECT shares to
market value (170)
230,000 shares purchased
by employee
benefit plans 4,271
Issuance of restricted stock 11,913
--------- ---------
Balance at July 31, 1996 $(48,740) $(42,242)
========== ==========
</TABLE>
See accompanying notes to financial statements.
<TABLE>
<CAPTION>
HARNISCHFEGER INDUSTRIES, INC.
- ------------------------------
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
- ----------------------------------------------
(Dollar amounts in thousands)
(Unaudited)
Total
--------
<S> <C>
Nine Months Ended July 31, 1997
- -------------------------------
Balance at October 31, 1996 $673,485
Net income 111,719
Translation adjustments 11,159
Exercise of 236,273 stock options 5,148
Dividends paid ($.30 per share) (14,809)
Dividends on shares held by SECT 435
Adjust SECT shares to market value -
209,373 shares purchased by employee
and director benefit plans 8,470
Purchase of treasury stock (3,138)
Amortization of unearned compensation
on restricted stock 1,184
---------
Balance at July 31, 1997 $793,653
=========
Nine Months Ended July 31, 1996
- -------------------------------
Balance at October 31, 1995 $559,276
Net income 94,438
Translation adjustments (14,997)
Exercise of 262,751 stock options 5,490
Dividends paid ($.30 per share) (14,690)
Dividends on, shares held by SECT 541
Adjust SECT shares to market value -
230,000 shares purchased by employee
benefit plans 7,235
Issuance of restricted stock 163
--------
Balance at July 31, 1996 $637,456
=========
</TABLE>
See accompanying notes to financial statements.
HARNISCHFEGER INDUSTRIES, INC.
- -------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- ------------------------------------------
July 31, 1997
- -------------
(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, 1997 and 1996,
cash flows for the nine months ended July 31, 1997 and
1996, and financial position at July 31, 1997 have been
made. All adjustments made are of a normal recurring
nature. See note (b) for discussions regarding
acquisitions.
These financial statements should be read in conjunction
with the financial statements and the notes thereto
included in the Harnischfeger Industries, Inc. Annual
Report on Form 10-K for the year ended October 31, 1996.
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 net debt of
approximately $40,000. The acquisition was accounted for
as a purchase transaction with the purchase price
allocated to specific assets acquired and liabilities
assumed. 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"),
the main subsidiary of Dobson, was engaged in the
manufacture, sale and service of underground mining
equipment for the international coal mining industry. Its
principal products included electronically controlled roof
support systems and armored face conveyors.
The Company is fully integrating Longwall's operations
into its wholly owned subsidiary, Joy Technologies Inc.
("Joy"), thus enabling 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 reserves related primarily to
the closure of selected manufacturing and service
facilities, severance and relocation costs approximate
$71,000. As of July 31, 1997, approximately $19,200 of
these reserves, net of foreign currency rate adjustments,
had been used.
As part of the Dobson acquisition, the industrial
electronic and plastics businesses are held for sale and
classified as such in the Consolidated Balance Sheet. The
original value of the businesses was set at $100,000. All
but two of the businesses have been sold, aggregating net
proceeds of $85,295. The remaining balance represents the
net realizable value including the expected cash flow from
the remaining businesses. These businesses are expected
to be sold within the next year. Profit/losses of these
businesses generated during the period have been excluded
from operating results.
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.
Resultant goodwill is being amortized over 40 years.
(c) Restructuring Charge
--------------------
In the fourth quarter of fiscal 1996, the Company's Beloit
Corporation subsidiary recorded a restructuring charge of
$43,000. Included in the charge are costs related to
severance for approximately 500 employees worldwide, the
disposition of machinery and equipment, closure of certain
facilities and the sale of businesses. As of July 31,
1997, approximately $17,700 had been charged against the
reserve and approximately 296 employees had been
terminated in accordance with the plan. The focus of
Beloit Corporation's restructuring is to better serve its
customers and strengthen its market position in the
worldwide pulp and paper industry. The restructuring
initiative involves organizing engineering and
manufacturing operations into Centers of Excellence and
expanding the aftermarket capabilities of the subsidiary.
