SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(MARK ONE)
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
_X_ OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED JULY 31, 1999
-------------
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 53235-3716
(Address of principal executive offices) (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 by checkmark whether the registrant has filed all documents and reports
required to be filed by Section 12, 13 or 15(d) of the Securities Exchange Act
of 1934 subsequent to the distribution of securities under a plan confirmed by
a court.
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 20, 1999
Common Stock, $1 par value 47,949,089 shares
HARNISCHFEGER INDUSTRIES, INC.
(Debtor-in-Possession as of June 7, 1999)
FORM 10-Q
July 31, 1999
INDEX
PART I.
Financial Information:
Consolidated Statement of Operations -
Three and Nine Months Ended
July 31, 1999 and 1998
Consolidated Balance Sheet -
July 31, 1999 and October 31, 1998
Consolidated Statement of Cash Flows -
Nine Months Ended July 31, 1999 and 1998
Consolidated Statement of Shareholders' Equity - (Deficit)
Nine Months Ended July 31, 1999 and 1998
Notes to Consolidated Financial Statements
Management's Discussion and Analysis
of Results of Operations and Financial Condition
PART II.
Other Information
Signatures
<TABLE>
<CAPTION>
PART I. FINANCIAL INFORMATION
HARNISCHFEGER INDUSTRIES, INC.
(Debtor-in-Possession as of June 7, 1999)
CONSOLIDATED STATEMENT OF OPERATIONS
(Dollar amounts in thousands except per share amounts)
(Unaudited)
Three Months Ended Nine Months Ended
July 31, July 31,
------------------------------------------------------------------
1999 1998 1999 1998
------------------------------ --------------------------------
<S> <C> <C> <C> <C>
Revenues
Net Sales $ 421,754 $ 503,169 $ 1,366,128 $ 1,538,852
Other Income 1,364 475 11,319 11,235
-------------- ------------- ------------- --------------
423,118 503,644 1,377,447 1,550,087
Cost of Sales, including anticipated
losses on contracts 749,167 443,996 1,606,586 1,383,450
Product Development, Selling
and Administrative Expenses 149,145 113,959 352,551 326,969
Strategic and Financing Initiatives 7,716 7,716
Reorganization Items 146,655 146,655
Restructuring Charges 86,931 - 86,931 65,000
Charge Related to Executive Change 19,098 19,098
-------------- ------------- ------------- --------------
Operating (Loss) (735,594) (54,311) (842,090) (225,332)
Interest Expense - Net (excludes
contractual interest expense of
$10,539 for 1999) (12,709) (20,539) (57,611) (58,636)
-------------- ------------- ------------- --------------
(Loss) before Benefit (Provision)for
Income Taxes and Minority Interest (748,303) (74,850) (899,701) (283,968)
Benefit (Provision) for Income Taxes (273,234) 25,450 (221,734) 107,150
Minority Interest 2,134 10,796 11,375 40,417
-------------- ------------- -------------- ------------
Net (Loss) From Continuing Operations (1,019,403) (38,604) (1,110,060) (136,401)
Income from Discontinued Operation,
net of applicable income taxes - - - 4,376
Gain on Sale of Discontinued Operation,
net of applicable income taxes - - - 151,500
-------------- ------------- -------------- ------------
Net Income (Loss) $ (1,019,403) $ (38,604) $(1,110,060) $ 19,475
============== ============= ============== ============
Basic Earnings (Loss) Per Share
(Loss) from continuing operations $ (21.92) $ (0.83) $ (23.99) $ (2.93)
Income from and net gain on sale of
discontinued operation - - - 3.35
-------------- ------------- ------------- -------------
Net Income (Loss) $ (21.92) $ (0.83) $ (23.99) $ 0.42
============== ============= ============= =============
Diluted Earnings (Loss) Per Share
(Loss)from continuing operations $ (21.92) $ (0.83) $ (23.99) $ (2.93)
Income from and net gain on sale of
discontinued operation - - - 3.35
-------------- ------------- ------------- -------------
Net Income (Loss) $ (21.92) $ (0.83) $ (23.99) $ 0.42
============== ============= ============= =============
See accompanying notes to financial statements
</TABLE>
HARNISCHFEGER INDUSTRIES, INC.
(Debtor-in-Possession as of June 7, 1999)
CONSOLIDATED BALANCE SHEET
(Dollar amounts in thousands)
July 31, October 31,
1999 1998
--------------- ----------------
(Unaudited)
Assets
Current Assets:
Cash and cash equivalents $ 60,016 $ 30,012
Accounts receivable-net 580,613 692,326
Inventories 543,154 610,478
Prepaid income taxes - 74,186
Other current assets 67,105 56,142
--------------- ----------------
1,250,888 1,463,144
Property, Plant and Equipment:
Land and improvements 61,072 61,454
Buildings 259,695 289,789
Machinery and equipment 744,374 809,969
-------------- ----------------
1,065,141 1,161,212
Accumulated depreciation (542,592) (529,884)
--------------- ----------------
522,549 631,328
Investments and Other Assets:
Goodwill 452,679 480,625
Intangible assets 95,519 31,343
Other assets 126,885 180,819
--------------- ----------------
675,083 692,787
=============== ================
$ 2,448,520 $ 2,787,259
=============== ================
See accompanying notes to financial statements.
HARNISCHFEGER INDUSTRIES, INC.
(Debtor-in-Possession as of June 7, 1999)
CONSOLIDATED BALANCE SHEET
(Dollar amounts in thousands)
July 31, October 31,
1999 1998
--------------- --------------
(Unaudited)
Liabilities and Shareholders' Equity (Deficit)
Current Liabilities:
Short-term notes payable, including current
portion of long-term obligations $ 162,283 $ 156,383
Trade accounts payable 195,418 333,624
Employee compensation and benefits 89,606 73,334
Advance payments and progress billings 80,732 115,320
Accrued warranties 64,495 58,053
Accrued contract losses, restructuring
charges and other liabilities 638,441 289,566
--------------- --------------
1,230,975 1,026,280
Long-term Obligations 149,251 962,797
Other Liabilities:
Liability for postretirement benefits 32,947 34,187
Accrued pension costs 69,558 40,812
Other liabilities 10,441 12,495
--------------- --------------
112,946 87,494
Liabilities Subject to Compromise 1,378,442
Minority Interest 27,497 43,838
Shareholders' Equity (Deficit):
Common stock (51,668,939 and
51,668,939 shares issued, respectively) 51,669 51,669
Capital in excess of par value 573,738 586,509
Retained earnings (deficit) (898,730) 216,065
Accumulated comprehensive (loss) (76,495) (60,289)
Less:
Stock Employee Compensation Trust
(1,433,147 and 1,433,147 shares,
respectively) at market (2,777) (13,525)
Treasury stock (3,865,101 and
4,465,101 shares, respectively)
at cost (97,996) (113,579)
--------------- --------------
(450,591) 666,850
--------------- --------------
$ 2,448,520 $ 2,787,259
=============== ==============
See accompanying notes to financial statements.
<TABLE>
<CAPTION>
HARNISCHFEGER INDUSTRIES, INC.
(Debtor-in-Possession as of June 7, 1999)
CONSOLIDATED STATEMENT OF CASH FLOWS
(Dollar amounts in thousands)
(Unaudited)
Nine Months Ended
July 31,
________________________
<S> <C> <C>
Operating Activities 1999 1998
____________ _________
Net income (loss) $(1,110,060) $ 19,475
Add (deduct) - Items not affecting cash:
Income from and gain on sale of discontinued operation - (155,876)
Restructuring charges 86,931 65,000
Charge related to executive change 18,498 -
Reorganization items 133,700 -
Minority interest, net of dividends paid (11,127) (40,417)
Depreciation and amortization 67,088 65,614
Changes in working capital, exclusive of acquisitions and
divestitures and net of liabilities subject to compromise
Decrease in accounts receivable - net 80,549 40,727
Decrease (increase) in inventories 60,633 (56,900)
(Increase) in other current assets (11,944) (6,640)
Increase (decrease) in income taxes - net of
change in valuation allowance 208,522 (144,198)
Increase (decrease) in trade accounts payable 31,321 (114,629)
Increase (decrease) in employee compensation and benefits 15,449 (22,971)
(Decrease) increase in advance payments and progress billings (32,258) 21,559
Increase (decrease) in accrued contract losses and other liabilities 311,706 (28,942)
------------- -----------
Net cash (used by) operating activities (150,992) (358,198)
------------- -----------
Investment and Other Transactions
Acquisitions, net of cash acquired - (40,192)
Proceeds from sale of Material Handling - 341,000
Proceeds from sale of J&L Fiber Services - 109,445
Net proceeds from sale of non-core Dobson Park businesses 9,323
Property, plant and equipment acquired (53,234) (90,851)
Property, plant and equipment retired 18,407 17,045
Deposit related to APP letters of credit and other (28,453) (6,336)
------------- ----------
Net cash (used by) provided by investment
and other transactions (63,280) 339,434
------------- ----------
Financing Activities
Dividends paid (4,592) (13,920)
Exercise of stock options - 1,318
Purchase of treasury stock - (30,086)
Financing fees related to DIP Facility (15,500)
Borrowings under long-term obligations prior to filing 125,000 177,332
Borrowings under DIP Facility 137,000
Payments on long-term obligations (2,198) (1,423)
Increase (decrease) in short-term notes payable - net 3,577 (93,583)
------------- ----------
Net cash provided by financing activities 243,287 39,638
------------- ----------
Effect of Exchange Rate Changes on Cash and
Cash Equivalents 989 (1,678)
-------------------------
Increase in Cash and Cash Equivalents 30,004 19,196
Cash and Cash Equivalents at Beginning of Period 30,012 29,383
-------------------------
Cash and Cash Equivalents at End of Period $ 60,016 $ 48,579
=========================
See accompanying notes to financial statements.
</TABLE>
<TABLE>
<CAPTION>
HARNISCHFEGER INDUSTRIES, INC.
(Debtor-in-Possession as of June 7, 1999)
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY (DEFICIT)
(Dollar amounts in thousands)
(Unaudited)
Capital in Comprehen-Retained Accumulated
Common Excess of sive Earnings Comprehensive Treasury
Stock Par Value (Loss) (Deficit) (Loss) SECT Stock Total
-------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Nine Months Ended July 31, 1999
Balance at October 31, 1998 $51,669 $586,509 $ 216,065 $(60,289) $(13,525) $(113,579) $ 666,850
Comprehensive (loss):
Net (loss) $(1,110,060)(1,110,060) (1,110,060)
Other Comprehensive (loss):
Currency translation adjustment (16,206) (16,206) (16,206)
------------
Total Comprehensive (loss) $(1,126,266)
============
Dividends paid ($.10 per share) (4,735) (4,735)
Dividends on shares held by SECT 143 143
600,000 shares purchased by employee
and director benefit plans (10,035) 15,583 5,548
Adjust SECT shares to market value (10,748) 10,748 -
Unearned compensation expense on
executive contract buyout 7,462 7,462
Amortization of unearned compensation
on restricted stock 407 407
--------------------------------------------------------------------------------------------
Balance at July 31, 1999 $51,669 $573,738 $ (898,730) $(76,495) $ (2,777) $(97,996) $ (450,591)
============================================================================================
Nine Months Ended July 31, 1998
Balance at October 31, 1997 $51,607 $625,358 $ 253,727 $(41,440) $(56,430) $(83,162) $ 749,660
Comprehensive (loss):
Net income $ 19,475 19,475 19,475
Other Comprehensive (loss):
Currency translation adjustment (30,309) (30,309) (30,309)
------------
Total Comprehensive (loss) $ (10,834)
============
Exercise of 61,767 stock options 62 1,256 1,318
Dividends paid ($.30 per share) (14,350) (14,350)
Dividends on shares held by SECT 430 430
Adjust SECT shares to market value (20,780) 20,780 -
123,926 shares purchased by employee
and director benefit plans 1,926 3,495 5,421
886,500 shares acquired as treasury
stock (30,086) (30,086)
Amortization of unearned compensation
on restricted stock 524 524
--------------------------------------------------------------------------------------------
Balance at July 31, 1998 $51,669 $608,714 $ 258,852 $(71,749) $(35,650) $(109,753) $ 702,083
============================================================================================
See accompanying notes to financial statements
</TABLE>
HARNISCHFEGER INDUSTRIES, INC.
(Debtor-in-Possession as of June 7, 1999)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
July 31, 1999
(Dollar amounts in thousands except per share amounts)
(Unaudited)
(a) Reorganization under Chapter 11
On June 7, 1999, Harnischfeger Industries, Inc. (the "Company") and its
domestic operating subsidiaries (collectively, the "Debtors") filed
voluntary petitions for reorganization under Chapter 11 of the U.S.
Bankruptcy Code (the "Bankruptcy Code") in the United States Bankruptcy
Court for the District of Delaware (the "Bankruptcy Court") and orders for
relief were entered. The Debtors include the Company's principal domestic
operating subsidiaries, Beloit Corporation ("Beloit"), Joy Mining
Machinery ("Joy"), and P&H Mining Equipment ("P&H"). The Debtors' Chapter
11 cases have been consolidated for the purpose of joint administration
under case number 99-2171. The Debtors are currently operating their
businesses as debtors-in-possession pursuant to the Bankruptcy Code.
Pursuant to the Bankruptcy Code, actions to collect prepetition
indebtedness of the Debtors and other contractual obligations against the
Debtors may not be enforced. In addition, under the Bankruptcy Code, the
Debtors may assume or reject executory contracts, including leases.
Additional claims may arise from such rejections, and from the
determination by the court (or as agreed by the parties in interest) to
allow claims for contingencies and other disputed amounts. From time to
time since the Chapter 11 filing, the Bankruptcy Court has approved
motions allowing the Company to reject certain business contracts which
were deemed burdensome or of no value to the Company. The Debtors have not
yet completed their review of all their prepetition executory contracts
and leases for assumption or rejection. See also note (i) - Liabilities
Subject to Compromise.
The Debtors received approval from the Bankruptcy Court to pay or
otherwise honor certain of their prepetition obligations, including
employee wages and product warranties. In addition, the Bankruptcy Court
authorized the Debtors to maintain their employee benefit programs.
Pension and savings plan funds are in trusts and protected under federal
regulations. All required contributions are current in the respective
plans.
(b) Basis of Presentation
The accompanying consolidated interim financial statements have been
prepared on a going concern basis, which contemplates continuity of
operations, realization of assets and liquidation of liabilities in the
ordinary course of business and do not reflect adjustments that might
result if the Debtors are unable to continue as a going concern. As a
result of the Debtors' Chapter 11 filings, however, such matters are
subject to significant uncertainty. The Debtors intend to file a plan of
reorganization with the Bankruptcy Court. Continuing on a going concern
basis is dependent upon, among other things, the Debtors' formulation of
an acceptable plan of reorganization, the success of future business
operations, and the generation of sufficient cash from operations and
financing sources to meet the Debtors' obligations. The accompanying
consolidated interim financial statements do not reflect (a) the
realizable value of assets on a liquidation basis or their availability to
satisfy liabilities, (b) aggregate prepetition liability amounts that may
be allowed for claims or contingencies, or their status or priority, (c)
the effect of any changes to the Debtors' capital structure or in the
Debtors' business operations as the result of an approved plan of
reorganization, or (d) adjustments to the carrying value of assets
(including goodwill and other intangibles) or liability amounts that may
be necessary as the result of actions by the Bankruptcy Court.
The Company's financial statements as of July 31, 1999 have been presented
in conformity with the AICPA's Statement of Position 90-7, "Financial
Reporting By Entities In Reorganization Under the Bankruptcy Code," issued
November 19, 1990 ("SOP 90-7"). The statement requires a segregation of
liabilities subject to compromise by the Bankruptcy Court as of the
bankruptcy filing date and identification of all transactions and events
that are directly associated with the reorganization of the Company. Prior
years comparative balances have not been reclassified to conform to
current year balances stated under SOP 90-7.
In the opinion of management, all adjustments necessary for the fair
presentation on a going concern basis of the results of operations for the
three and nine months ended July 31, 1999 and 1998, cash flows for the
nine months ended July 31, 1999 and 1998, and financial position at July
31, 1999 have been made. All adjustments made are of a normal recurring
nature, except for those more fully discussed in the notes.
These financial statements should be read in conjunction with the
financial statements and the notes thereto included in the Company's
Annual Report on Form 10-K for the year ended October 31, 1998.
The results of operations for any interim period are not necessarily
indicative of the results to be expected for the full year.
(c) Debtor-in-Possession Financing
On July 8, 1999 the Bankruptcy Court approved Chase Manhattan Bank to
underwrite a two-year,
$750,000 Revolving Credit, Term Loan and Guaranty Agreement (the "DIP
Facility") consisting of three tranches: (i) Tranche A is a $350,000
revolving credit facility with sublimits for import documentary letters of
credit of $20,000 and standby letters of credit of $300,000; (ii) Tranche
B is a $200,000 term loan facility; and (iii) Tranche C is a $200,000
standby letter of credit facility.
Proceeds from the DIP Facility may be used to fund postpetition working
capital and for other general corporate purposes during the term of the
DIP Facility and to pay up to $35,000 of prepetition claims of critical
vendors. The Company is permitted to make loans and issue letters of
credit in an aggregate amount not to exceed $240,000 to foreign
subsidiaries for specified limited purposes, including up to $90,000 for
working capital needs of foreign subsidiaries and $110,000 of loans and
$110,000 of letters of credit for support or repayment of existing credit
facilities. The Company may use up to $40,000 (of the $240,000) to issue
stand-by letters of credit to support foreign business opportunities.
Beginning August 1, 1999, the DIP Facility includes monthly minimum EBITDA
tests and quarterly limits on capital expenditures. At July 31, 1999,
$137,000 of the DIP Facility was drawn and is classified as a long-term
obligation.
The DIP Facility benefits from superpriority administrative claim status
as provided under the Bankruptcy Code. Under the Bankruptcy Code, a
superpriority claim is senior to unsecured prepetition claims and all
administrative expenses incurred in the Chapter 11 case. The Tranche A and
B direct borrowings under the DIP Facility are priced at LIBOR + 2.75% per
annum on the outstanding borrowings. Letters of Credit are priced at 2.75%
per annum on the outstanding face amount of each Letter of Credit. In
addition, the Company pays a commitment fee of 0.50% per annum on the
unused amount of the commitment payable monthly in arrears. The DIP
Facility matures on the earlier of the substantial consummation of a Plan
of Reorganization or June 6, 2001.
The Company has agreed with the Official Committee of Unsecured Creditors
appointed by the U.S. Trustee (the "Creditors' Committee") and with MFS
Municipal Income Trust and MFS Series Trust III (collectively, the "MFS
Funds"), holders of certain debt issued by Joy, to a number of
restrictions regarding transactions with foreign subsidiaries and Beloit:
o The Company has agreed to give at least five days prior written notice
to the Creditors' Committee and to the MFS Funds of the Debtors'
intention to (a) make loans or advances to, or investments in, any
foreign subsidiary for working capital purposes in an aggregate amount
in excess of $90,000; or (b) make loans or advances to, or investments
in, any foreign subsidiary to repay the existing indebtedness or cause
letters of credit to be issued in favor of a creditor of a foreign
subsidiary in an aggregate amount, cumulatively, in excess of $30,000.
In addition, the Company has agreed to give notice to the Creditors'
Committee and to the MFS Funds with respect to any liens created by a
foreign subsidiary on any of its assets to secure any indebtedness.
o The Company has also agreed to give at least five days prior written
notice to the Creditors' Committee and to the MFS Funds of (a) the
Debtors' intention to make postpetition loans or advances to, or
investments in, Beloit or any of its subsidiaries in an aggregate
amount at any time outstanding, cumulatively, in excess of $115,000 or
(b) the intention of Beloit or any of Beloit's subsidiaries to bid on
any contract under which the aggregate amount of payments to Beloit or
such subsidiary would be equal to or in excess of $50,000 or under
which Beloit or any of Beloit's subsidiaries would be required to
provide letters of credit (or other form of credit support) in an
aggregate amount equal to or in excess of $15,000.
The Company has agreed that Beloit and its subsidiaries will not bid
on any contract under which the aggregate amount of payments to Beloit
or such subsidiary would be equal to or in excess of $5,000 unless the
Senior Management Committee of Beloit has reviewed the bid. At the end
of each calendar quarter, the Company has agreed to provide the
Creditors' Committee with notice of all such contracts entered into by
Beloit and its subsidiaries during the quarter.
o The Company has agreed to notify the MFS Funds of any reduction in the
net book value of Joy of ten percent or more from $364,060. Additional
reserves recorded at Joy during the third quarter may reduce the net
book value of Joy below this amount. If such a reduction occurs, the
Company has agreed to provide the MFS Funds with periodic financial
statements for Joy.
The principal sources of liquidity for the Company's operating requirements
have been cash flows from operations and borrowings under the DIP Facility.
While the Company expects that such sources will provide sufficient working
capital to operate its business, there can be no assurances that such
sources will prove to be sufficient. While the Company has been in
compliance with the DIP Facility covenants through the date of this filing,
a continuation of unfavorable business conditions or other events could
require the Company to seek modifications or waivers of certain covenants.
In such event, there is no certainty that the Company would obtain such
modifications or waivers to avoid default under the DIP Facility.
(d) Changes in Estimates
The Company's provisions for excess and obsolete inventory, doubtful
accounts receivable, and anticipated losses on contracts are based on the
Company's best estimates of costs to complete contracts, customer demand
for new machines, rebuilds and services, costs of financing, material and
labor costs, and overall levels of customer satisfaction with machine
performance.
As a result of the Chapter 11 filing and a combination of adverse factors
impacting the Company during the third quarter, including reductions in
product line offerings and material supply delays caused by prepetition
liquidity limitations and postpetition resupply timing difficulties, the
Company's results of operations for the third quarter included charges
aggregating $375,100 for the following changes in estimates:
Charged to product development,
selling, and administrative expenses:
Allowance for doubtful accounts $ 41,200
-----------
Charged to cost of sales:
Warranties and other $ 57,400
Excess and obsolete inventory 63,200
Losses on contracts (primarily APP*) 213,300
-----------
333,900
-----------
$ 375,100
===========
(*) Of the charge, $163,500 relates to APP and $49,800 relates to provisions
for estimated losses on contracts in process arising from the liquidity
issues. See Beloit APP Contracts
(e) Strategic and Financing Initiatives
The Company incurred $7,716 of charges related to certain consulting and
legal costs associated with strategic financing and business alternatives
investigated prior to the Chapter 11 filing.
(f) Reorganization Items
Reorganization expenses are comprised of items of income, expense and
loss that were realized or incurred by the Company as a result of its
decision to reorganize under Chapter 11 of the Bankruptcy Code. Such
items for the third quarter of fiscal 1999 consisted of the following:
Professional fees directly related to the filing $ 9,373
Amortization of DIP financing costs 1,250
Interest earned on DIP proceeds (68)
Provision for rejected Princeton Paper lease 54,000
Loss on investment in Princeton Paper 82,100
--------
$146,655
=========
Princeton Paper Company, LLC, ("Princeton Paper"), a subsidiary of Beloit
and one of the Debtors, has, until recently, operated a pulp and paper
mill located in Fitchburg, Massachusetts (the "Mill"). Beloit originally
became responsible for the operations of Princeton Paper and the Mill in
1997 through settlement of a dispute with the former owner of the Mill
and the holders of bonds which had been issued to finance the Mill. Under
that settlement, Princeton Paper committed to make lease payments under a
fifteen year operating lease of the Mill. Beloit guaranteed those
obligations. On July 8, 1999, the Company obtained authority from the
Bankruptcy Court for Princeton Paper to fully cease operating, and
shortly thereafter the Mill was shut down. Subsequently, the Company
rejected the lease and settlement agreement, pursuant to the Bankruptcy
Code. The Company has recorded a charge of $82,100 relating to the
decision to close Princeton Paper. The characterization and treatment of
the lease in the bankruptcy case could affect Beloit's ultimate liability
for the lease payments. The aggregate present value of the lease payments
($54,000) has been provided for as an estimate of the claims which may be
allowed by the Bankruptcy Court.
(g) Charge Related to Executive Change
In connection with certain management organizational changes that
occurred during the third quarter, a charge to earnings of $19,098 was
made. The charge was primarily associated with supplemental retirement,
restricted stock, and long-term compensation plan obligations. This
charge consisted of $600 paid prior to the Chapter 11 filing, adjustments
of $9,980 reducing the carrying value of the applicable plan assets and
an accrued liability of $8,518 which has been classified in the
consolidated balance sheet as part of the liabilities subject to
compromise.
(h) 1999 and 1998 Restructuring Charges
The following summarizes the restructuring charges provided by the Company
during 1999 and 1998:
1999 1998
--------- ----------
Beloit $ 78,700 $ 65,000
Joy 8,231 -
--------- ----------
$ 86,931 $ 65,000
========= ==========
Beloit
1999 charge-
An additional charge is being taken during 1999 of $78,700 primarily
relates to the further strategic reorganization of Beloit. This
reorganization rationalizes certain product offerings from a full breadth
of product lines to more specific offerings which are more in line with
the strategic strengths of the Company and projected strengths of the
marketplace. As part of the restructuring, outsourcing is expected to
increase significantly. The charge consists of facility closure charges
including estimated amounts for reductions in assets to net realizable
values and accruals for closing and disposal costs related to closing
certain manufacturing facilities, engineering offices and research and
development centers. The cash portion of the third quarter charge is
approximately $8,700. The Company anticipates additional cash charges in
future quarterly periods aggregating approximately $51,300, primarily in
the form of severance payments in conjunction with the implementation of
these strategic initiatives. The Company continues to examine all
alternatives with respect to Beloit. Additional charges may be necessary
in the future.
In connection with the third quarter restructuring charges, the Company
expects to reduce headcount at Beloit by at least 600 employees. These
actions include staff reductions in manufacturing, engineering, marketing,
product development and administrative support functions. Anticipated
related termination costs, expected to be recorded in the fourth quarter
of 1999 and consists of severance obligations and pension and
post-retirement plan curtailment charges. The cash cost portion of the
fourth quarter charge is estimated to be approximately $29,700.
1998 charge-
In the second quarter of 1998, the Company recorded a $65,000
restructuring charge ($31,900 after tax and minority interest). The charge
included costs related to severance for approximately 1,000 employees
worldwide, facility closures, and the disposal of machinery and equipment.
Closures have been completed of pulping-related manufacturing facilities
in Sherbrooke, Quebec, Canada and Dalton, Massachusetts. Conversion of a
paper-related manufacturing facility in the United Kingdom into a roll
manufacturing facility is complete. The cash and non-cash elements of the
restructuring charge each approximated $32,500.
Details of the 1998 restructuring charge are as follows:
Liabilities
Original Reserve Change in Subject to 7/31/99
Reserve Utilized Estimate Compromise Reserve
----------- --------- ---------- ---------- --------
Employee severance $ 25,800 $(17,528) $ (2,782) $ (3,744) $ 1,746
Facility closures 33,300 (34,739) 1,439 - -
Machinery and equipment
dispositions 5,900 (7,243) 1,343 - -
----------- ----------- ---------- ---------- --------
Pre-tax charge $ 65,000 $(59,510) $ - $ (3,744) $ 1,746
=========== ========= ========= ========= =========
Joy
The charge during the third quarter of 1999 of $8,231 relates to the
planned contraction of operations at certain facilities. This charge
includes approximately $7,300 primarily for the impairment of certain
assets and approximately $900 for announced employee terminations. Future
cash charges of approximately $20,900 in connection with further cost
reduction initiatives will likely commence during the fourth quarter of
1999 or the first quarter of fiscal 2000. The estimates could change as
the Company continues to develop plans related to the cost
reduction iniatives.
(i) Liabilities Subject to Compromise
The principal categories of claims classified as liabilities subject to
compromise under reorganization proceedings are identified below. All
amounts below may be subject to future adjustment depending on Bankruptcy
Court action, further developments with respect to disputed claims, or
other events. Additional claims may arise resulting from rejection of
additional executory contracts or unexpired leases by the Company. Under an
approved final plan of reorganization, these claims may be settled at
amounts substantially less than their allowed amounts.
-Recorded Liabilities
Recorded liabilities subject to compromise under the Chapter 11 proceedings
as of July 31, 1999 consisted of the following:
Accounts payable $ 165,383
Accrued interest expense, as of June 6, 1999 17,343
Accrued executive change expense 8,398
Preferred stock of Benefit, Inc. 5,457
8.9% Debentures, due 2022 75,000
8.7% Debentures, due 2022 75,000
7 1/4% Debentures, due 2025 (net of discount of $1,222) 148,778
6 7/8% Debentures, due 2027 (net of discount of $102) 149,898
Senior Notes, Series A through D, at interest rate of
between 8.9% and 9.1%, due 1999 to 2006 69,546
Revolving Credit Facility 500,000
IRC lease (Princeton Paper) 54,000
APP Claims 46,000
Industrial Revenue Bonds, at interest rates of between
5.9% and 8.8%, due 1999 to 2017 26,620
Notes Payable 24,479
Other 12,540
------------
$ 1,378,442
============
As a result of the bankruptcy filing, principal and interest payments may
not be made on prepetition debt without Bankruptcy Court approval or until
a reorganization plan defining the repayment terms has been approved. The
total interest on prepetition debt that was not paid or recorded for the
period from June 7, 1999 to July 31, 1999 was $10,539.
Contingent Liabilities
Contingent liabilities as of the Chapter 11 filing date are also subject
to compromise. At July 31, 1999, the Company was contingently liable to
banks, financial institutions, and others for approximately $451,124 for
outstanding letters of credit securing performance of sales contracts and
other guarantees in the ordinary course of business, of which $424,701
were issued prepetition and $26,423 were issued under the DIP Facility.
The Company may also guarantee performance of its equipment at levels
specified in sales contracts without the requirement of a letter of
credit.
The Company is a 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 certain contractual
obligations, warranties and guarantees in connection with the sale of
products or services. Although the outcome of these matters cannot be
predicted with certainty and favorable or unfavorable resolution may
affect income on a quarter-to-quarter basis, management believes that such
matters will not have a materially adverse effect on the Company's
consolidated financial position. Beloit has on occasion entered into
arrangements to participate in the ownership or operation of pulp or
papermaking facilities in order to satisfy contractual undertakings or
resolve disputes.
One of the claims against Beloit involves a lawsuit brought by Potlatch
Corporation ("Potlatch") which alleges pulp line washers supplied by
Beloit failed to perform satisfactorily. See note (r) - Potlatch
Litigation.
The Company and certain of its senior executives have been named as
defendants in a class action, entitled In re: Harnischfeger Industries,
Inc. Securities Litigation, in the United States District Court for the
Eastern District of Wisconsin. This action seeks damages in an unspecified
amount on behalf of an alleged class of purchasers of the Company's common
stock, based principally on allegations that the Company's disclosures
with respect to the Indonesian contracts of Beloit discussed in note (q) -
Beloit APP Contracts violated the federal securities laws.
The Company and certain of its current and former directors have been
named defendants in a purported class action, entitled Brickell Partners,
Ltd., Plaintiff vs. Jeffery T. Grade et. al., in the Court of Chancery of
the State of Delaware. This action seeks damages of an unspecified amount
on behalf of shareholders based on allegations that the defendants failed
to explore all reasonable alternatives to maximize shareholder value.
As a result of its bankruptcy filing, litigation relating to prepetion
claims against the Debtors is stayed, including the matters discussed in
the previous three paragraphs.
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 the resolution of these
matters will not have a materially adverse effect on its consolidated
financial position or results of operations.
(j) Long-Term Obligations
Long-term obligations at July 31, 1999 consisted of the following:
July 31, 1999
-------------
DIP Facility $ 137,000
Other 13,136
-------------
150,136
Less: Amounts payable within one year (885)
-------------
$ 149,251
=============
See also note (c) - Debtor-in-Possession Financing.
(k) Acquisitions/Discontinued Operation
On March 30, 1998, the Company completed the sale of approximately 80% of
the common stock of the Company's P&H Material Handling ("Material
Handling") segment to Chartwell Investments, Inc. in a leveraged
recapitalization transaction. As such, the accompanying financial
statements have been reclassified to reflect Material Handling as a
discontinued operation. The Company retained approximately 20% of the
outstanding common stock and 11% of the outstanding voting securities of
Material Handling and holds one director seat in the new company. In
addition, the Company has licensed Material Handling to use the "P&H"
trademark on existing Material Handling-produced products on a worldwide
basis for periods specified in the agreement for a royalty fee payable
over a ten year period. The Company reported a $151,500 after-tax gain on
the sale of this discontinued operation in the second quarter of fiscal
1998. Proceeds consisted of $341,000 in cash and preferred stock,
originally valued at $4,800, with a 12.25% payment-in-kind dividend;
$7,200 in common stock was not reflected in the Company's balance sheet or
gain calculations due to the nature of the leveraged recapitalization
transaction. Material Handling recently issued additional shares of common
stock, reducing the company's holding to 18.7% of the outstanding common
stock. During the third quarter of 1999, the Company wrote down to zero
the $5,400 carrying value of preferred stock and accumulated dividends.
On March 19, 1998, the Company completed the acquisition of Horsburgh &
Scott ("H&S") for a purchase price of $40,283. H&S is a manufacturer of
gears and gear cases, and is also involved in the distribution of parts
and service to the mining industry. The acquisition was accounted for as a
purchase transaction, with the purchase price allocated to the fair value
of specific assets acquired and liabilities assumed. Resultant goodwill is
amortized over 40 years.
(l) Income Taxes
The Company's estimated annual effective tax rate for continuing
operations for the first six months of 1999 was 34% compared to a 35%
federal statutory tax rate. The effective rate differed from the statutory
rate because of tax credits, state taxes and differences in foreign and
U.S. tax rates.
As a result of continuing losses in fiscal 1999 and its Chapter 11 filing,
the Company recorded a valuation allowance against its entire U.S. net
deferred tax asset in the amount of $265,735 as of the beginning of the
third quarter. The Company will continue to record valuation reserves to
offset any future U.S. income tax benefits until it is more likely than
not that the Company will be able to realize such benefits.
The Company believes that realization of prior period net operating loss
tax benefits in the near term is unlikely. Should the Company's plan of
reorganization result in a significantly modified capital structure, the
Company would be required to apply fresh start accounting pursuant to the
requirements of SOP 90-7. Under fresh start accounting, realization of
prior net operating loss tax benefits will first reduce any reorganization
goodwill until exhausted and thereafter be reported as additional paid in
capital.
(m) Inventories
Consolidated inventories consisted of the following:
July 31, October 31,
1999 1998
------------- --------------
Finished goods $ 317,359 $ 366,346
Work in process and purchased parts 195,755 198,765
Raw materials 84,092 96,920
------------- --------------
597,206 662,031
Less excess of current cost over stated
LIFO value (54,052) (51,553)
============= ==============
$ 543,154 $ 610,478
============= ==============
Inventories valued using the LIFO method represented approximately 64% and
66% of consolidated inventories at July 31, 1999 and October 31, 1998,
respectively.
(n) 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 $11,374 and $11,974 for the three months and
$24,798 and $36,198 for the nine months ended July 31, 1999 and 1998,
respectively. Certain capital expenditures used in research activities are
capitalized and depreciated over their expected useful lives.
(o) Interest Expense - Net
Net interest expense consists of the following:
Three Months Ended Nine Months Ended
July 31, July 31,
------------------------ -----------------------------
1999 1998 1999 1998
------------------------ ------------ -------------
Interest income $ 997 $ 1,305 $ 4,241 $ 5,258
Interest expense (13,706) (21,844) (61,852) (63,894)
======================== ============ =============
Interest expense - net $(12,709) $ (20,539) $(57,611) $ (58,636)
======================== ============ =============
Net interest expense does not include contractual interest expense of
$10,539 for the three and nine months ended July 31, 1999 relative to
prepetition obligations.
(p) Earnings Per Share
In the first quarter of fiscal 1998, the Company adopted Statement of
Financial Accounting Standard ("SFAS") No. 128, "Earnings Per Share".