(d) Inventories
-----------
Consolidated inventories consisted of the following:
<TABLE>
<CAPTION>
July 31, October 31,
1997 1996
---------- -----------
<S> <C> <C>
Finished goods $273,164 $ 198,160
Work in process and purchased parts 244,475 278,671
Raw materials 145,367 134,448
--------- ----------
663,006 611,279
Less excess of current cost over stated
LIFO value (62,993) (64,164)
--------- ----------
$600,013 $547,115
========= ==========
</TABLE>
Inventories valued using the LIFO method represented
approximately 54% and 56% of consolidated inventories at
July 31, 1997 and October 31, 1996, respectively.
(d) 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
$12,510 and $9,772 for the three months and $33,697 and
$26,096 for the nine months ended July 31, 1997 and 1996,
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>
Three Months Ended
July 31,
-------------------
1997 1996
----- ----
<S> <C> <C>
Interest income $ 465 $ 1,471
Interest expense (19,034) (18,438)
-------- ----------
Interest expense - net $(18,569) $(16,967)
========= ==========
</TABLE>
<TABLE>
<CAPTION>
Nine Months Ended
July 31,
-----------------
1997 1996
----- ------
<S> <C> <C>
Interest income $ 2,130 $ 4,910
Interest expense (54,867) (50,914)
--------- ---------
Interest expense - net $(52,737) $(46,004)
========= ========
</TABLE>
(g) Long-Term Obligations
---------------------
<TABLE>
<CAPTION>
Long-term obligations at July 31, 1997 and October 31,
1996 consisted of the following:
July 31, October 31,
1997 1996
--------- -----------
<S> <C> <C>
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 $1,251
and $1,261, respectively ) 148,749 148,739
6 7/8% Debentures, due 2027
(net of discount
of $111) 149,889 -
Senior Notes, Series A through D, at
interest rates of between 8.9% and
9.1%, due 1997 to 2006 73,182 73,182
Revolving Credit Facility - 40,000
Industrial Revenue Bonds, at interest
rates of between 5.9% and 8.8%,
due 1997 to 2017 33,400 34,629
Other 13,125 27,207
------- --------
756,725 662,137
Less: Amounts payable within one year 4,028 4,372
-------- --------
$752,697 $657,765
======== ========
</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 will mature on December 15, 2025,
are not redeemable prior to maturity and are not subject
to sinking fund requirements.
On February 25, 1997, $150,000 of 6 7/8% debentures were
issued at 99.925%. Proceeds were used to repay short-term
indebtedness and to increase cash. The debentures will
mature on February 15, 2027, are not redeemable by the
Company prior to maturity and are not subject to sinking
fund requirements. Each holder of the debentures has the
right to require the Company to repay the holders, in
whole or in part, on February 15, 2007, at a repayment
price equal to 100% of the aggregate principal amount
thereof plus accrued and unpaid interest. Interest on the
debentures is payable semi-annually on February 15 and
August 15 of each year commencing on August 15, 1997.
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 expires in
November, 2000. A facility fee is payable on the
Revolving Credit Facility. At July 31, 1997, there were
no direct outstanding borrowings under the facility.
Commercial paper borrowings, considered a utilization of
the facility, were $29,749 at
July 31, 1997.
(h) Contingent Liabilities
----------------------
At July 31, 1997, the Company was contingently liable to
banks, financial institutions, and others for
approximately $308,000 for outstanding letters of credit
securing performance of sales contracts and other
guarantees in the ordinary course of business excluding
the H-K System, Inc. backup bond guarantee facility. The
Company may also guarantee performance of its equipment at
levels specified in sales contracts without the
requirement for letters of credit.
On October 29, 1993, the Company completed the sale of
H-K Systems, Inc. (formerly known as Harnischfeger
Engineers Inc.) to that unit's senior management and some
equity partners. The Company agreed to make available a
back-up bonding guarantee facility for certain bid,
performance and other contract bonds issued by H-K
Systems, Inc. Outstanding contract bonds under the
guarantee arrangement totaled approximately $47,800 at
July 31, 1997. The outstanding bonds under the guarantee
arrangement are required to decrease to $20,000 on
November 1, 1997. Under the terms of the facility, no new
bonds can be issued.
The Company is party to litigation matters and claims
which are normal in the course of its operations. Also,
as a normal part of their operation, the Company's
subsidiaries undertake contractual obligations, warranties
and guarantees in connection with the sale of products and
services. In the case of Beloit Corporation, certain
litigation matters and claims are pending in connection
with its contractual undertakings, including a lawsuit
brought by Potlatch Corporation that alleges pulp line
washers supplied by Beloit for less than $15,000 failed to
perform satisfactorily. In June, 1997, a Lewiston, Idaho
jury awarded Potlatch $95,000 in damages in this case.