Following is the reconciliation of the numerators and denominators used to
calculate the basic and diluted earnings per share:
Three Months Ended Nine Months Ended
July 31, July 31,
---------------------------------------------
1999 1998 1999 1998
Basic Earnings Per Share
- -----------------------------------
(Loss) from continuing operations $(1,019,403) $(38,604)$(1,110,060) $(136,401)
Income from discontinued operation - - - 4,376
Gain on sale of discontinued operation - - - 151,500
------------ ---------- ------------ --------
Net Income (loss) $(1,019,403) $(38,604) $(1,110,060) $ 19,475
============ ========== ============ ========
Average common shares outstanding 46,516 46,339 46,267 46,499
(Loss) from continuing operations $ (21.92) $ (0.83) $ (23.99) $ (2.93)
Income from and net gain on sale
of discontinued operation - - 3.35
------------ ---------- ------------ --------
Net Income (loss) $ (21.92) $ (0.83) $ (23.99) $ 0.42
=========== ========== ============= ========
Diluted Earnings Per Share
- ---------------------------------------
(Loss) from continuing operations $(1,019,403) $(38,604)$(1,110,060) $(136,401)
Income from discontinued operation - - - 4,376
Gain on sale of discontinued operation - - - 151,500
------------ ---------- ------------ --------
Net Income (loss) $ (1,019,403) $(38,604)$(1,110,060) $ 19,475
=========== ========== ============= ========
Average common shares outstanding 46,516 46,339 46,267 46,499
Assumed exercise of stock options - - - -
------------ ---------- ------------ --------
46,516 46,339 46,267 46,499
(Loss) from continuing operations $ (21.92) $ (0.83) $ (23.99) $ (2.93)
Income from and net gain on sale
of discontinued operation - - - 3.35
------------ ---------- ------------ ---------
Net Income (loss) $ (21.92) $ (0.83) $ (23.99) $ 0.42
=========== ========== ============= =========
(q) Beloit APP Contracts
In fiscal 1996 and 1997, Beloit's Asian subsidiaries received orders for
four fine paper machines from Asia Pulp & Paper Co. Ltd. ("APP") for a
total of approximately $600,000. During the second quarter of fiscal 1998,
the Company identified $155,000 of additional estimated contract costs at
Beloit related to these contracts. The additional costs primarily related
to non-proprietary equipment, installation, erection, freight, site
construction costs, and overruns resulting from changes in estimates of
costs to complete related to these large, complex projects.
The first two machines have been substantially paid for and installed at
APP facilities in Indonesia. Beloit sold approximately $44,000 of
receivables from APP on these first two machines to a financial
institution. The machines are currently in the start-up/optimization phase
and are required to meet certain contractual performance tests. The
contracts provide for potential liquidated damages, including performance
damages, in certain circumstances. The Company has had discussions with
APP on certain claims and back charges on the first two machines.
The two remaining machines were substantially manufactured by Beloit and
are in Beloit's or Beloit's Asian subsidiaries' possession. Beloit
received a $46,000 down payment from APP and issued letters of credit in
the amount of the down payment. In addition, the Company repurchased
various notes receivable from APP in December 1998 and February 1999 of
$2,770 and $16,230, respectively, which had previously been sold to a
financial institution.
On December 15, 1998, Beloit's Asian subsidiaries declared APP in default
on the contracts for the two remaining machines, concluding that APP had
not acted in good faith and was unwilling to pay its obligations or was
incapable of securing financing for these two paper machines.
Consequently, on December 16, 1998, Beloit's Asian subsidiaries filed for
arbitration in Singapore for the full payment from APP for the second two
machines plus at least $125,000 in damages and delay costs.
On December 16, 1998, APP filed a notice of arbitration in Singapore
against Beloit's Asian subsidiaries seeking a full refund of approximately
$46,000 paid to Beloit's Asian subsidiaries for the second two machines
and claiming that Beloit's Asian subsidiaries had an obligation under the
purchase contracts to secure financing. APP also seeks recovery of other
damages it alleges were caused by Beloit's Asian subsidiaries' claimed
breaches. The $46,000 is included in liabilities subject to compromise.
See note (i) - Liabilities Subject to Compromise. In addition, APP seeks a
declaration in the arbitration that it has no liability under certain
promissory notes. APP subsequently filed an additional notice of
arbitration in Singapore against Beloit seeking the same relief on the
grounds that Beloit was a party to the Beloit Asian subsidiaries'
contracts with APP and was also a guarantor of the Beloit Asian
subsidiaries' performance of those contracts. The arbitration against
Beloit was stayed by agreement of the parties after the Chapter 11
proceedings were filed. Since then, APP has not sought to pursue this
arbitration. Also, APP has filed for and received an injunction from the
Singapore courts that prohibit Beloit from acting on the notes receivable
from APP except in the Singapore arbitration. Beloit and it's Asian
subsidiaries will vigorously defend against all of APP's assertions. APP
has attempted to draw on approximately $15,900 of existing letters of
credit issued by Banca Nazionale del Lavaro ("BNL") in connection with the
down payments on the contracts for the second two machines. The Company
filed for and received a preliminary injunction that prohibits BNL from
making payment under the draw notice. The final disposition of the
Company's request for a permanent injunction remains pending with the
United States District Court for the Eastern District of Wisconsin. The
Company has placed funds on deposit with BNL to provide for payment under
the letters of credit should the permanent injunction not be granted.
To mitigate APP's damages and to improve short-term liquidity, Beloit's
Asian subsidiaries have sought to sell these two machines to alternative
customers. The Company recorded an $87,000 reserve in the second quarter
against the decrease in realizable value of certain paper machines for
Asian customers, primarily the second two paper machines ordered by APP.
The Company recorded an additional $147,700 reserve in the third quarter
to reflect the Company's determination that the foreseeable market
conditions for this type of large paper machine do not support valuing
these machines at greater than estimated liquidation values. The Company
also recorded a $15,800 charge in the third quarter for changes in
estimates of costs associated with the first two machines for APP.
(r) Potlatch Litigation
Filed originally in 1995, the Potlatch lawsuit related to a 1989 purchase
of pulp line washers supplied by Beloit for less than $15,000. In June,
1997, a Lewiston, Idaho jury awarded Potlatch $95,000 in damages in the
case which, together with fees, costs and interest to April 2, 1999,
approximated $120,000. On April 2, 1999 the Supreme Court of Idaho vacated
the judgement of the Idaho District Court in the Potlatch lawsuit and
remanded the case for a new trial. This litigation has been stayed as a
result of the bankruptcy filings. Potlatch has filed a motion with the
Bankruptcy Court to lift the stay. This motion has been opposed by Beloit.
See note (i) - Liabilities Subject to Compromise.
(s) Other Comprehensive Income
In the first quarter of fiscal 1999, the Company adopted SFAS No.130,
"Reporting Comprehensive Income", which established standards for
reporting and displaying comprehensive income and its components in a
financial statement which is displayed with the same prominence as other
financial statements.
(t) Receivables Facilities
On February 26, 1999, the Company established two facilities under which
receivables were sold to two newly formed subsidiaries which in turn sold
an interest in such receivables to The Chase Manhattan Bank, as
administrative agent, and certain other purchasers. The receivables
companies were not among the Company's subsidiaries that filed petitions
for reorganization under Chapter 11 of the Bankruptcy Code. As of
September 20, 1999, no amounts were outstanding under these facilities.
(u) Condensed Combined Financial Statements
The following condensed combined financial statements are presented in
accordance with SOP 90-7, Financial Reporting by Entities in
Reorganization Under the Bankruptcy Code:
<TABLE>
<CAPTION>
HARNISCHFEGER INDUSTRIES, INC.
(Debtor-in-Possession as of June 7, 1999)
CONDENSED COMBINED CONSOLIDATING STATEMENT OF OPERATIONS
(Dollar amounts in thousands)
Entities in Entities not in
Reorganization Reorganization Combined
Proceedings Proceedings Eliminations Consolidated
-------------- ---------------- -------------- ---------------
<S> <C> <C> <C> <C>
Revenues
Net Sales $ 866,245 $ 994,224 $ (494,341) $ 1,366,128
Other Income 37,225 (25,906) 11,319
-------------- ------------- ------------- --------------
903,470 968,318 (494,341) 1,377,447
Cost of Sales, including anticipated
losses on contracts 1,103,834 971,811 (469,059) 1,606,586
Product Development, Selling
and Administrative Expenses 260,180 92,371 352,551
Strategic and Financing Initiatives 7,716 - 7,716
Reorganization Items 146,655 - 146,655
Restructuring Charge 78,700 8,231 86,931
Charge related to Executive Change 19,098 - 19,098
-------------- ------------- ------------- --------------
Operating (Loss) (712,713) (104,095) (25,282) (842,090)
Equity in Income (Loss) of Subsidiaries (900,593) 677 899,916 -
Interest Expense - Net (56,207) (29,027) 27,623 (57,611)
-------------- ------------- ------------- --------------
(Loss) before Benefit (Provision) for Income
Taxes and Minority Interest (1,669,513) (132,445) 902,257 (899,701)
Benefit (Provision) for Income Taxes (224,661) 2,927 - (221,734)
Minority Interest 11,803 - (428) 11,375
-------------- ------------- ------------- --------------
Net Income (Loss) (1,882,371) (129,518) 901,829 (1,110,060)
============== ============= ============= ==============
</TABLE>
<TABLE>
<CAPTION>
HARNISCHFEGER INDUSTRIES, INC.
(Debtor-in-Possession as of June 7, 1999)
CONDENSED COMBINED CONSOLIDATING BALANCE SHEET
(Dollar amounts in thousands)
Entities in Entities not in
Reorganization Reorganization Combined
Proceedings Proceedings Eliminations Consolidated
-------------- ---------------- -------------- ---------------
<S> <C> <C> <C> <C>
Assets
Current Assets:
Cash and cash equivalents $ 20,836 $ 39,180 $ - $ 60,016
Accounts receivable-net 380,277 210,737 (10,401) 580,613
Intercompany receivables 1,462,614 496,174 (1,958,788) -
Inventories 347,982 258,794 (63,622) 543,154
Prepaid income taxes (28,018) 28,018 - -
Other current assets 21,095 45,188 822 67,105
--------------- ---------------- ------------- --------------
2,204,786 1,078,091 (2,031,989) 1,250,888
Property, Plant and Equipment - Net 345,614 176,935 - 522,549
Intangible assets 290,191 258,414 (407) 548,198
Deferred income taxes (765) 765 - -
Investment in subsidiaries 646,063 1,077,693 (1,723,756) -
Other assets 106,800 20,063 22 126,885
--------------- ---------------- -------------- ----------------
$ 3,592,689 $ 2,611,961 $ (3,756,130) $ 2,448,520
=============== ================ ============== ================
</TABLE>
<TABLE>
<CAPTION>
HARNISCHFEGER INDUSTRIES, INC.
(Debtor-in-Possession as of June 7, 1999)
CONDENSED COMBINED CONSOLIDATING BALANCE SHEET
(Dollar amounts in thousands)
Entities in Entities not in
Reorganization Reorganization Combined
Proceedings Proceedings Eliminations Consolidated
-------------- --------------- -------------- ---------------
<S> <C> <C> <C> <C>
Liabilities and Shareholders' Equity (Deficit)
Current Liabilities:
Short-term notes payable, including current
portion of long-term obligations $ 249 $ 162,034 $ - $ 162,283
Trade accounts payable 113,244 82,174 - 195,418
Intercompany accounts payable 1,558,024 705,851 (2,263,875) -
Employee compensation and benefits 69,970 19,636 - 89,606
Advance payments and progress billings 21,731 59,001 - 80,732
Accrued warranties 41,474 23,021 - 64,495
Other current liabilities 492,428 156,317 (10,304) 638,441
--------------- -------------- --------------- --------------
2,297,120 1,208,034 (2,274,179) 1,230,975
Long-term Obligations 143,015 6,236 - 149,251
Liability for postretirement benefits and
accrued pension costs 89,058 13,447 - 102,505
Deferred Income Taxes (15,199) 15,199 - -
Other liabilities 9,286 1,155 - 10,441
Liabilities subject to compromise 1,378,442 - - 1,378,442
Minority Interest 21,303 71 6,123 27,497
Shareholders' Equity (Deficit)
Common stock 52,211 786,670 (787,212) 51,669
Capital in excess of par value of shares 1,584,534 273,082 (1,283,878) 573,738
Retained earnings (1,718,781) 390,990 429,061 (898,730)
Cumulative translation adjustments (147,527) (83,071) 154,103 (76,495)
Less:
Stock Employee Compensation
Trust (2,777) - - (2,777)
Treasury stock at cost (97,996) 148 (148) (97,996)
--------------- -------------- ------------ --------------
(330,336) 1,367,819 (1,488,074) 450,591)
--------------- -------------- ------------ --------------
$3,592,689 $2,611,961 $(3,756,130) $2,448,520
=============== ============== ============ ==============
</TABLE>
<TABLE>
<CAPTION>
HARNISCHFEGER INDUSTRIES, INC.
(Debtor-in-Possession as of June 7, 1999)
COMBINED CONSOLIDATING CASH FLOW
(Dollar amounts in thousands)
Entities in Entities not in
Reorganization Reorganization Combined
Proceedings Proceedings Consolidated
-------------- ---------------- -------------
<S> <C> <C> <C>
Net cash (used by) operating activities $ (127,020) $ (23,972) $ (150,992)
Investment and Other Transactions
Property, plant and equipment acquired (36,932) (16,302) (53,234)
Property, plant and equipment retired 7,018 11,389 18,407
Deposit related to APP letters of credit and other (31,075) 2,622 (28,453)
Net cash (used by) investment --------------- --------------- --------------
and other transactions (60,989) (2,291) (63,280)
--------------- --------------- --------------
Financing Activities
Dividends paid (4,592) - (4,592)
Financing fees related to DIP Facility (15,500) - (15,500)
Borrowings under long-term obligations prior to filing 125,000 - 125,000
Borrowings under DIP facility 137,000 - 137,000
Payments on long-term obligations (307) (1,891) (2,198)
Increase (decrease) in short-term notes payable - net (17,131) 20,708 3,577
--------------- ---------------- --------------
Net cash provided by financing activities 224,470 18,817 243,287
--------------- ---------------- --------------
Effect of Exchange Rate Changes on Cash and
Cash Equivalents - 989 989
--------------- ---------------- --------------
Increase in Cash and Cash Equivalents 36,461 (6,457) 30,004
Cash and Cash Equivalents at Beginning of Period 2,975 27,037 30,012
--------------- ---------------- --------------
Cash and Cash Equivalents at End of Period $ 39,436 $ 20,580 $ 60,016
=============== ================ ==============
</TABLE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
THREE AND NINE MONTHS ENDED JULY 31, 1999 AND 1998
(Dollar amounts in thousands except per share amounts)
On June 7, 1999, the Company and its U.S. based operating subsidiaries filed
voluntary petitions for reorganization under Chapter 11 of the Bankruptcy Code
in the United States Bankruptcy Court for the District of Delaware.
The accompanying consolidated interim financial statements have been prepared on
a going concern basis, which contemplates continuity of operations, realization
of assets and liquidation of liabilities in the ordinary course of business and
do not reflect adjustments that might result if the Debtors are unable to
continue as a going concern. As a result of the Debtors' Chapter 11 filings,
however, such matters are subject to significant uncertainty. The Debtors intend
to file a plan of reorganization with the Bankruptcy Court. Continuing on a
going concern basis is dependent upon, among other things, the Debtors'
formulation of an acceptable plan of reorganization, the success of future
business operations, and the generation of sufficient cash from operations and
financing sources to meet the Debtors' obligations. The accompanying
consolidated interim financial statements do not reflect (a) the realizable
value of assets on a liquidation basis or their availability to satisfy
liabilities, (b) aggregate prepetition liability amounts that may be allowed for
claims or contingencies, or their status or priority, (c) the effect of any
changes to the Debtors' capital structure or in the Debtors' business operations
as the result of an approved plan of reorganization, or (d) adjustments to the
carrying value of assets (including goodwill and other intangibles) or liability
amounts that may be necessary as the result of actions by the Bankruptcy Court.
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,
without limitation, described in Item 5. Other Information - "Cautionary
Factors" in Part II of this report.
<TABLE>
<CAPTION>
Results of Operations
The operating loss of the Company's business segments for the three months ended
July 31, 1999 and 1998 are summarized as follows:
Backlog at
Net Sales Operating Profit (Loss) Orders Booked End of Period
----------------------- ----------------------- -------------------- ------------------------
1999 1998 1999 1998 1999 1998 7/99 04/99
------------ ---------- ----------- ----------- --------- ----------- ----------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Mining Group $272,593 $338,727 $ (80,112) $ 16,252 $ 237,447 $ 295,049 $ 332,473 $ 368,719
Restructuring Charge (8,231)
----------- ---------- ----------- ----------- --------- ----------- ----------- -----------
Total Mining Group 272,593 338,727 (88,343) 16,252 237,447 295,049 332,473 368,719
Pulp and Paper Machinery 149,161 164,442 (221,681) (65,383) 141,923 131,745 293,965 (A) 300,103
Anticipated Losses on
APP Contracts (163,500)
Restructuring Charge (78,700)
---------- ---------- ----------- --------- --------- ---------- ---------- ---------
Total Pulp and Paper Machinery 149,161 164,442 (463,881) (65,383) 141,923 131,745 293,965 300,103
---------- ---------- ----------- --------- --------- ---------- ---------- ---------
Total Business Segments $421,754 $503,169 (552,224) (49,131) $ 379,370 $ 426,794 $ 626,438 $ 668,822
========== ========= ========= ========== ========== ==========
Corporate Administration (9,901) (B) (5,180)
Charge related to executive changes (19,098)
Strategic and Financing initiatives (7,716)
Reorganization Expenses (146,655)
--------- ---------
Operating (Loss) $(735,594) $(54,311)
========== =========
Net Loss
(A) Backlog has been reduced by $247,500 due to elimination of remaining backlog
related to the APP orders ($72,000) and other inactive orders in the
backlog, primarily in Brazil and Russia.