Various post-trial motions have been filed and are
pending. While the eventual outcome of the Potlatch case
and other such litigation matters and claims cannot be
predicted, reserves in the July 31, 1997 Consolidated
Balance Sheet related to the Potlatch case are less than
the full amount of the jury award in that case.
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) Tender Offer for Giddings & Lewis, Inc. Stock
---------------------------------------------
The Company's $19 per share tender offer for the stock of
Giddings & Lewis, Inc. announced in April, 1997 expired in
June, 1997 following the announcement of a competing offer
by Thyssen A.G. of Germany at a price of $21 per share.
Giddings & Lewis was subsequently acquired by Thyssen.
(j) Other
-----
On September 12, 1997, the Company announced that its
board of directors had authorized the purchase of up to
ten million shares of the Company's stock. Funds for
stock repurchases are expected to come from cash flow from
operations and divestitures of businesses. Purchases may
be made from time to time and will be made through
open-market transactions or block trades in compliance
with applicable securities regulations. The Company also
announced that Merrill Lynch & Co. has been retained to
explore the possible sale of P&H Material Handling,
Harnischfeger's material handling equipment and services
business.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
THREE AND NINE MONTHS ENDED JULY 31, 1997 AND 1996
--------------------------------------------------
(Amounts in thousands unless indicated)
The commentary in Management's Discussion and Analysis
contains forward-looking statements. When used in this
document, terms such as "anticipate", "believe", "estimate",
"expect", "indicate", "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, 1997
amounted to $35,890, or $0.75 per share, and $111,719, or
$2.34 per share, as compared to net income of $37,692, or
$0.80 per share, and $94,438, or $2.01 per share for the three
and nine months ended July 31, 1996.
Per share calculations for the first nine months of 1997 and
1996 were based on 47,876 and 47,075 average shares
outstanding, respectively.
Significant factors contributing to the $17,281 increase in
net income for the first nine months of 1997 as compared to
1996 included: (1) a $28,814 increase in operating income as
described in the Segment Information section which follows,
-------------------
offset by (2) a $6,733 increase in interest expense-net and
(3) a $4,375 increase in the provision for income taxes due to
higher pre-tax income.
Segment Information
- -------------------
Operating results of the Company's business segments for the
third quarter and first nine months of 1997 and 1996 are
summarized as follows:
<TABLE>
<CAPTION>
Third Quarter Net Sales Operating Income
- ------------- --------------------- ---------------------
1997 1996 1997 1996
--------- ---------- -------- -------
<S> <C> <C> <C> <C>
Mining Equipment $329,204 $383,519 $44,260 $52,473
Pulp and Paper
Machinery 375,008 314,330 28,005 24,076
Material Handling 81,817 81,903 8,684 8,056
-------- --------- -------- -------
Total Business
Segments $786,029 $779,752 80,949 84,605
======== ==========
Corporate
Administration (5,679) (5,103)
------- -------
Operating Income $75,270 $79,502
======== =======
Nine Months Net Sales Operating Income
- ------------ ---------------------- -----------------------
1997 1996 1997 1996
------- ----- ----- ------
Mining Equipment $1,045,050 $1,056,564 $146,395 $ 133,805
Pulp and Paper
Machinery 976,097 868,730 78,340 65,936
Material Handling 258,871 226,651 26,335 20,734
---------- ---------- -------- ---------
Total Business
Segments $2,280,018 $2,151,945 251,070 220,475
========== ==========
Corporate
Administration (16,927) (15,146)
-------- ----------
Operating Income $234,143 $205,329
======== ===========
</TABLE>
<TABLE>
<CAPTION>
Third Quarter Orders Booked Backlog at
- ------------- ---------------- ---------------------
1997 1996 7/97 4/97
------ ------ ----- ------
<S> <C> <C> <C> <C>
Mining Equipment $292,210 $388,345 $ 427,069 $ 464,063
Pulp and Paper
Machinery 292,703 379,941 794,077(A) 880,139
Material Handling 92,602 77,488 108,516 97,731
--------- -------- --------- ---------
Total Business
Segments $677,515 $845,774 $1,329,662 $1,441,933
========= ======== ========= ==========
Nine Months Orders Booked Backlog at
- ----------- ------------------- ---------------------
1997 1996 7/97 10/96
------ ----- ----- -----
Mining Equipment $1,036,599 $1,002,774 $ 427,069(B) $ 453,480
Pulp and Paper
Machinery 1,097,794 901,438 794,077(C) 846,137
Material Handling 234,837 245,261 108,516 132,550
--------- --------- ------------ -------
Total Business
Segments $2,369,230 $2,149,473 $1,329,662 $1,432,167
========== ========== ========== ==========
</TABLE>
(A) Backlog has been reduced by $3,757 due to sale of the
Castings Division in July, 1997.