(B) Includes loss of $5,400 on investment in preferred stock of Material Handling.
</TABLE>
<TABLE>
<CAPTION>
The operating loss of the Company's business segments for the nine months ended
July, 1999 and 1998 are summarized as follows:
Backlog at
Net Sales Operating Profit (Loss) Orders Booked End of Period
---------------------- ----------------------- ----------------------- ------------------------
1999 1998 1999 1998 1999 1998 07/99 10/98
----------- ---------- ---------- ----------- ---------- ---------- ------------ -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Mining Group $ 832,464 $ 940,595 $ (44,050) $ 78,322 $ 778,931 $ 929,392 $ 332,473 $ 386,006
Restructuring Charge (8,231)
---------- ---------- ---------- ----------- ---------- ---------- ---------- ----------
Total Mining Group 832,464 940,595 (52,281) 78,322 778,931 929,392 332,473 386,006
---------- ---------- ---------- ----------- ---------- ---------- ---------- ----------
Pulp and Paper Machinery 533,664 598,257 (267,976) (58,531) 437,905 609,079 293,965 (A) 637,224
Anticipated Losses on
APP Contracts (250,500) (164,400)
Restructuring Charge (78,700) (65,000)
---------- ---------- ---------- ----------- ---------- ---------- ---------- ----------
Total Pulp and Paper Machinery 533,664 598,257 (597,176) (287,931) 437,905 609,079 293,965 637,224
---------- ---------- ---------- ----------- ---------- ---------- ---------- ----------
Total Business Segments $1,366,128 $1,538,852 (649,457) (209,609) $1,216,836 $1,538,471 $ 626,438 $ 1,023,230
========== ========== ========== ========== ========== ==========
Corporate Administration (19,164)(B) (15,723)
Charge related to executive changes (19,098)
Strategic and Financing Initiatives (7,716)
Reorganization Expenses (146,655)
---------- -----------
Operating (Loss) $(842,090) $ (225,332)
========== ===========
(A) Backlog has been reduced by $247,500 due to elimination of remaining backlog
related to the APP orders ($72,000) and other inactive orders in the
backlog, primarily in Brazil and Russia.
(B) Includes loss of $5,400 on investment in preferred stock of Material Handling.
</TABLE>
Mining Group
Three and Nine Months Ended July 31, 1999 as compared to 1998
Sales of the Mining Group segment were $272,593 in the three months ended July
31, 1999, compared to $338,727 in the respective period for fiscal 1998. Sales
of the Mining Group segment were $832,464 in the nine months ended July 31,
1999, compared to $940,595 in the respective period for fiscal 1998. An
operating profit of $16,252 in the three months ended July 31, 1998 declined to
an operating loss of ($88,343) in the three months ended July 31, 1999. An
operating profit of $78,322 in the nine months ended July 31, 1998 declined to
an operating loss of ($52,281) in the nine months ended July 31, 1999. Bookings
for the three and nine months ended July 31, of 1999 amounted to $237,447 and
$778,931, respectively, as compared to $295,049 and $929,392 for the same
periods in 1998, respectively.
During the quarter, the market for new mining equipment continued to be weak.
New machine sales of continuous miners, longwall shearers and roof supports
decreased significantly, primarily due to large coal stockpiles, particularly at
mines, and continuing consolidation of the underground coal mining industry in
the United States as mining companies are combining and then closing some of
their less efficient mines, either temporarily or permanently. In addition,
changes in underground coal mining regulations in South Africa continue to cause
mining houses to postpone the purchase of equipment while they reassess their
capital equipment needs. Economic instability in Russia prevents our customers
in that country from obtaining financing necessary to finalize the purchase of
equipment they have on order. Pressure in Australia to reduce costs to match the
lower prices mining companies are receiving for their coal is causing a
rationalization of their production capacity to meet current demand. Repair
service sales in the United States and the United Kingdom continued to reflect
softness in the aftermarket in those countries, primarily from mine closures and
production cutbacks.
Surface mining product lines had decreases in sales related to draglines and
drills as a result of generally low commodity prices and a combination of mine
closures, production cutbacks and deferral of new mine startups. Aftermarket
sales in the surface mining business continued to grow due to new product and
service offerings. While underground coal mining in the United States declined
during the period, coal production from surface mines in the Powder River Basin
continues to grow, requiring some additional shovels to add incremental
capacity.
Operating results during the third quarter and for the first three quarters of
the 1999 fiscal year were affected by the 20% decrease in sales in the quarter
and the 12% decrease year-to-date. In addition to the lost gross margin on the
lower sales volumes, the lower sales also resulted in unfavorable manufacturing
variances due to production inefficiencies and lost manufacturing overhead
absorption. These costs were partially offset by significant reductions in
operating expenses resulting from cost reduction initiatives and reduced
headcounts.
The Chapter 11 filing in the third quarter has also impacted operating results
in several ways. Supplier shipments in the quarter were lower than necessary to
meet delivery commitments on several large contracts, resulting in added costs.
Decisions have been made to discontinue several equipment models which are
either not required by customers or do not provide sufficient margins to be
attractive. Finally, exposure to bad debts has increased as some customers have
delayed paying outstanding receivables due to their own operating difficulties
and their concerns about our financial condition. The surface and underground
mining machinery businesses have, nevertheless, generally maintained their
overall market positions and their product by product price realization.
As a result of the above, the third quarter reflected the following charges
against earnings:
1999
------------
Changes in estimates:
Allowance for doubtful accounts $ 5,300
Warranty and other 25,000
Excess and obsolete inventory 38,200
------------
68,500
Restructuring charges 8,231
------------
$ 76,731
============
The charge during the third quarter of 1999 of $8,231 relates to the planned
contraction of operations at certain facilities. This charge includes
approximately $7,300 primarily for the impairment of certain assets and
approximately $900 for announced employee terminations. Future cash charges of
approximately $20,900 in connection with further cost reduction initiatives will
likely commence during the fourth quarter of 1999 or the first quarter of fiscal
2000. The estimates could change as the Company continues to develop plans
related to the workforce reductions.
Pulp and Paper Machinery
Three and Nine Months Ended July 31, 1999 as compared to 1998
Sales of the Pulp and Paper Machinery segment were $149,161 in the three months
ended July 31, 1999, compared to $164,442 in the respective period for fiscal
1998. Sales of the Pulp and Paper Machinery segment were $533,664 in the nine
months ended July 31, 1999, compared to $598,257 in the respective period for
fiscal 1998. An operating loss of ($65,383) in the three months ended July 31,
1998 increased to an operating loss of ($463,881) in the three months ended July
31, 1999. An operating loss of ($287,931) in the nine months ended July 31, 1998
increased to an operating loss of ($597,176) in the nine months ended July 31,
1999. Bookings for the three and nine months ended July 31, of 1999 amounted to
$141,923 and $437,905, respectively, as compared to $131,745 and $609,079 for
the same periods in 1998, respectively. Overall, order backlog has been reduced
by $247,500 as of July 31, 1999 to reflect the removal of the remaining portion
of the backlog related to the APP equipment ($72,000), as well as the removal of
other inactive orders, primarily in Brazil and Russia due to those countries'
weakened financial condition.
The sales decreases are due primarily to depressed global pulp and paper
markets. Operating companies within the industry are consolidating; pulp and
paper facilities are being closed down, either temporarily or permanently; and
spending for both original equipment and aftermarket rebuilds, parts and service
are being sharply restricted. New equipment sales that are consummated are at
low pricing levels.
The depressed sales levels have had a direct impact on gross margins, absorption
and manufacturing efficiencies. Operating expenses have been reduced due to
focused efforts to reduce costs and headcounts, but the closure of several
manufacturing facilities earlier in the year, coupled with limitations on
liquidity, has resulted in operating difficulties, logistic problems and lower
service levels. In addition, the Chapter 11 filing in the third quarter, 1999
impacted operating results in several ways. Initially upon filing, many
customers stopped paying Beloit while attempting to understand the issues
surrounding the bankruptcy proceedings. While many of these issues have been
rectified, a higher proportion of Beloit's receivables became more aged and in
some cases less likely to be ultimately collected. Provisions have been
established for these uncertainties. In addition, liquidity issues, delays in
supplier deliveries and related operating problems, have all contributed to
lower gross margins than planned on a variety of contracts. Also, delays in
supplier deliveries, operating problems and plant closure-related inefficiencies
have all contributed to not meeting the delivery or performance commitments on
several larger contracts, resulting in added costs that have been estimated and
accrued in the third quarter.
An additional charge is being taken during 1999 of $78,700 primarily relates to
the further strategic reorganization of Beloit. This reorganization rationalizes
certain product offerings from a full breadth of product lines to more specific
offerings which are more in line with the strategic strengths of the Company and
projected strengths of the marketplace. As part of the restructuring,
outsourcing is expected to increase significantly. The charge consists of
facility closure charges including estimated amounts for reductions in assets to
net realizable values and accruals for closing and disposal costs related to
closing certain manufacturing facilities, engineering offices and research and
development centers. The cash portion of the third quarter charge is
approximately $8,700. The Company anticipates additional cash charges in future
quarterly periods aggregating approximately $51,300, primarily in the form of
severance payments in conjunction with the implementation of these strategic
initiatives. The Company continues to examine all alternatives with respect to
Beloit. Additional charges may be necessary in the future.
In connection with the third quarter 1999 restructuring charges, it is expected
headcount will be reduced by at least 600 employees. This action includes
world-wide staff reductions in manufacturing, engineering, selling, product
development and administrative support functions. Anticipated related cash
termination costs, expected to be recorded in the fourth quarter of 1999, and
consisting of severance, pension and retirement plan curtailment charges, are
currently projected to be $29,700.
In the second quarter of 1998, Beloit recorded a $65,000 restructuring charge
($31,900 after tax and minority interest). The charge included costs related to
severance for approximately 1,000 employees worldwide, facility closures, and
the disposal of machinery and equipment. Closures have been completed of
pulping-related manufacturing facilities in Sherbrooke, Quebec, Canada and
Dalton, Massachusetts. Conversion of a paper-related manufacturing facility in
the United Kingdom into a roll manufacturing facility is complete. The cash and
non-cash elements of the restructuring charge each approximated $32,500.
As a result of the above, the third quarter reflected the following charges
against earnings:
1999 1998
---------- ---------
Changes in estimates:
Allowance for doubtful accounts $ 35,900 $ -
Excess and obsolete inventory 25,000 -
Losses on contracts (including APP) 213,300 (a) -
Other 32,400 -
--------- --------
306,600 -
Restructuring charges, including
goodwill impairment 78,700 65,000
--------- --------
$ 385,300 $ 65,000
========= ========
(a) Of the charge, $163,500 relates to APP and $49,800 relates to
provisions for estimated losses on contracts
in process arising from the liquidity issues. See Beloit APP Contracts
Income Taxes
The Company's estimated annual effective tax rate for continuing operations for
the first six months of 1999 was 34% compared to a 35% federal statutory tax
rate. The effective rate differed from the statutory rate because of tax
credits, state taxes and differences in foreign and U.S. tax rates.
As a result of continuing losses in fiscal 1999 and its Chapter 11 filing, the
Company recorded a valuation allowance against its entire U.S. net deferred tax
asset in the amount of $265,735 as of the beginning of the third quarter. The
Company will continue to record valuation reserves to offset any future U.S.
income tax benefits until it is more likely than not that the Company will be
able to realize such benefits.
The Company believes that realization of prior period net operating loss tax
benefits in the near term is unlikely. Should the Company's plan of
reorganization result in a significantly modified capital structure, the Company
would be required to apply fresh start accounting pursuant to the requirements
of SOP 90-7. Under fresh start accounting, realization of prior net operating
loss tax benefits will first reduce any reorganization goodwill until exhausted
and thereafter be reported as additional paid in capital.
Liquidity and Capital Resources
Chapter 11 Proceedings
The matters described under this caption "Liquidity and Capital Resources", to
the extent that they relate to future events or expectations, may be
significantly affected by the Chapter 11 Proceedings. Those proceedings will
involve, or result in, various restrictions on the Company's activities,
limitations on financing, the need to obtain Bankruptcy Court approval for
various matters and uncertainty as to relationships with vendors, suppliers,
customers and others with whom the Company may conduct or seek to conduct
business.
Working Capital
Working capital, excluding liabilities subject to compromise, as of July 31,
1999, was $55,913 including $60,016 of cash and cash equivalents as compared to
working capital of $436,864 including $30,012 of cash and cash equivalents as of
October 31, 1998. This decrease is due primarily to additional accrued
liabilities for anticipated losses on contracts, restructuring charges, and the
effect of other estimates of the realizability of certain accounts receivable
and inventory. In addition, the Company has provided a full valuation allowance
on its deferred income tax assets. The Australian term loan facility is now
classified as a current liability.
Cash Flow
Cash flow used by operating activities was $150,992 for the nine months ended
July 31, 1999 compared to cash flow used by operating activities of $358,198 for
the comparable period in 1998. The difference in cash flow between periods is
due primarily to the deferral of payment of prepetion trade accounts payable as
a result of the Chapter 11 filing. In addition, the current period benefited
from various cost saving initiatives.
Cash flow used by investment and other transactions was $63,280 for the nine
months ended July 31, 1999 compared to cash flow provided by investment and
other transactions of $339,434 for the comparable period in 1998. The change is
primarily due to the receipt of proceeds from the sale of J&L Fiber Services and
Material Handling during 1998. In addition, the level of capital expenditures
and other investments in the business has declined from the prior period.
The Company funded its operating and investment requirements by borrowing under
its available facilities including borrowing $137,000 under the DIP facility.
DIP Facility
On July 8, 1999 the Bankruptcy Court approved Chase Manhattan Bank to underwrite
a two-year, $750,000 Revolving Credit, Term Loan and Guaranty Agreement (the
"DIP Facility") consisting of three tranches: (i) Tranche A is a $350,000
revolving credit facility with sublimits for import documentary letters of
credit of $20,000 and standby letters of credit of $300,000; (ii) Tranche B is a
$200,000 term loan facility; and (iii) Tranche C is a $200,000 standby letter of
credit facility.
Proceeds from the DIP Facility may be used to fund postpetition working capital
and for other general corporate purposes during the term of the DIP Facility and
to pay up to $35,000 of prepetition claims of critical vendors. The Company is
permitted to make loans and issue letters of credit in an aggregate amount not
to exceed $240,000 to foreign subsidiaries for specified limited purposes,
including up to $90,000 for working capital needs of foreign subsidiaries and
$110,000 of loans and $110,000 of letters of credit for support or repayment of
existing credit facilities. The Company may use up to $40,000 (of the $240,000)
to issue stand-by letters of credit to support foreign business opportunities.
Beginning August 1, 1999, the DIP Facility includes monthly minimum EBITDA tests
and quarterly limits on capital expenditures. At July 31, 1999, $137,000 of the
DIP Facility was drawn and is classified as a long-term obligation.
The DIP Facility benefits from superpriority administrative claim status as
provided under the Bankruptcy Code. Under the Bankruptcy Code, a superpriority
claim is senior to unsecured prepetition claims and all administrative expenses
incurred in the Chapter 11 case. The Tranche A and B direct borrowings under the
DIP Facility are priced at LIBOR + 2.75% per annum on the outstanding
borrowings. Letters of Credit are priced at 2.75% per annum on the outstanding
face amount of each Letter of Credit. In addition, the Company pays a commitment
fee of 0.50% per annum on the unused amount of the commitment payable monthly in
arrears. The DIP Facility matures on the earlier of the substantial consummation
of a Plan of Reorganization or June 6, 2001.
The Company has agreed with the Official Committee of Unsecured Creditors
appointed by the U.S. Trustee (the "Creditors' Committee") and with MFS
Municipal Income Trust and MFS Series Trust III (collectively, the "MFS Funds"),
holders of certain debt issued by Joy, to a number of restrictions regarding
transactions with foreign subsidiaries and Beloit:
o The Company has agreed to give at least five days prior written notice
to the Creditors' Committee and to the MFS Funds of the Debtors'
intention to (a) make loans or advances to, or investments in, any
foreign subsidiary for working capital purposes in an aggregate amount
in excess of $90,000; or (b) make loans or advances to, or investments
in, any foreign subsidiary to repay the existing indebtedness or cause
letters of credit to be issued in favor of a creditor of a foreign
subsidiary in an aggregate amount, cumulatively, in excess of $30,000.
In addition, the Company has agreed to give notice to the Creditors'
Committee and to the MFS Funds with respect to any liens created by a
foreign subsidiary on any of its assets to secure any indebtedness.
o The Company has also agreed to give at least five days prior written
notice to the Creditors' Committee and to the MFS Funds of (a) the
Debtors' intention to make postpetition loans or advances to, or
investments in, Beloit or any of its subsidiaries in an aggregate
amount at any time outstanding, cumulatively, in excess of $115,000 or
(b) the intention of Beloit or any of Beloit's subsidiaries to bid on
any contract under which the aggregate amount of payments to Beloit or
such subsidiary would be equal to or in excess of $50,000 or under
which Beloit or any of Beloit's subsidiaries would be required to
provide letters of credit (or other form of credit support) in an
aggregate amount equal to or in excess of $15,000.
The Company has agreed that Beloit and its subsidiaries will not bid
on any contract under which the aggregate amount of payments to Beloit
or such subsidiary would be equal to or in excess of $5,000 unless the
Senior Management Committee of Beloit has reviewed the bid. At the end
of each calendar quarter, the Company has agreed to provide the
Creditors' Committee with notice of all such contracts entered into by
Beloit and its subsidiaries during the quarter.
o The Company has agreed to notify the MFS Funds of any reduction in the
net book value of Joy of ten percent or more from $364,060. Additional
reserves recorded at Joy during the third quarter may reduce the net
book value of Joy below this amount. If such a reduction occurs, the
Company has agreed to provide the MFS Funds with periodic financial
statements for Joy.
The principal sources of liquidity for the Company's operating requirements
have been cash flows from operations and borrowings under the DIP Facility.
While the Company expects that such sources will provide sufficient working
capital to operate its business, there can be no assurances that such
sources will prove to be sufficient. While the Company has been in
compliance with the DIP Facility covenants through the date of this filing,
a continuation of unfavorable business conditions or other events could
require the Company to seek modifications or waivers of certain covenants.
In such event, there is no certainty that the Company would obtain such
modifications or waivers to avoid default under the DIP Facility.
Acquisitions/Discontinued Operation
On March 30, 1998, the Company completed the sale of approximately 80% of the
common stock of the Company's P&H Material Handling ("Material Handling")
segment to Chartwell Investments, Inc. in a leveraged recapitalization
transaction. As such, the accompanying financial statements have been
reclassified to reflect Material Handling as a discontinued operation. The
Company retained approximately 20% of the outstanding common stock and 11% of
the outstanding voting securities of Material Handling and holds one director
seat in the new company. In addition, the Company has licensed Material Handling
to use the "P&H" trademark on existing Material Handling-produced products on a
worldwide basis for periods specified in the agreement for a royalty fee payable
over a ten year period. The Company reported a $151,500 after-tax gain on the
sale of this discontinued operation in the second quarter of fiscal 1998.
Proceeds consisted of $341,000 in cash and preferred stock, originally valued at
$4,800, with a 12.25% payment-in-kind dividend; $7,200 in common stock was not
reflected in the Company's balance sheet or gain calculations due to the nature
of the leveraged recapitalization transaction. Material Handling recently issued
additional shares of common stock, reducing the company's holding to 18.7% of
the outstanding common stock. During the third quarter of 1999, the Company
wrote down to zero the $5,400 carrying value of preferred stock and accumulated
dividends.
On March 19, 1998, the Company completed the acquisition of Horsburgh & Scott
("H&S") for a purchase price of $40,283. H&S is a manufacturer of gears and gear
cases, and is also involved in the distribution of parts and service to the
mining industry. The acquisition was accounted for as a purchase transaction,
with the purchase price allocated to the fair value of specific assets acquired
and liabilities assumed. Resultant goodwill is amortized over 40 years.
Beloit APP Contracts
In fiscal 1996 and 1997, Beloit's Asian subsidiaries received orders for four
fine paper machines from Asia Pulp & Paper Co. Ltd. ("APP") for a total of
approximately $600,000. During the second quarter of fiscal 1998, the Company
identified $155,000 of additional estimated contract costs at Beloit related to
these contracts. The additional costs primarily related to non-proprietary
equipment, installation, erection, freight, site construction costs, and
overruns resulting from changes in estimates of costs to complete related to
these large, complex projects.
The first two machines have been substantially paid for and installed at APP
facilities in Indonesia. Beloit sold approximately $44,000 of receivables from
APP on these first two machines to a financial institution. The machines are
currently in the start-up/optimization phase and are required to meet certain
contractual performance tests. The contracts provide for potential liquidated
damages, including performance damages, in certain circumstances. The Company
has had discussions with APP on certain claims and back charges on the first two
machines.
The two remaining machines were substantially manufactured by Beloit and are in
Beloit's or Beloit's Asian subsidiaries' possession. Beloit received a $46,000
down payment from APP and issued letters of credit in the amount of the down
payment. In addition, the Company repurchased various notes receivable from APP
in December 1998 and February 1999 of $2,770 and $16,230, respectively, which
had previously been sold to a financial institution.
On December 15, 1998, Beloit's Asian subsidiaries declared APP in default on the
contracts for the two remaining machines, concluding that APP had not acted in
good faith and was unwilling to pay its obligations or was incapable of securing
financing for these two paper machines. Consequently, on December 16, 1998,
Beloit's Asian subsidiaries filed for arbitration in Singapore for the full
payment from APP for the second two machines plus at least $125,000 in damages
and delay costs.
On December 16, 1998, APP filed a notice of arbitration in Singapore against
Beloit's Asian subsidiaries seeking a full refund of approximately $46,000 paid
to Beloit's Asian subsidiaries for the second two machines and claiming that
Beloit's Asian subsidiaries had an obligation under the purchase contracts to
secure financing. APP also seeks recovery of other damages it alleges were
caused by Beloit's Asian subsidiaries' claimed breaches. The $46,000 is included
in liabilities subject to compromise. See note (i) - Liabilities Subject to
Compromise. In addition, APP seeks a declaration in the arbitration that it has
no liability under certain promissory notes. APP subsequently filed an
additional notice of arbitration in Singapore against Beloit seeking the same
relief on the grounds that Beloit was a party to the Beloit Asian subsidiaries'
contracts with APP and was also a guarantor of the Beloit Asian subsidiaries'
performance of those contracts. The arbitration against Beloit was stayed by
agreement of the parties after the Chapter 11 proceedings were filed. Since
then, APP has not sought to pursue this arbitration. Also, APP has filed for and
received an injunction from the Singapore courts that prohibit Beloit from
acting on the notes receivable from APP except in the Singapore arbitration.
Beloit and it's Asian subsidiaries will vigorously defend against all of APP's
assertions. APP has attempted to draw on approximately $15,900 of existing
letters of credit issued by Banca Nazionale del Lavaro ("BNL") in connection
with the down payments on the contracts for the second two machines. The Company
filed for and received a preliminary injunction that prohibits BNL from making
payment under the draw notice. The final disposition of the Company's request
for a permanent injunction remains pending with the United States District Court
for the Eastern District of Wisconsin. The Company has placed funds on deposit
with BNL to provide for payment under the letters of credit should the permanent
injunction not be granted.
To mitigate APP's damages and to improve short-term liquidity, Beloit's Asian
subsidiaries have sought to sell these two machines to alternative customers.
The Company recorded an $87,000 reserve in the second quarter against the
decrease in realizable value of certain paper machines for Asian customers,
primarily the second two paper machines ordered by APP. The Company recorded an
additional $147,700 reserve in the third quarter to reflect the Company's
determination that the foreseeable market conditions for this type of large
paper machine do not support valuing these machines at greater than estimated
liquidation values. The Company also recorded a $15,800 charge in the third
quarter for changes in estimates of costs associated with the first two machines
for APP.
Potlatch Litigation
Filed originally in 1995, the Potlatch lawsuit related to a 1989 purchase of
pulp line washers supplied by Beloit for less than $15,000. In June, 1997, a
Lewiston, Idaho jury awarded Potlatch $95,000 in damages in the case which,
together with fees, costs and interest to April 2, 1999, approximated $120,000.
On April 2, 1999 the Supreme Court of Idaho vacated the judgement of the Idaho
District Court in the Potlatch lawsuit and remanded the case for a new trial.
This litigation has been stayed as a result of the bankruptcy filings. Potlatch
has filed a motion with the Bankruptcy Court to lift the stay. This motion has
been opposed by Beloit.
Year 2000 Readiness Disclosure
The Year 2000 issue focuses on the ability of information systems to properly
recognize and process date-sensitive information beyond December 31, 1999. To
address this problem, the Company has implemented a Year 2000 readiness plan for
information technology systems ("IT") and non-IT equipment, facilities and
systems. All IT and non-IT equipment, processes and software were inventoried
assessed, and have been substantially remedied.
The primary IT strategy for attaining Year 2000 readiness within the operating
units is the successful implementation of Year 2000-ready business processing
software. Joy has implemented SAP R/3. P&H Mining Equipment has completed
various remediation efforts and system upgrades. Beloit has completed
implementation of MAPICS worldwide, except for facilities in Poland, Brazil,
Italy, England and Massachusetts which are expected to be completed by the end
of the calendar year and a small number of facilities that are otherwise Year
2000 ready.
The Company relies on third-party suppliers for key materials and services. The
suppliers' efforts to deal with Year 2000 problems have been assessed, and the
Company has determined alternative sources of supplies and has established
contingency plan requirements, where needed. These activities are intended to
provide a means of managing risk, but cannot eliminate the potential for
disruption due to third-party failure.
Facilities and office equipment such as machine tools, material distribution
equipment, telephone switches, and other common devices may be affected by the
Year 2000 problem. As of July 31, 1999, substantially all facilities and office
equipment have been made compliant for Year 2000.
The Company has identified product-related Year 2000 problems and is working
with customers to assist in their Year 2000 readiness efforts. It is not
possible to determine with complete certainty that all Year 2000 problems have
been identified or corrected due to testing limitations, complexity and
application of these products. The Company however does not expect any
product-related Year 2000 problems.
Total expenses on the project through July 31, 1999 were approximately $5,199
and were related to expenses for repair or replacement of software and hardware,
expenses associated with facilities, products and supplier reviews and project
management expenses. Expected incremental expenses related to Year 2000 are not
expected to be material to the Company's financial position. The costs of
implementing SAP and MAPICS are excluded as these system implementations were
undertaken primarily to improve business processes.
The failure to correct a material Year 2000 problem could result in an
interruption in, or a failure of, certain normal business activities or
operations. The Company has considered these risks and is not aware of any risk
that warrants establishments of a contingency plan beyond planning for normal
business contingencies.
Market Risk
Volatility in interest rates and foreign exchange rates can impact the Company's
earnings, equity, and cash flow. From time to time the Company will undertake
transactions to hedge this impact. The hedge instrument will be effective if it
offsets partially or completely the impact on earnings, equity, and cash flow of
this rate volatility on the Company's underlying interest rate and foreign
exchange rate exposures. In accordance with the Company's policy, at no time
will the Company execute derivatives that are speculative or that increase the
Company's risk from interest rate or foreign exchange rate fluctuations. At July
31, 1999, there were no interest rate derivatives. Foreign exchange derivatives
at that date were exclusively in the form of forward exchange contracts executed
over-the-counter with several commercial banks, all of which held investment
grade credit ratings. The outstanding value of these forward contracts at July
31, 1999, in absolute dollar terms for all currencies, was $213,819.
The Company's accounting policy for recording gains and losses from forward
exchange contracts complies with Statement of Financial Accounting Standard
("SFAS") No. 52. In addition, the Company has adopted a Foreign Exchange Risk
Management Policy. It is a risk-averse policy in which most of the foreign
exchange exposures that impact earnings and cash flow are fully hedged, subject
to a net $5,000 self-insurance threshold of permitted exposures per currency.
Exposures that impact only equity or that do not have a cash flow impact are
generally not hedged with derivatives. There are two categories of foreign
exchange exposures that are hedged: assets and liabilities denominated in a
foreign currency and future receipts or payments denominated in a foreign
currency. These exposures normally arise from imports and exports of goods and
from intercompany lending activity.
The fair value of the Company's forward exchange contracts at July 31, 1999
is presented in the following table by country currency
converted to U.S. dollars:
Maturing in Maturing in
1999 2000
Contracts (Dollar Amounts in Thousands)
- ----------------------------------------------------------------
Australian Dollar $ 5,734 $ 4,002
Austrian Schilling 104 -
Canadian Dollar - -
Italian Lira 16,596 -
So. African Rand 13,010 16,402
U.K. Pound 79,509 38,078
U.S. Dollar 36,876 3,508
- ----------------------------------------------------------------
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 realization of anticipated cost savings is subject to certain
risks including, among other things, the risks that expected cost
reductions have been overestimated, unexpected costs will be
incurred and anticipated operating efficiencies will not be
achieved.
The Company's principal businesses involve designing,
manufacturing, marketing and servicing large, complex machines for
the mining and pulp and papermaking 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 and pulp and paper
mills that use these machines. The Company's success in obtaining
and managing a relatively small number of sales opportunities,
including the Company's success in securing payment for such sales
and meeting the requirements of warranties and guarantees
associated with such sales, can affect the Company's financial
performance. 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 occurred outside the United States.
Other factors that could cause actual results to differ materially
from those contemplated include:
o Factors relating to the Company's Chapter 11 filing, such as:
the possible disruption of relationships with creditors,
customers, suppliers and employees; the ability to
successfully prepare, have approved and implement a plan of
reorganization; the availability of financing and refinancing;
and the Company's ability to comply with covenants in the DIP
Facility. As a result of the Company's Chapter 11 filing, the
continuation of the Company, or segments of the Company, on a
going concern basis is subject to significant uncertainty.
o Factors affecting customers' 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 quality of
financing to customers and the ability of customers to obtain
regulatory approval for investments in mining and pulp and
papermaking projects; consolidations among customers; work
stoppages at customers or providers of transportation; and the
timing, severity and duration of customer buying cycles,
particularly in the pulp and paper and mining businesses.
o 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; whether the Company has successful
reference installations to show customers; customers'
perceptions of the health and stability of the Company as
compared to its competitors; the Company's ability to assist
with competitive financing programs and the availability of
manufacturing capacity at the Company's factories.
o 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 adequacy of the
Company's systems to manage major projects and its 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.
o Factors affecting the Company's general business, such as:
unforeseen patent, tax, product, environmental, employee
health or benefit or contractual liabilities; nonrecurring
restructuring and other special charges; changes in accounting
or tax rules or regulations; and reassessments of asset
valuations for such assets as receivables inventories, fixed
assets and intangible assets; and leverage and debt service.
o Factors affecting general business levels, such as: political
turmoil and economic turmoil in major markets such as the
United States, Canada, Europe, Asia and the Pacific Rim, 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:
3 Bylaws of Harnischfeger Industries, Inc. dated
August 23, 1999
10(a) First Amendment to Revolving Credit, Term Loan
and Guaranty Agreement,dated July 8, 1999
10(b) Second Amendment to Revolving Credit, Term Loan
and Guaranty Agreement, dated July 8, 1999
11 Statement re: Calculation of Earnings Per Share
(b) Reports on Form 8-K
None.
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/ Kenneth A. Hiltz
Ken A. Hiltz
Senior Vice President and Chief
Date September 20, 1999 Financial Officer
/s/ Herbert S. Cohen
Herbert S. Cohen
Vice President, Controller and
Date September 20, 1999 Chief Accounting Officer
8/23/99
B Y L A W S
OF
HARNISCHFEGER INDUSTRIES, INC.
ARTICLE I
OFFICES
The initial registered office of the corporation required by
the Delaware General Corporation Law shall be 100 West Tenth Street, City of
Wilmington, County of New Castle, State of Delaware, and the address of the
registered office may be changed from time to time by the Board of Directors.
The principal business office of the corporation shall be
located in the City of St. Francis, County of Milwaukee, State of Wisconsin. The
corporation may have such other offices, either within or without the State of
Wisconsin, as the Board of Directors may designate or as the business of the
corporation may require from time to time.
The registered office of the corporation required by the
Wisconsin Business Corporation Law may be, but need not be, the same as its
place of business in the State of Wisconsin, and the address of the registered
office may be changed from time to time by the Board of Directors.
ARTICLE II
STOCKHOLDERS
SECTION 1. Annual Meeting. The annual meeting of stockholders
shall be held at a time and on a date in the month of February designated by
resolution adopted by the Board of Directors for the purpose of electing
directors and for the transaction of such other business as may come before the
meeting. If the day fixed for the annual meeting shall be a legal holiday in the
state where the meeting is to be held, such meeting shall be held on the next
succeeding business day. If the election of directors shall not be held on the
day designated herein for the annual meeting of the stockholders, or at any
adjournment thereof, the Board of Directors shall cause the election to be held
at a special meeting of the stockholders as soon thereafter as is convenient.
SECTION 2. Special Meeting. Special meetings of the
stockholders, for any purpose or purposes, unless otherwise prescribed by
statute, may be called by the Chief Executive Officer or by the Board of
Directors.
SECTION 3. Place of Meeting. The Board of Directors may
designate any place, either within or without the State of Delaware, as the
place of meeting for any annual meeting or for any special meeting called by the
Board of Directors. If no designation is made, or if a special meeting be
otherwise called, the place of meeting shall be the principal business office of
the corporation in the State of Wisconsin.
SECTION 4. Notice of Meeting. Written notice stating the
place, day and hour of the meeting and, in the case of a special meeting, the
purpose or purposes for which the meeting is called, shall be delivered not less
than ten days nor more than sixty days before the date of the meeting, either
personally or by mail, by or at the direction of the Chief Executive Officer, or
the Secretary, or the officer or persons calling the meeting, to each
stockholder of record entitled to vote at such meeting. If mailed, such notice
shall be deemed to be given when deposited in the United States mail, addressed
to the stockholder at the stockholder's address as it appears on the records of
the corporation, with postage thereon prepaid. Any previously scheduled meeting
of the stockholders may be postponed, and any special meeting of the
stockholders may be cancelled, by resolution of the Board of Directors upon
public notice given prior to the date previously scheduled for such meeting of
stockholders.
SECTION 5. Fixing of Record Date. For the purpose of
determining stockholders entitled to notice of or to vote at any meeting of
stockholders or any adjournment thereof, or entitled to receive payment of any
dividend, or in order to make a determination of stockholders for any other
proper purpose, the Board of Directors of the corporation may fix in advance a
date as the record date for any such determination of stockholders, such date in
any case to be not more than sixty days and, in case of a meeting of
stockholders, not less than ten days prior to the date on which the particular
action, requiring such determination of stockholders, is to be taken. If no
record date is fixed for the determination of stockholders entitled to notice of
or to vote at a meeting of stockholders, or stockholders entitled to receive
payment of a dividend, the close of business on the date next preceding the date
on which notice of the meeting is mailed or the date on which the resolution of
the Board of Directors declaring such dividend is adopted, as the case may be,
shall be the record date for such determination of stockholders. When a
determination of stockholders entitled to vote at any meeting of stockholders
has been made as provided in this section, such determination shall apply to any
adjournment thereof; provided, however, that the Board of Directors may fix a
new record date for the adjourned meeting.
SECTION 6. Voting Lists. The officer or agent having charge of
the stock ledger of the corporation shall make, at least ten days before each
meeting of stockholders, a complete list of the stockholders entitled to vote at
such meeting, or any adjournment thereof, arranged in alphabetical order, with
the address of and the number of shares held by each; which list, for a period
of ten days prior to such meeting, shall be kept at the place where the meeting
is to be held, or at another place within the city where the meeting is to be
held, which other place shall be specified in the notice of meeting and the list
shall be subject to inspection by any stockholder for any purpose germane to the
meeting, at any time during usual business hours. Such list shall also be
produced and kept open at the time and place of the meeting and shall be subject
to the inspection of any stockholder during the whole time of the meeting. The
original stock ledger shall be prima facie evidence as to who are the
stockholders entitled to examine such list or ledger or to vote at any meeting
of stockholders. Failure to comply with the requirements of this section will
not affect the validity of any action taken at such meeting.