(B) Backlog has been reduced by $17,960 due to sale of New
Philadelphia Fan Co. in March, 1997.
(C) Backlog has been reduced by $170,000 due to change of
scope and indefinite deferments on certain contracts booked in
prior years and $3,757 due to sale of the Castings Division in
July, 1997.
<PAGE>
Segment Information - Continuing Operations
- -------------------------------------------
Net sales of the Mining Equipment segment amounted to
$1,045,050 and $1,056,564 for the first nine months of 1997
and 1996, respectively. The sales decrease is the result of
market softness in the U.S. and Australia for Joy underground
original equipment, due to mild weather in the U.S. and to
price decreases for Australian coal. Volume at Joy service
centers is strong; in surface mining our MinePro Services
aftermarket efforts continue to expand globally. Operating
profit increased to $146,395 for the first nine months of 1997
as compared to $133,805 in 1996. Bookings for the first nine
months of 1997 amounted to $1,036,599 as compared to
$1,002,774 for the same period in 1996.
The Pulp and Paper Machinery segment contributed sales and
operating profit of $976,097 and $78,340, respectively, for
the first nine months of 1997, as compared to net sales of
$868,730 and operating profit of $65,936 for the corresponding
period in 1996. Sales increased 12% in 1997 over 1996, due to
an increase in sales of both original equipment, particularly
in the Pacific Rim, and aftermarket activity. Operating
profit reflected stronger sales. Bookings for the first nine
months of 1997 amounted to $1,097,794 as compared to $901,438
for the same period in 1996.
The Material Handling segment contributed sales and operating
profit of $258,871 and $26,335, respectively, for the first
nine months of 1997, as compared to sales of $226,651 and
operating profit of $20,734 for the comparable period in 1996.
Sales increased due to an increase in both original equipment
and aftermarket sales. Operating profit increased as a result
of increased sales and improved margins. Bookings for the
first nine months of 1997 and 1996 amounted to $234,837 and
$245,261, respectively.
Income Taxes
- ------------
The Company's estimated annual effective tax rate for 1997 was
34% compared to a 35% federal statutory tax rate. The
principal reason for the difference between the effective rate
and the statutory rate is the usage of tax credits.
Liquidity and Cash Flows
- ------------------------
The Company's capital structure at July 31, 1997 and October
31, 1996 was as follows:
<TABLE>
<CAPTION>
July 31, October 31,
1997 1996
----------- ------------
<S> <C> <C>
Short-term notes payable $ 76,024 $ 45,261
Long-term obligations,
including current portion 756,725 662,137
--------- -----------
832,749 707,398
Minority interest 100,598 93,652
Shareholders' equity 793,653 673,485
--------- -----------
Total capitalization $1,727,000 $1,474,535
========== ==========
Debt to capitalization ratio 48.2% 48.0%
====== ======
</TABLE>
Cash Flow from Operating Activities
- -----------------------------------
Cash flow used by operating activities was $43,679 for the
nine months ended July 31, 1997 compared to cash flows
provided by operating activities of $27,402 for the comparable
period in 1996. The decrease in cash flows between periods is
primarily the result of an increase in accounts receivables
(due to billing terms on several Beloit Pacific Rim equipment
orders) and a decrease in other current liabilities (usage of
restructuring and acquisition related reserves), offset by an
increase in operating profit and trade accounts payable.
Net working capital, exclusive of businesses held for sale,
increased $194,760 during the nine months ended July 31, 1997
primarily due to an increase in accounts receivable and a
decrease in other current liabilities.