SECTION 7. Quorum. A majority of the shares entitled to vote,
represented in person or by proxy, shall constitute a quorum at a meeting of
stockholders. If a quorum is present, the affirmative vote of a majority of the
shares represented at the meeting and entitled to vote on the subject matter
shall be the act of the stockholders, unless the vote of a greater number or
voting by classes is required by Delaware law, the Articles of Incorporation, or
these Bylaws. If less than a majority of the outstanding shares are represented
at a meeting, a majority of the shares so represented may adjourn the meeting
from time to time without further notice. Any stockholders' meeting, annual or
special, whether or not a quorum is present, may be adjourned from time to time
by the Chairman of the meeting without further notice. At such adjourned meeting
at which a quorum shall be present or represented, any business may be
transacted which might have been transacted at the meeting as originally called.
SECTION 8. Proxies. At all meetings of stockholders, a
stockholder may vote by proxy executed in writing by the stockholder or by the
stockholder's duly authorized attorney in fact. Such proxy shall be filed with
the Secretary of the corporation before or at the time of the meeting. No proxy
shall be valid after three years from the date of its execution, unless
otherwise provided in the proxy.
SECTION 9. Voting of Shares. Each outstanding share,
regardless of class, shall be entitled to one vote on each matter submitted to a
vote at a meeting of stockholders, except to the extent that the voting rights
of any class or classes are enlarged, limited or denied by the Articles of
Incorporation or in the manner therein provided.
SECTION 10. Voting of Shares by Certain Holders. Neither
treasury shares nor shares of the corporation held by another corporation, if a
majority of the shares entitled to vote in the election of directors of such
other corporation is held, directly or indirectly, by the corporation, shall be
entitled to vote or to be counted for quorum purposes. Nothing in this paragraph
shall be construed as limiting the right of the corporation to vote its own
stock held by it in a fiduciary capacity.
Shares standing in the name of another corporation, domestic
or foreign, may be voted in the name of such corporation by its President or
such other officer as the President may appoint or pursuant to any proxy
executed in the name of such corporation by its President or such other officer
as the President may appoint in the absence of express written notice filed with
the Secretary that such President or other officer has no authority to vote such
shares.
Shares held by an administrator, executor, guardian,
conservator, trustee in bankruptcy, receiver or assignee for creditors may be
voted by such administrator, executor, guardian, conservator, trustee in
bankruptcy, receiver or assignee for creditors, either in person or by proxy,
without a transfer of such shares into the name of such administrator, executor,
guardian, conservator, trustee in bankruptcy, receiver or assignee for
creditors. Shares standing in the name of a fiduciary may be voted by such
fiduciary, either in person or by proxy.
A stockholder whose shares are pledged shall be entitled to
vote such shares unless in the transfer by the pledgor on the books of the
corporation the pledgor has expressly empowered the pledgee to vote thereon, in
which case only the pledgee, or the pledgee's proxy, may represent such stock
and vote thereon.
SECTION 11. Stockholder Proposals. No proposal for a
stockholder vote shall be submitted by a stockholder (a "Stockholder Proposal")
to the corporation's stockholders unless the stockholder submitting such
proposal (the "Proponent") shall have filed a written notice setting forth with
particularity (i) the names and business addresses of the Proponent and all
Persons acting in concert with the Proponent (ii) the name and address of the
Proponent and the Persons identified in clause (i), as they appear on the
corporation's books (if they so appear), (iii) the class and number of shares of
the corporation beneficially owned by the Proponent and the Persons identified
in clause (i); (iv) a description of the Stockholder Proposal containing all
material information relating thereto; and (v) whether the Proponent or any
Person identified in clause (i) intends to solicit proxies from holders of a
majority of shares of the corporation entitled to vote on the Stockholder
Proposal. The Proponent shall also submit such other information as the Board of
Directors reasonably determines is necessary or appropriate to enable the Board
of Directors and stockholders to consider the Stockholder Proposal. As used in
this Section, the term "Person" means any individual, partnership, firm,
corporation, association, trust, unincorporated organization or other entity.
The presiding officer at any stockholders' meeting may
determine that any Stockholder Proposal was not made in accordance with the
procedures prescribed in these Bylaws or is otherwise not in accordance with
law, and if it is so determined, such officer shall so declare at the meeting
and the Stockholder Proposal shall be disregarded.
The notice required by these Bylaws to be delivered by the
Proponent shall be delivered to the Secretary at the principal executive office
of the corporation (i) not less than ninety (90) days before nor more than one
hundred twenty (120) days before the first anniversary of the preceding date of
the previous year's annual meeting of stockholders if such Stockholder Proposal
is to be submitted at an annual stockholders' meeting (provided, however, that
in the event that the date of the annual meeting is more than thirty (30) days
before or more than sixty (60) days after such anniversary date, notice by the
stockholder to be timely must be so delivered not earlier than the close of
business on the one hundred twentieth (120th) day prior to such annual meeting
and not later than the close of business on the later of the ninetieth (90th)
day prior to such annual meeting or the tenth (10th) day following the day on
which public announcement of the date of such annual meeting is first made by
the corporation) and (ii) no later than the close of business on the fifteenth
(15th) day following the day on which notice of the date of a special meeting of
stockholders was given if the Stockholder Proposal is to be submitted at a
special stockholders' meeting (provided, however, if notice of the date of the
special meeting of stockholders was given less than twenty (20) days before the
date of the special meeting of stockholders, the notice required by these Bylaws
to be given by the Proponent shall be delivered no later than the close of
business on the fifth (5th) day following the day on which notice of the special
stockholder's meeting was given). In no event shall the public announcement of
an adjournment of an annual or special meeting commence a new time period forthe
giving of a stockholder's notice as described above.
SECTION 12. Inspectors of Election; Opening and Closing the
Polls. The Board of Directors by resolution shall appoint one or more
inspectors, which inspector or inspectors may include individuals who serve the
corporation in other capacities, including without limitation, as officers,
employees, agents or representatives, to act at the meetings of stockholders and
make a written report thereof. One or more persons may be designated as
alternate inspectors to replace any inspector who fails to act. If no inspector
or alternate has been appointed to act or is able to act at a meeting of
stockholders, the Chairman of the meeting shall appoint one or more inspectors
to act at the meeting. Each inspector, before discharging his or her duties,
shall take and sign an oath faithfully to execute the duties of inspector with
strict impartiality and according to the best of his or her ability. The
inspector shall have the duties prescribed by law.
The Chairman of the meeting shall fix and announce at the
meeting the date and time of the opening and closing of the polls for each
matter upon which the stockholders will vote at a meeting.
SECTION 13. Stockholder Consent Procedures. (a) Record Date
for Action by Written Consent. In order that the corporation may determine the
stockholders entitled to consent to corporate action in writing without a
meeting, the Board of Directors may fix a record date, which record date shall
not precede the date upon which the resolution fixing the record date is adopted
by the Board of Directors, and which date shall not be more than 10 days after
the date upon which the resolution fixing the record date is adopted by the
Board of Directors. Any stockholder of record seeking to have the stockholders
authorize or take corporate action by written consent shall, by written notice
to the Secretary, request the Board of Directors to fix a record date. The Board
of Directors shall promptly, but in all events within 10 days after the date on
which such a request is received, adopt a resolution fixing the record date. If
no record date has been fixed by the Board of Directors within 10 days after the
date on which such a request is received, the record date for determining
stockholders entitled to consent to corporate action in writing without a
meeting, when no prior action by the Board of Directors is required by
applicable law, shall be the first date on which a signed written consent
setting forth the action taken or proposed to be taken is delivered to the
corporation by delivery to its registered office in Delaware, its principal
place of business or to any officer or agent of the corporation having custody
of the book in which proceedings of meetings of stockholders are recorded.
Delivery made to the corporation's registered office shall be by hand or by
certified or registered mail, return receipt requested. If no record date has
been fixed by the Board of Directors and prior action by the Board of Directors
is required by applicable law, the record date for determining stockholders
entitled to consent to corporate action in writing without a meeting shall be at
the close of business on the date on which the Board of Directors adopts the
resolution taking such prior action.
(b) Inspectors of Written Consent. In the event of the
delivery, in the manner provided by Section 13(a), to the corporation of the
requisite written consent or consents to take corporate action and/or any
related revocation or revocations, the corporation shall engage nationally
recognized independent inspectors of elections for the purpose of promptly
performing a ministerial review of the validity of the consents and revocations.
For the purpose of permitting the inspectors to perform such review, no action
by written consent without a meeting shall be effective until such date as the
independent inspectors certify to the corporation that the consents delivered to
the corporation in accordance with Section 13(a) represent at least the minimum
number of votes that would be necessary to take the corporate action. Nothing
contained in this paragraph shall in any way be construed to suggest or imply
that the Board of Directors or any stockholder shall not be entitled to test the
validity of any consent or revocation thereof, whether before or after such
certification by the independent inspectors, or to take any other action
(including, without limitation, the commencement, prosecution or defense of any
litigation with respect thereto, and the seeking of injunctive relief in such
litigation).
(c) Effectiveness of Written Consent. Every written consent
shall bear the signature of each stockholder who signs the consent and no
written consent shall be effective to take the corporate action referred to
therein unless, within 60 days of the date the earliest dated written consent
was received in accordance with Section 13(a), a written consent or consents
signed by a sufficient number of holders to take such action are delivered to
the Corporation in the manner prescribed in Section 13(a).
ARTICLE III
BOARD OF DIRECTORS
SECTION 1. General Powers. The business and affairs of the
corporation shall be managed by its Board of Directors.
SECTION 2. Number. Tenure and Qualifications. The number of
directors of the corporation shall be ten. Two of the three classes of Directors
established by the corporation's Certificate of Incorporation shall consist of
three members and the third class shall consist of four members. Each director
shall hold office for the term provided in the Certificate of Incorporation and
until such director's successor shall have been elected and qualified, or until
such director's earlier death or resignation. No director shall be or be deemed
to be removed from office prior to the expiration of such director's term in
office by virtue of a reduction in the number of directors. Directors need not
be residents of the State of Delaware or stockholders of the corporation.
SECTION 3. Annual Meetings. An annual meeting of the Board of Directors shall be
held without other notice than this Bylaw immediately after, and at the same
place as, the Annual Meeting of Stockholders.
SECTION 4. Special Meetings. Special meetings of the Board of
Directors may be called by or at the request of the Chairman or any two
directors. The person or persons authorized to call special meetings of the
Board of Directors may fix any place, either within or without the State of
Delaware, as the place for holding any special meeting of the Board of Directors
called by them.
SECTION 5. Notice. Notice of any special meeting shall be
given at least 48 hours previous thereto by written notice delivered personally
or mailed to each director at such director's business address, or by telegram.
If mailed, such notice shall be deemed to be given when deposited in the United
States mail so addressed, with postage thereon prepaid. If notice be given by
telegram, such notice shall be deemed to be given when the telegram is delivered
to the telegraph company. Any director may waive notice of any meeting. The
attendance of a director at a meeting shall constitute a waiver of notice of
such meeting, except where a director attends a meeting and objects thereat to
the transaction of any business because of the meeting is not lawfully called or
convened. Neither the business to be transacted at, nor the purpose of, any
regular or special meeting of the Board of Directors need be specified in the
notice or waiver of notice of such meeting.
SECTION 6. Quorum. A majority of the number of directors fixed
by Section 2 of this Article III shall constitute a quorum for the transaction
of business at any meeting of the Board of Directors, but if less than such
majority is present at a meeting, a majority of the directors present may
adjourn the meeting from time to time without further notice.
SECTION 7. Manner of Acting. The act of the majority of the
directors present at a meeting at which a quorum is present shall be the act
of the Board of Directors.
SECTION 8. Nomination of Directors; Vacancies. Candidates for
director shall be nominated either (i) by the Board of Directors or a committee
appointed by the Board of Directors or (ii) by nomination at any stockholders'
meeting by or on behalf of any stockholder entitled to vote at such meeting
provided that written notice of such stockholder's intent to make such
nomination or nominations has been given, either by personal delivery or by
United States mail, postage prepaid, to the secretary of the corporation not
later than (1) with respect to an election to be held at an annual meeting of
stockholders, ninety (90) days in advance of such meeting, and (2) with respect
to an election to be held at a special meeting of stockholders for the election
of directors, the close of business on the tenth (10th) day following the date
on which notice of such meeting is first given to stockholders. Each such notice
shall set forth: (a) the name and address of the stockholder who intends to make
the nomination and of the person or persons to be nominated; (b) a
representation that the stockholder is a holder of record of stock of the
corporation entitled to vote at such meeting and intends to appear in person or
by proxy at the meeting to nominate the person or persons specified in the
notice; (c) a description of all arrangements or understandings between the
stockholder and each nominee and any other person or persons (naming such person
or persons) pursuant to which the nomination or nominations are to be made by
the stockholder; (d) such other information regarding each nominee proposed by
such stockholder as would be required to be included in a proxy statement filed
pursuant to the proxy rules of the Securities and Exchange Commission had the
nominee been nominated, or intended to be nominated, by the Board of Directors;
and (e) the consent of each nominee to serve as a director of the corporation if
so elected. The presiding officer of the meeting may refuse to acknowledge the
nomination of any person not made in compliance with the foregoing procedure.
Any vacancy occurring in the Board of Directors, including a vacancy
created by an increase in the number of directors, may be filled for the
remainder of the unexpired term by the affirmative vote of a majority of the
directors then in office although less than a quorum.
SECTION 9. Action by Directors Without a Meeting. Any action
required to be taken at a meeting of directors, or at a meeting of a committee
of directors, or any other action which may be taken at a meeting, may be taken
without a meeting if a consent in writing setting forth the action so taken
shall be signed by all of the directors or members of the committee thereof
entitled to vote with respect to the subject matter thereof and such consent
shall have the same force and effect as a unanimous vote.
SECTION 10. Participation in a Meeting by Telephone. Members
of the Board of Directors or any committee of directors may participate in a
meeting of such Board or committee by means of conference telephone or similar
communication equipment by means of which all persons participating in the
meeting can hear each other, and participating in a meeting pursuant to this
section 10 shall constitute presence in person at such meeting.
SECTION 11. Compensation. The Board of Directors, by majority
vote of the directors then in office and irrespective of any personal interest
of any of its members, shall have authority to establish reasonable compensation
of all directors for services to the corporation as directors, officers or
otherwise, or to delegate such authority to an appropriate committee. The Board
of Directors also shall have authority to provide for reasonable pensions,
disability or death benefits, and other benefits or payments, to directors,
officers and employees and to their estates, families, dependents and
beneficiaries on account of prior services rendered by such directors, officers
and employees to the corporation. The Board of Directors may be paid their
expenses, if any, of attendance at each such meeting of the Board.
SECTION 12. Presumption of Assent. A director of the
corporation who is present at a meeting of the Board of Directors at which
action on any corporate matter is taken shall be presumed to have assented to
the action taken unless such director's dissent is entered in the minutes of the
meeting or unless such director files a written dissent to such action with the
person acting as the Secretary of the meeting before the adjournment thereof or
forwards such dissent by registered mail to the Secretary of the corporation
immediately after the adjournment of the meeting. Such right to dissent shall
not apply to a director who voted in favor of such action.
SECTION 13. Validity of Contracts. No contract or other
transaction entered into by the corporation shall be affected by the fact that a
director or officer of the corporation is in any way interested in or connected
with any party to such contract or transaction, or is a party to such contract
or transaction, even though in the case of a director the vote of the director
having such interest or connection shall have been necessary to obligate the
corporation upon such contract or transaction; provided, however, that in any
such case (i) the material facts of such interest are known or disclosed to the
directors or stockholders and the contract or transaction is authorized or
approved in good faith by the stockholders or by the Board of Directors or a
committee thereof through the affirmative vote of a majority of the
disinterested directors (even though not a quorum), or (ii) the contract or
transaction is fair to the corporation as of the time it is authorized, approved
or ratified by the stockholders, or by the Board of Directors, or by a committee
thereof.
SECTION 14. Indemnification and Insurance. Each person who was
or is made a party or is threatened to be made a party to or is involved in any
action, suit, arbitration, mediation or proceeding, whether civil, criminal,
administrative or investigative, whether domestic or foreign (hereinafter a
"proceeding"), by reason of the fact that he or she, or a person of whom he or
she is the legal representative, is or was a director or officer of the
corporation or is or was serving at the request of the corporation as a
director, officer, employee or agent of another corporation or of a partnership,
joint venture, trust or other enterprise, including service with respect to
employee benefit plans, whether the basis of such proceeding is alleged action
or inaction in an official capacity as a director, officer, employee or agent or
in any other capacity while serving as a director, officer, employee or agent,
shall be indemnified and held harmless by the corporation to the fullest extent
not prohibited by the General Corporation Law of the State of Delaware, as the
same exists or may hereafter be amended (but, in the case of any such amendment,
with respect to alleged action or inaction occurring prior to such amendment,
only to the extent that such amendment permits the corporation to provide
broader indemnification rights than said law permitted the corporation to
provide prior to such amendment), against all expense, liability and loss
(including without limitation attorneys' fees and expenses, judgments, fines,
ERISA excise taxes or penalties and amounts paid or to be paid in settlement)
reasonably incurred or suffered by such person in connection therewith. Such
indemnification as to such alleged action or inaction shall continue as to a
person who has ceased after such alleged action or inaction to be a director,
officer, employee or agent and shall inure to the benefit of his or her heirs,
executors and administrators; provided, however, that, except as provided in the
following paragraph, the corporation shall indemnify any such person seeking
indemnification in connection with a proceeding (or part thereof) initiated by
such person only if such proceeding (or part thereof) was authorized by the
Board unless such proceeding (or part thereof) is a counter claim, cross-claim,
third party claim or appeal brought by such person in any proceeding. The right
to indemnification conferred in this Section shall be a contract right and shall
include the right to be paid by the corporation the expenses incurred in
defending any such proceeding in advance of its final disposition; provided,
however, that, if the General Corporation law of the State of Delaware requires,
the payment of such expenses incurred by a director or officer in his or her
capacity as a director or officer (and not in any other capacity in which
service was or is rendered by such person while a director or officer,
including, without limitation, service to an employee benefit plan) in advance
of the final disposition of a proceeding, shall be made only upon delivery to
the corporation of an undertaking, by or on behalf of such director or officer,
to repay all amounts so advanced if it shall ultimately be determined by final
judicial decision from which there is no further appeal that such director or
officer is not entitled to be indemnified for such expenses under this Section
or otherwise. The corporation may, by action of the Board, provide
indemnification to an employee or agent of the corporation or to a director,
trustee, officer, employee or agent of another corporation or of a partnership,
joint venture, trust or other enterprise of which the corporation owns fifty
percent or more with the same scope and effect as the foregoing indemnification
of directors and officers or such lesser scope and effect as shall be determined
by action of the Board.
If a claim under the preceding paragraph is not paid in full by the
corporation within thirty days after a written claim has been received by the
corporation, the claimant may at any time thereafter bring suit against the
corporation to recover the unpaid amount of the claim and, if successful in
whole or in part in any such claim or suit, or in a claim or suit brought by the
corporation to recover an advancement of expenses under this paragraph, the
claimant shall be entitled to be paid also the expense of prosecuting or
defending any such claim or suit. It shall be a defense to any such action
(other than an action brought to enforce a claim for expenses incurred in
defending any proceeding in advance of its final disposition where the required
undertaking, if any is required, has been tendered to the corporation) that the
claimant has not met the applicable standard of conduct which make it
permissible under the General Corporation Law of the State of Delaware for the
corporation to indemnify the claimant for the amount claimed, but the burden of
proving such defense shall be on the corporation. Neither the failure of the
corporation (including its Board of Directors, independent legal counsel, or its
stockholders) to have made a determination prior to the commencement of such
action that indemnification of the claimant is proper in the circumstances
because he or she has met the applicable standard of conduct set forth in the
General Corporation Law of the State of Delaware, nor an actual determination by
the corporation (including its Board of Directors, independent legal counsel, or
its stockholders) that the claimant has not met such applicable standard of
conduct set forth in the General Corporation Law of the State of Delaware, shall
be a defense to the action or create a presumption that the claimant has not met
the applicable standard of conduct. In any suit brought by such person to
enforce a right to indemnification or to an advancement of expenses hereunder,
or by the corporation to recover an advancement of expenses hereunder, the
burden of proving that such person is not entitled to be indemnified, or to have
or retain such advancement of expenses, shall be on the corporation.
The right to indemnification and the payment of expenses incurred in
defending a proceeding in advance of its final disposition conferred in this
Section shall not be exclusive of any other right which any person may have or
hereafter acquire under any statute, provision of the Certificate of
Incorporation, By-law, agreement, vote of stockholders or disinterested
directors or otherwise.
The corporation may maintain insurance, at its expense, to protect
itself and any director, officer, employee or agent of the corporation or
another corporation, partnership, joint venture, trust or other enterprise
against any such expense, liability or loss, whether or not the corporation
would have the power to indemnify such person against such expense, liability or
loss under the General Corporation Law of the State of Delaware.
In the event that any of the provisions of this Section 14 (including
any provision within a single section, paragraph or sentence) is held by a court
of competent jurisdiction to be invalid, void or otherwise unenforceable, the
remaining provisions are severable and shall remain enforceable to the full
extent permitted by law.
SECTION 15. Committees of Directors. The Board of Directors
may, by resolution passed by a majority of the whole Board, designate one or
more committees, each committee to consist of one or more of the directors of
the corporation. The Board may designate one or more directors as alternate
committee members, who may replace any absent or disqualified member at any
committee meeting. In the absence or disqualification of a committee member, the
member or members present at any meeting and not disqualified from voting,
whether such member or members constitute a quorum, may unanimously appoint
another director to act at the meeting in place of the absent or disqualified
member. Any such committee shall have and may exercise all the powers and
authority of the Board of Directors in the management of the business and
affairs of the corporation, and may authorize the seal of the corporation to be
affixed to all papers which may require it; but no such committee shall have the
power or authority in reference to amending the Certificate of Incorporation
(except that a committee may, to the extent authorized in the resolution(s)
providing for the issuance of shares of stock adopted by the Board, fix any of
the preferences or rights of such shares relating to dividends, redemption,
dissolution, any distribution of assets of the corporation or the conversion
into, or the exchange of such shares for, shares of any other class or classes
or any other series of the same or any other class or classes of stock of the
corporation), adopting an agreement of merger or consolidation, recommending to
the stockholders the sale, lease or exchange of all or substantially all of the
corporation's property and assets, recommending to the stockholders a
dissolution of the corporation or a revocation of a dissolution, or amending the
Bylaws of the corporation; and, unless the resolution expressly so provides, no
such committee shall have the power or authority to declare a dividend or to
authorize the issuance of stock, or to adopt a certificate of ownership and
merger.
SECTION 16. Special Meetings of Non-Management Directors.
Notwithstanding anything to the contrary contained in these Bylaws, a special
meeting between all stockholders of the corporation and the non-management
members of the Board of Directors may be called at any time by stockholders
holding, of record or benefically, not less than one-quarter of all the shares
unconditionally entitled to vote in elections of directors. Stockholders may
request a meeting by delivering a request to the Corporate Governance Committee
of the Board of Directors setting forth in writing with particularity (i) the
names and addresses of the stockholders requesting the meeting and of their
respective representatives; (ii) a representation and evidence of ownership from
each such stockholder regarding the class and number of shares of stock of the
corporation owned by each such stockholder; and (iii) a description of the
business purpose of the meeting containing all material information relating
thereto. Such stockholders shall also submit such other information as the
Corporate Governance Committee of the Board of Directors may reasonably request,
including, without limitation, additional evidence of ownership. The Corporate
Governance Committee of the Board of Directors shall be entitled to establish
reasonable procedures relating to the conduct of such meeting including, without
limitation, the day, time and place of such meeting and who shall be entitled to
attend such meeting in addition to the stockholders and non-management members
of the Board of Directors. The Chairman of the Corporate Governance Committee of
the Board of Directors shall serve as chairman of the meeting. Such meeting
shall be held at the expense of the corporation within 45 days after the later
of the receipt of the request therefor by the Corporate Governance Committee or
the receipt of any information reasonably requested by such committee as set
forth above. The directors at any such meeting may, by resolution passed by a
majority of such directors, make recommendations to the entire Board of
Directors. No meeting called pursuant to this Section 16 shall be required to be
held at any time within six months of any other meeting called pursuant to this
Section 16 or within three months of any annual or special meeting of
stockholders.
ARTICLE IV
OFFICERS
SECTION 1. Number. The officers of the corporation shall be a
Chairman of the Board (who must be a member of the Board of Directors and who
may be a current or former employee of the corporation), a Chief Executive
Officer, a President, one or more Vice Presidents (the number thereof to be
determined by the Board of Directors), a Secretary, a Treasurer and a
Controller, each of whom shall be elected by the Board of Directors. The Board
of Directors may also elect a Vice Chairman of the Board, a Chief Operating
Officer and one or more Group Presidents and may designate one or more of the
Vice Presidents as Executive Vice Presidents or Senior Vice Presidents. Such
other officers and assistant officers and agents as may be deemed necessary may
be elected or appointed by the Board of Directors. Any two or more offices may
be held by the same person, except the offices of President and Secretary, and
the offices of President and Vice President. The Corporate Governance Committee
of the Board of Directors shall consider at least annually whether or not the
Chairman of the Board should be a past or present employee of the corporation
and shall make a recommendation to the Board of Directors based thereon. The
Chairman of the Corporate Governance Committee will be the lead member of the
non-management directors for purposes of executive sessions of the Board of
Directors when management is not present and for directing communications
between non-management directors and stockholders, including with respect to the
matters set forth in Article XIII hereof and for such other purposes as the
Board of Directors may determine.
SECTION 2. Election and Term of Office. The officers of the
corporation shall be elected annually by the Board of Directors at the first
meeting of the Board of Directors held after each annual meeting of the
stockholders. If the election of officers shall not be held at such meeting,
such election shall be held as soon thereafter as convenient. Each officer shall
hold office until such officer's successor shall have been duly elected or until
such officer's death or until such officer shall resign or shall have been
removed in the manner hereinafter provided.
SECTION 3. Removal. Any officer or agent elected or appointed
by the Board of Directors may be removed by the Board of Directors whenever in
its judgment the best interests of the corporation would be served thereby, but
such removal shall be without prejudice to the contract rights, if any, of the
person so removed. Election or appointment shall not of itself create contract
rights.
SECTION 4. Vacancies. A vacancy in any office because of
death, resignation, removal,
disqualification or otherwise, may be filled by the Board of Directors for the
unexpired portion of the term.
SECTION 5. Chairman of the Board. The Chairman of the Board
shall preside at all meetings of the Board of Directors and stockholders.
SECTION 6. Vice Chairman of the Board. The Vice Chairman of
the Board shall preside at all meetings of the Board of Directors and
stockholders in the absence of the Chairman of the Board.
SECTION 7. Chief Executive Officer. The Chief Executive
Officer shall be the principal executive officer of the corporation and, subject
to the control of the Board of Directors, shall supervise and control all of the
business and affairs of the corporation, and establish current and long-range
objectives, plans and policies. The Chief Executive Officer shall have
authority, subject to such rules as may be prescribed by the Board of Directors,
to appoint such agents and employees of the corporation as the Chief Executive
Officer shall deem necessary, to prescribe their powers, duties and
compensation, and to delegate authority to them. Such agents and employees shall
hold office at the discretion of the Chief Executive Officer. The Chief
Executive Officer shall have authority to sign, execute and acknowledge, on
behalf of the corporation, all deeds, mortgages, bonds, stock certificates,
contracts, leases, reports and all other documents or instruments necessary or
proper to be executed in the course of the corporation's regular business or
which shall be authorized by resolution of the Board of Directors; and, except
as otherwise provided by law or the Board of Directors, the Chief Executive
Officer may authorize the President, an Executive Vice President, Senior Vice
President, or other officer or agent of the corporation to sign, execute and
acknowledge such documents or instruments in the Chief Executive Officer's place
and stead. In general, the Chief Executive Officer shall perform all duties
incident to the office of Chief Executive Officer and such other duties as may
be prescribed by the Board of Directors from time to time. In the absence of the
Chairman of the Board and, if any, the Vice Chairman of the Board, the Chief
Executive Officer shall, when present, preside at all meetings of the
stockholders and the Board of Directors.
SECTION 8. President. The President shall direct, administer
and coordinate the activities of the corporation in accordance with policies,
goals and objectives established by the Chief Executive Officer and the Board of
Directors. The President shall also assist the Chief Executive Officer in the
development of corporate policies and goals. In the absence of both the Chairman
of the Board, the Vice Chairman of the Board, if any, and the Chief Executive
Officer, the President shall, when present, preside at all meetings of the
stockholders and the Board of Directors.
SECTION 9. The Chief Operating Officer, Group Presidents and
the Vice Presidents. In the absence of the President or in the event of the
President's death, inability or refusal to act, the Chief Operating Officer, the
Group Presidents and the Executive Vice Presidents in the order designated at
the time of their election, or, in the absence of any designation, then in the
order of their election (or in the event there be no Chief Operating Officer,
Group Presidents or Executive Vice Presidents or they are incapable of acting,
the Senior Vice Presidents in the order designated at the time of their
election, or, in the absence of any designation, then in the order of their
election) shall perform the duties of the President, and when so acting shall
have all the powers of and be subject to all the restrictions upon the
President. The Board of Directors may designate certain Vice Presidents as being
in charge of designated divisions, plants, or functions of the corporation's
business and add appropriate description to their title. Any Chief Operating
Officer, Group President or Vice President may sign, with the Secretary or an
Assistant Secretary, certificates for shares of the corporation; and shall
perform such other duties as from time to time may be assigned to such Chief
Operating Officer, Group President or Vice President by the Chief Executive
Officer or by the Board of Directors.
SECTION 10. The Secretary. The Secretary shall: (a) keep the
minutes of the stockholders' and of the Board of Directors' meetings in one or
more books provided for that purpose; (b) see that all notices are duly given in
accordance with the provisions of these Bylaws or as required by law; (c) be
custodian of the corporate records and of the seal of the corporation and see
that the seal of the corporation is affixed to all documents, the execution of
which on behalf of the corporation under its seal is duly authorized; (d) keep
or cause to be kept a register of the post office address of each stockholder
which shall be furnished to the Secretary by such stockholder; (e) sign with the
Chief Executive Officer, President, or any Vice President, certificates for
shares of the corporation, the issuance of which shall have been authorized by
resolution of the Board of Directors; (f) have general charge of the stock
transfer books of the corporation; and (g) in general, perform all duties
incident to the office of Secretary and such other duties as from time to time
may be assigned to the Secretary by the Chief Executive Officer or by the Board
of Directors.
SECTION 11. The Treasurer. The Treasurer shall give a bond for
the faithful discharge of the Treasurer's duties in such sum and with such
surety or sureties as the Board of Directors shall determine. The Treasurer
shall: (a) have charge and custody of and be responsible for all funds and
securities of the corporation; receive and give receipts for monies due and
payable to the corporation from any source whatsoever, and deposit all such
monies in the name of the corporation in such banks, trust companies or other
depositories as shall be selected in accordance with the provisions of Article
VI of these Bylaws; and (b) in general, perform all of the duties incident to
the office of Treasurer and such other duties as from time to time may be
assigned to the Treasurer by the Chief Executive Officer or by the Board of
Directors.
SECTION 12. The Controller. The Controller shall: (a) keep, or
cause to be kept, correct and complete books and records of account, including
full and accurate accounts of receipts and disbursements in books belonging to
the corporation; and (b) in general, perform all duties incident to the office
of Controller and such other duties as from time to time may be assigned to the
Controller by the Chief Executive Officer or by the Board of Directors.
SECTION 13. Assistant Secretaries and Assistant Treasurers.
The Assistant Secretaries may sign with the President, or any Vice President,
certificates for shares of the corporation, the issuance of which shall have
been authorized by a resolution of the Board of Directors. Assistant Treasurers
shall respectively give bonds for the faithful discharge of their duties in such
sums and with such sureties as the Board of Directors shall determine. The
Assistant Secretaries and Assistant Treasurers, in general, shall perform such
duties as shall be assigned to them by the Secretary or the Treasurer,
respectively, or by the Chief Executive Officer or the Board of Directors.
SECTION 14. Salaries. The salaries of the officers shall be
fixed from time to time by the Board of Directors and no officer shall be
prevented from receiving such salary by reason of the fact that such officer is
also a director of the corporation.
ARTICLE V
APPOINTED EXECUTIVES
SECTION 1. Vice Presidents. The Chief Executive Officer may
appoint, from time to time, as the Chief Executive Officer may see fit, and fix
the compensation of, one or more Vice Presidents whose title will include words
describing the function of such Vice President's office and the group, division
or other unit of the Company in which such Vice President's office is located.
Each of such appointed Vice Presidents shall hold office during the pleasure of
the Chief Executive Officer, shall perform such duties as the Chief Executive
Officer may assign, and shall exercise the authority set forth in the Chief
Executive Officer's letter appointing such Vice President.
SECTION 2. Assistants. The Chief Executive Officer may
appoint, from time to time, as the Chief Executive Officer may see fit, and fix
the compensation of, one or more Assistants to the Chairman, one or more
Assistants to the President, and one or more Assistants to the Vice Presidents,
each of whom shall hold office during the pleasure of the Chief Executive
Officer, and shall perform such duties as the Chief Executive Officer may
assign.
ARTICLE VI
CONTRACTS, LOANS, CHECKS AND DEPOSITS
SECTION 1. Contracts. The Board of Directors may authorize any
officer or officers, agent or agents, to enter into any contract or execute and
deliver any instrument in the name of and on behalf of the corporation, and such
authority may be general or confined to specific instances.
SECTION 2. Loans. No loans shall be contracted on behalf of
the corporation and no evidences
of indebtedness shall be issued in its name unless authorized by a resolution of
the Board of Directors. Such
authority may be general or confined to specific instances.
SECTION 3. Checks, Drafts, etc. All checks, drafts or other
orders for the payment of money, notes or other evidences of indebtedness issued
in the name of the corporation, shall be signed by such officer or officers,
agent or agents, of the corporation and in such manner as shall from time to
time be determined by resolution of the Board of Directors.
SECTION 4. Deposits. All funds of the corporation not
otherwise employed shall be deposited from time to time to the credit of the
corporation in such banks, trust companies or other depositories as the Board of
Directors may select.
ARTICLE VII
CERTIFICATE FOR SHARES AND THEIR TRANSFER
SECTION 1. Certificates for Shares. Certificates representing
shares of the corporation shall be in such form as shall be determined by the
Board of Directors. Such certificates shall be signed by the Chief Executive
Officer, President, or any Vice President and by the Treasurer or an Assistant
Treasurer, or the Secretary or an Assistant Secretary. Any or all of the
signatures on the certificate may be a facsimile. In case any officer, transfer
agent, or registrar who has signed or whose facsimile signature has been placed
upon a certificate shall have ceased to be such officer, transfer agent, or
registrar before such certificate is issued, it may be issued by the corporation
with the same effect as if such person were such officer, transfer agent, or
registrar at the date of issue. All certificates for shares shall be
consecutively numbered or otherwise identified. The name and address of the
person to whom the shares represented thereby are issued, with the number of
shares and date of issue, shall be entered on the stock ledger of the
corporation.
All certificates surrendered to the corporation for transfer
shall be canceled and no new certificate shall be issued until the former
certificate for a like number of shares shall have been surrendered and
canceled, except that in the case of a lost, destroyed or mutilated certificate,
a new one may be issued therefor upon such terms and indemnity to the
corporation as the Board of Directors may prescribe.