Cash Flow from Investment Activities
- ------------------------------------
Cash flow used for investment activities was $79,381 for the
nine months ended July 31, 1997 compared to cash flow used for
investment activities of $411,973 for the comparable period in
1996. The change is primarily 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 the increased acquisition of property, plant
and equipment in fiscal 1997.
Cash Flow for Financing Activities
- ----------------------------------
The $111,579 cash provided by financing activities in the
first nine months of fiscal 1997 compared to cash flow
provided by financing activities of $183,860, with the change
primarily due to the redemption of long-term obligations in
fiscal 1997.
The Company maintains the ability to expand its borrowings in
several ways, including the following:
(1) A five-year Revolving Credit Financing Facility
Agreement, expiring in 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, 1997, there were no direct outstanding
borrowings under the facility. Commercial paper
borrowings, considered a utilization of the facility,
were $29,749.
(2) Short-term bank credit lines of foreign subsidiaries of
approximately $147,000, of which approximately $38,300
was outstanding at July 31, 1997.
(3) On February 25, 1997, $150,000 of 6 7/8% debentures were
issued at 99.925% and the proceeds used to reduce
short-term debt outstanding and increase cash. The
debentures were issued pursuant to a shelf registration
filed with the Securities and Exchange Commission in
April, 1996 for the sale of up to $200,000 of debt
securities. To date, no other securities covered by the
registration have been offered for sale.
The Joy 10 1/4 % Senior Notes are callable on or after
September 1, 1998 at 105.125%. The Company is currently
analyzing the economics of these call features and evaluating
whether a tender offer should be issued to call the Notes
earlier. The Company will consider using a tender offer for
the Notes if the economics are sound and cash flow permits.
The Company believes that its available cash, cash flow
provided by operating activities and committed credit lines
provide adequate liquidity on both a short- and long-term
basis.
The Company has no significant capital commitments as of July
31, 1997; any future capital commitments are expected to be
funded through cash flow from operations and, if necessary,
available lines of credit.
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 net debt
of approximately $40,000. The acquisition was accounted for
as a purchase transaction with the purchase price allocated to
specific assets acquired and liabilities assumed. 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, the main subsidiary of
Dobson, was 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 and armored face conveyors.
Longwall's operating results were included in the Consolidated
Statement of Income for all of fiscal 1996.
The Company is fully integrating Longwall's operations into
Joy, thus enabling Joy to offer integrated underground
longwall mining systems to the worldwide mining industry. As
a result of this integration, the Company has established
purchase accounting reserves to provide for the estimated
costs of this effort. The reserves related primarily to the
closure of selected manufacturing and service facilities,
severance and relocation costs approximate $71,000. As of
July 31, 1997, approximately $19,200 of these reserves, net of
foreign currency rate adjustments, had been used.
As part of the Dobson acquisition, the industrial electronic
and plastics businesses are held for sale and classified as
such on the Consolidated Balance Sheet. The original value of
the businesses was set at $100,000. All but two of the
businesses have been sold, aggregating net proceeds of
$85,295. The remaining balance represents the net realizable
value including the expected cash flow from the remaining
businesses. These businesses are expected to be sold within
the next year. Profit/losses of these businesses generated
during the period have been excluded from operating results.
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. Resultant goodwill
is being amortized over 40 years.
Contingent Liabilities
- ----------------------
The Company is party to litigation matters and claims which
are normal in the course of its operations. Also, as a normal
part of their operations, the Company's subsidiaries undertake
contractual obligations, warranties and guarantees in
connection with the sale of products and services. In the
case of Beloit Corporation, certain litigation matters and
claims are pending in connection with its contractual
undertakings, including a lawsuit brought by Potlatch
Corporation that alleges pulp line washers supplied by Beloit
for less than $15,000 failed to perform satisfactorily. In
June, 1997, a Lewiston, Idaho jury awarded Potlatch $95,000
in damages in this case. Various post-trial motions have been
filed and are pending. While the eventual outcome of the
Potlatch case and other such litigation matters and claims
cannot be predicted, reserves in the July 31, 1997
Consolidated Balance Sheet related to the Potlatch case are
less than the full amount of the jury award in that case.
Tender Offer for Giddings & Lewis, Inc. Stock
- ---------------------------------------------
The Company's $19 per share tender offer for the stock
Giddings & Lewis, Inc. announced in April, 1997 expired in
June, 1997 following the announcement of a competing offer by
Thyssen A.G. of Germany at a price of $21 per share. Giddings
& Lewis was subsequently acquired by Thyssen.
Other
- ------
On September 12, 1997, the Company announced that its board of
directors had authorized the purchase of up to ten million
shares of the Company's stock. Funds for stock repurchases
are expected to come from cash flow from operations and
divestitures of businesses. Purchases may be made from time
to time and will be made through open-market transactions or
block trades in compliance with applicable securities
regulations. The Company also announced that Merrill Lynch &
Co. has been retained to explore the possible sale of P&H
Material Handling, Harnischfeger's material handling equipment
and services business.
<PAGE>
PART II. OTHER INFORMATION
----------------------------
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.
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, including warranties and
guarantees associated therewith, can affect the
Company's financial performance. As a normal part of
their operations, the Company's subsidiaries
undertake certain contractual obligations, warranties
and guarantees in connection with the sale of
products or services. In the case of Beloit
Corporation, certain litigation matters and claims
are currently pending in connection with its
contractual undertakings. The outcome of such
litigation and claims cannot be predicted with
certainty and favorable or unfavorable judgements or
resolutions may affect financial results. In
addition, many projects are located in undeveloped or
developing economies where business conditions are
less predictable. In recent years more than 50% of
the Company's total sales have 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, pulp, paper/paperboard, recycled paper,
steel and other commodities; seasonal factors
impacting consumption such as unusually mild or
severe winter or summer temperatures; 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; shifts in the mix of
products purchased by customers; 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
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; union
contract negotiations; plant capacity and
utilization; work stoppages and slowdowns; and
whether acquisitions are assimilated and
divestitures completed without notable surprises
or unexpected difficulties.
- Factors affecting the Company's general business,
such as: unexpectantly large 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 turmoil and economic growth in
major markets such as the United States, Canada,
Europe, the Far East, South Africa, Australia and
South America; 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
and Administration and Chief Financial
Officer
Date September 15, 1997
- -----------------------
/s/James C. Benjamin
---------------------
James C. Benjamin
Vice President and Controller
and Chief Accounting Officer
Date September 15, 1997
- -----------------------<PAGE>
Exhibit 11
- ----------
<TABLE>
<CAPTION>
HARNISCHFEGER INDUSTRIES, INC.
- ------------------------------
CALCULATION OF EARNINGS PER SHARE
- ---------------------------------
(Amounts in thousands except per share amounts)
Three Months Ended
July 31,
-----------------------
1997 1996
-------- -------
<S> <C> <C>
Average Shares Outstanding 47,972 47,367
========= =======
Net Income $35,890 $37,692
========= =======
Net income per share $0.75 $0.80
======= =======
</TABLE>
<TABLE>
<CAPTION>
HARNISCHFEGER INDUSTRIES, INC.
- ------------------------------
CALCULATION OF EARNINGS PER SHARE
- ---------------------------------
(Amounts in thousands except per share amounts)
Nine Months Ended
July 31,
--------------------
1997 1996
------- -------
<S> <C> <C>
Average Shares Outstanding 47,876 47,075
======= =======
Net Income $111,719 $94,438
======== =======
Net income per share $2.34 $2.01
===== ======
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> OCT-31-1997
<PERIOD-END> JUL-31-1997
<CASH> 26,292
<SECURITIES> 0
<RECEIVABLES> 842,499
<ALLOWANCES> 7,006
<INVENTORY> 600,013
<CURRENT-ASSETS> 1,621,657
<PP&E> 1,174,800
<DEPRECIATION> 518,930
<TOTAL-ASSETS> 2,929,850
<CURRENT-LIABILITIES> 1,105,221
<BONDS> 752,697
0
0
<COMMON> 51,542
<OTHER-SE> 742,111
<TOTAL-LIABILITY-AND-EQUITY> 2,929,850
<SALES> 2,280,018
<TOTAL-REVENUES> 2,307,470
<CGS> 1,732,931
<TOTAL-COSTS> 2,073,327
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 52,737
<INCOME-PRETAX> 181,406
<INCOME-TAX> 61,575
<INCOME-CONTINUING> 119,731
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 111,719
<EPS-PRIMARY> 2.34
<EPS-DILUTED> 2.34
</TABLE>