SECTION 2. Transfer of Shares. Transfer of shares of the
corporation shall be made only on the stock ledger of the corporation by the
holder of record thereof or by such person's legal representative, who shall, if
so required, furnish proper evidence of authority to transfer, or by such
person's attorney thereunto authorized by power of attorney duly executed and
filed with the Secretary of the corporation, and on surrender for cancellation
of the certificate for such shares. The person in whose name shares stand on the
books of the corporation shall be deemed by the corporation to be the owner
thereof for all purposes.
ARTICLE VIII
FISCAL YEAR
The fiscal year of the corporation shall begin on the first
day of November and end on the thirty-first day of October in each year.
ARTICLE IX
DIVIDENDS
The Board of Directors may from time to time declare, and the
corporation may pay, dividends on its outstanding shares in the manner and upon
the terms and conditions provided by law and by the Articles of Incorporation.
ARTICLE X
SEAL
The Board of Directors shall provide a corporate seal which
shall be circular in form and shall have inscribed thereon the name of the
corporation and the state of incorporation and the words "Corporate Seal".
ARTICLE XI
WAIVER OF NOTICE
Whenever any notice is required to be given to any stockholder
or director of the corporation under the provisions of these Bylaws or under the
provisions of the Articles of Incorporation or under the provisions of the
Delaware General Corporation Law, a waiver thereof in writing, signed at any
time by the person or persons entitled to such notice of the meeting, shall be
deemed equivalent to the giving of such notice.
ARTICLE XII
AMENDMENTS
These Bylaws may be amended or repealed and new Bylaws may be
adopted by the Board of Directors at any regular or special meeting thereof only
with the affirmative vote of at least 80% of the total number of Directors.
ARTICLE XIII
SIGNIFICANT TRANSACTIONS
The affirmative vote or consent of the holders of a majority
of all shares of stock of the corporation unconditionally entitled to vote in
elections of directors, considered for the purpose of this Article XIII as one
class, shall be required for the adoption, approval or authorization of any
significant transaction (as hereinafter defined). A proxy statement responsive
to the requirements of the Securities Exchange Act of 1934, as amended, shall be
mailed to stockholders of the corporation for purpose of soliciting stockholder
approval of such significant transaction and shall contain at the front thereof,
in a prominent place, any recommendation as to the advisability (or
inadvisability) of the significant transaction which the directors may choose to
make and an opinion of a reputable investment banking firm as to the fairness
(or not) of the terms of such significant transaction from the point of view of
the stockholders of the corporation (such investment banking firm to be selected
by a majority of the directors and to be paid a reasonable fee for their
services by the corporation upon receipt of such opinion). As used in this
Article XIII, the term "significant transaction" shall include any sale, merger,
joint venture or similar transaction of the corporation or any of its
subsidiaries of a size in excess of 25% of the assets of the corporation and its
subsidiaries, taken as a whole, as determined in good faith by the Board. The
provisions of this Article XIII shall not be applicable to any transaction
between the corporation and any of its subsidiaries or between any subsidiaries
of the corporation.
FIRST AMENDMENT
TO REVOLVING CREDIT, TERM
LOAN AND GUARANTY AGREEMENT
FIRST AMENDMENT, dated as of July 8, 1999 (the "Amendment"), to the
REVOLVING CREDIT, TERM LOAN AND GUARANTY AGREEMENT, dated as of June 7, 1999,
among HARNISCHFEGER INDUSTRIES, INC., a Delaware corporation (the "Borrower"), a
debtor and debtor-in-possession under Chapter 11 of the Bankruptcy Code, the
Guarantors named therein (the "Guarantors"), THE CHASE MANHATTAN BANK, a New
York banking corporation ("Chase"), each of the other financial institutions
party thereto (together with Chase, the "Banks") and THE CHASE MANHATTAN BANK,
as Agent for the Banks (in such capacity, the "Agent"):
W I T N E S S E T H:
WHEREAS, the Borrower, the Guarantors, the Banks and the Agent are
parties to that certain Revolving Credit, Term Loan and Guaranty Agreement,
dated as of June 7, 1999 (as the same may be further amended, modified or
supplemented from time to time, the "Credit Agreement"); and
WHEREAS, the Borrower and the Guarantors have requested that from and
after the Effective Date (as hereinafter defined) of this Amendment, the Credit
Agreement be amended subject to and upon the terms and conditions set forth
herein;
NOW, THEREFORE, the parties hereto hereby agree as follows:
1. As used herein, all terms that are defined in the Credit Agreement shall have
the same meanings herein.
2. Subparagraph (c) of the fourth paragraph of the Introductory Statement of the
Credit Agreement is hereby amended by deleting the parenthetical phrase set
forth in clause (x) thereof and inserting in lieu thereof the following:
"(limited, in the case of foreign Subsidiaries, to 65% of
the outstanding
shares thereof or other ownership interests therein)"
3. The definition of the term "EBITDA" set forth in Section 1.01 of the Credit
Agreement is hereby amended by (i) deleting the words "and (x)" appearing in the
eighth line thereof and inserting in lieu thereof the words ", (x) the debit, if
any, attributable to Minority Interests and (xi)" and (ii) deleting the words
"plus or minus (c)" appearing in the tenth line thereof and inserting in lieu
thereof the words "minus (c) the credit, if any, attributable to Minority
Interests plus or minus (d)".
4. The definition of the term "Letter of Credit" set forth in Section 1.01 of
the Credit Agreement is hereby amended by (i) inserting the words "and the
aggregate Letter of Credit Outstandings in respect of which shall not exceed
$110,000,000 at any one time" immediately following the words "satisfactory to
the Agent" appearing at the end of clause (ii)(x)(A) thereof, (ii) inserting the
words ", provided that the aggregate Letter of Credit Outstandings in respect of
Letters of Credit that are issued for such purposes of foreign Subsidiaries of
the Borrower shall not exceed $40,000,000 at any one time" immediately following
the words "with past practices" appearing at the end of clause (ii)(x)(B)
thereof and (iii) inserting the words "of the Borrower and the Guarantors"
immediately preceding the words "that are consistent with past practices"
appearing at the end of clause (ii)(y) thereof.
5. The definition of the term "Prepayment Date" set forth in Section 1.01 of the
Credit Agreement is hereby amended in its entirety to read as follows:
"Prepayment Date" shall mean July 8, 1999 if the
Final Order has not been entered by the Bankruptcy Court on or
before such date.
6. The definition of the term "Termination Event" set forth in Section 1.01 of
the Credit Agreement is hereby amended by inserting the words "Single Employer"
immediately preceding the word "Plan" each time the same appears in clauses
(iii), (iv) and (v) thereof.
7. Section 1.01 of the Credit Agreement is hereby amended by inserting the
following definition in appropriate alphabetical order:
"Minority Interests" shall mean any shares of stock
of any class of a Guarantor (other than directors' qualifying
shares if required by law) that are not owned by the Borrower
and/or one or more of the Guarantors; Minority Interests shall
be valued in accordance with GAAP."
8. Section 2.02(f) of the Credit Agreement is hereby amended by
inserting the following proviso at the end thereof:
"provided, that in the event the Borrower reimburses a draft
(or portion thereof) drawn under any Tranche C Letter of
Credit, the Borrower shall, within two Business Days, request
either (x) a new Tranche C Letter of Credit or (y) a
reallocation of a Tranche A Letter of Credit (or portion
thereof) to Tranche C (pursuant to Section 2.02(j)) in an
amount equal to the amount of such reimbursement."
9. Section 2.02 is hereby amended by inserting the following new
subsection (j) at the end thereof:
"(j) Notwithstanding anything to the contrary herein,
the Agent shall have the right, after consultation with the
Borrower, and so long as no Event of Default shall have
occurred and be continuing, to reallocate any Tranche A Letter
of Credit (or portion thereof) to Tranche C as a Tranche C
Letter of Credit (and each Tranche C Bank shall thereupon be
deemed to have purchased a participation therein as provided
for in subsection (h) above), provided that no such transfer
shall cause the Tranche C Letter of Credit Outstandings to
exceed the Total Tranche C Commitment."
10. Section 2.13(a) of the Credit Agreement is hereby amended by inserting the
parenthetical phrase "(subject to Section 2.02(f) hereof)" immediately following
the words "The Borrower shall have the right" in the first sentence thereof.
11. Section 3.01 of the Credit Agreement is hereby amended by deleting the word
"Guarantors" appearing in clause (i) thereof and inserting in lieu thereof the
word "Subsidiaries".
12. Section 3.04 of the Credit Agreement is hereby amended (i) by deleting the
word "Guarantors" each time the same appears in the second and third sentences
thereof and inserting each time in lieu thereof the word "Subsidiaries" and (ii)
by inserting the designation "(x)" immediately following the words "for the
fiscal quarter ended January 31, 1999 other than" appearing in the third
sentence thereof.
13. Section 3.05 is hereby amended by inserting the following parenthetical
phrase at the end thereof:
"(except for Subsidiaries, if any, formed or acquired
subsequent to the Filing Date as otherwise permitted
hereby)".
14. Section 3.06 of the Credit Agreement is hereby amended (x) by deleting the
word "and" immediately preceding clause (ii) thereof and inserting in lieu
thereof a comma and (y) by inserting the following new clause (iii) at the end
thereof:
"and (iii) other Liens that are permitted by this
Agreement".
15. Section 3.10 of the Credit Agreement is hereby amended by inserting at the
end thereof the words "in accordance with the Budget as provided for herein (and
including as permitted by Section 6.10)".
16. Section 4.02(d) of the Credit Agreement is hereby amended by deleting the
words "30 days after the entry of the Interim Order" appearing therein and
inserting in lieu thereof the words "on or before July 8, 1999".
1.
17. Section 6 of the Credit Agreement is hereby amended and restated in its
entirety to read as set forth on Schedule I hereto.
18. Section 7.01(i) of the Credit Agreement is hereby amended by deleting the
words "or terminating the use of cash collateral by the Borrower or the
Guarantors pursuant to the Orders" appearing therein.
19. Section 7.01(m) of the Credit Agreement is hereby amended by inserting the
words "Single Employer" immediately preceding the words "Plan" or "Plans" each
time the same appears therein.
20. Section 9.03 is hereby amended by inserting the following sentence at the
end thereof:
"To the extent any Guarantor (a "Funding Guarantor") makes a
payment hereunder in excess of the aggregate amount of all
loans and advances received by such Funding Guarantor from the
Borrower after the Filing Date (the "Inter-Company Loans"),
then such Funding Guarantor, after the payment in full of the
obligations hereunder and under the other Loan Documents,
shall be entitled to a claim under Section 364(c)(1) of the
Bankruptcy Code against each other Guarantor and the Borrower
in such amount as may be determined by the Bankruptcy Court
taking into account the relative benefits received by each
such Person, and such claim shall be deemed to be an asset of
the Funding Guarantor; provided that such claim shall be
subordinate and junior in all respects to the Superpriority
Claims of the Agent and the Banks and any other claim to which
such Superpriority Claims shall be subject as set forth in
Section 2.22 hereof."
21. Section 10.03(b) of the Credit Agreement is hereby amended by deleting
clause (i) of the first sentence thereof in its entirety and inserting in lieu
thereof the following:
"(i) the Agent and the Fronting Bank must give their
respective prior written consent, which consent will not be
unreasonably withheld, to any such assignment other than (A)
in the case of an assignment of a Tranche B Commitment (and
related Loans), an assignment to a Person at least 50% owned
by the assignor Bank or by a common parent of both or to
another Bank and (B) in the case of an assignment of a Tranche
A Commitment or a Tranche C Commitment (and related Loans or
Letters of Credit), an assignment to either an existing
Tranche A Bank or an existing Tranche C Bank,"
22. This Amendment shall not become effective until the date (the " Effective
Date") on which this Amendment shall have been executed by the Borrower, the
Guarantors, the Required Banks and the Agent, and the Agent shall have received
evidence satisfactory to it of such execution.
1.
23. Except to the extent hereby amended, the Credit Agreement and each of the
Loan Documents remain in full force and effect and are hereby ratified and
affirmed.
24. The Borrower agrees that its obligations set forth in Section 10.05 of the
Credit Agreement shall extend to the preparation, execution and delivery of this
Amendment, including the reasonable fees and disbursements of special counsel to
the Agent.
25. This Amendment shall be limited precisely as written and shall not be deemed
(a) to be a consent granted pursuant to, or a waiver or modification of, any
other term or condition of the Credit Agreement or any of the instruments or
agreements referred to therein or (b) to prejudice any right or rights which the
Agent or the Banks may now have or have in the future under or in connection
with the Credit Agreement or any of the instruments or agreements referred to
therein. Whenever the Credit Agreement is referred to in the Credit Agreement or
any of the instruments, agreements or other documents or papers executed or
delivered in connection therewith, such reference shall be deemed to mean the
Credit Agreement as modified by this Amendment.
26. This Amendment may be executed in any number of counterparts and by the
different parties hereto in separate counterparts, each of which when so
executed and delivered shall be deemed to be an original and all of which taken
together shall constitute but one and the same instrument.
27. This Amendment shall be governed by, and construed in accordance with, the
laws of the State of New York.
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be
duly executed as of the day and the year first above written.
BORROWER:
HARNISCHFEGER INDUSTRIES, INC.
By: _________________________
Title:
GUARANTORS:
AMERICAN ALLOY COMPANY
AMERICAN LONGWALL FACE CONVEYORS, INC.
AMERICAN LONGWALL, INC.
AMERICAN LONGWALL REBUILD, INC.
AMERICAN LONGWALL ROOF SUPPORTS, INC.
BELOIT CORPORATION
BELOIT PULPING GROUP, INC.
BENEFIT, INC.
FIELD REPAIR SERVICES LLC FITCHBURG
CORPORATION HARNISCHFEGER
CORPORATION HARNISCHFEGER WORLD
SERVICES CORPORATION THE HORSBURGH &
SCOTT COMPANY JOY TECHNOLOGIES INC.
OPTICAL ALIGNMENT SYSTEMS AND
INSPECTION SERVICES, INC.
PRINCETON PAPER COMPANY, LLC
RCHH, INC.
SOUTH SHORE CORPORATION
SOUTH SHORE DEVELOPMENT LLC
By: _________________________
Title:
BELOIT TECHNOLOGIES, INC.
BWRC DUTCH HOLDINGS, INC.
BWRC, INC.
DOBSON PARK INDUSTRIES, INC.
HARNISCHFEGER TECHNOLOGIES, INC.
HCHC, INC.
HCHC UK HOLDINGS, INC.
HIHC, INC.
JOY MM DELAWARE, INC.
JOY TECHNOLOGIES DELAWARE, INC.
JTI UK HOLDINGS, INC.
By: _________________________
Title:
AGENT:
THE CHASE MANHATTAN BANK,
Individually as a Tranche A Bank, Tranche B Bank and Tranche C Bank
and as Agent
By: _________________________
Title:
270 Park Avenue
New York, New York 10017
Schedule I to First Amendment
Section 6 of the Credit Agreement is hereby amended and restated in its
entirety to read as follows:
"SECTION 6. NEGATIVE COVENANTS
From the date hereof and for so long as any Loan shall remain
outstanding, any Commitment shall be in effect or any Letter of Credit shall
remain outstanding (in a face amount in excess of the amount of cash then held
in the Letter of Credit Account, or the face amount of back-to-back letters of
credit delivered, in each case pursuant to Section 2.02(c)) or any amount shall
remain outstanding or unpaid under this Agreement, unless the Required Banks
shall otherwise consent in writing, the Borrower and each of the Guarantors will
not (and will not apply to the Bankruptcy Court for authority to) and shall not
permit the Borrower's other Subsidiaries to:
SECTION 6.1 Liens. Incur, create, assume or suffer to exist any Lien on any
asset of the Borrower or the Subsidiaries, now owned or hereafter acquired by
the Borrower or any of such Subsidiaries, other than (i) Liens which were
existing on the Filing Date as reflected on Schedule 3.06 hereto; (ii) Permitted
Liens; (iii) Liens in favor of the Agent and the Banks; (iv) Liens securing
purchase money Indebtedness permitted by Section 6.03(iii); (v) Liens on the
assets of foreign Subsidiaries of the Borrower (the "Foreign Subsidiaries") to
secure Indebtedness for borrowed money of such Foreign Subsidiaries incurred
after the Filing Date for working capital and general corporate purposes in an
aggregate amount for all of the Foreign Subsidiaries not in excess of the
equivalent of U.S. $25,000,000 at any one time outstanding; (vi) Liens on the
assets of Foreign Subsidiaries granted to secure Indebtedness for borrowed money
of such Foreign Subsidiaries in existence on the Filing Date, and in an
aggregate amount not in excess of $175,000,000 provided that the sum of the
outstanding amount of the Indebtedness that is secured by Liens that are
permitted by this clause plus the Letter of Credit Outstandings of Letters of
Credit issued for the benefit of Foreign Subsidiaries and described in clauses
(ii)(x)(A) and (B) of the definition of the term "Letter of Credit" plus the
aggregate outstanding amount of advances and loans to Foreign Subsidiaries that
are permitted by Section 6.10(iv) shall not exceed $290,000,000 at any one time;
(vii) Liens on the assets of Foreign Subsidiaries in favor of the Borrower or
other Subsidiaries of the Borrower; (viii) any Lien existing on any property or
asset prior to the acquisition thereof by the Borrower or any Subsidiary,
provided that (x) such Lien is not created in contemplation of or in connection
with such acquisition, (y) such lien shall not apply to any other property or
assets of the Borrower or any Subsidiary and (z) such Lien shall secure (A) only
those obligations which it secures on the date of such acquisition or (B)
extensions, renewals and replacements thereof that do not increase the
outstanding principal amount thereof; (ix) Liens on fixed or capital assets
acquired, constructed or improved by the Borrower or any Subsidiary, provided
that (w) such Liens secure Indebtedness permitted by Section 6.03(xii), (x) such
Liens and the Indebtedness secured thereby are incurred prior to or within 90
days after such acquisition or the completion of such construction or
improvement, (y) the Indebtedness secured thereby does not exceed 100% of the
cost of acquiring, constructing or improving such fixed or capital assets and
(z) such Liens shall not apply to any other property or assets of the Borrower
or any Subsidiary; (x) attachment, judgment and other similar Liens on assets of
Foreign Subsidiaries arising in connection with court proceedings, provided such
Liens are effectively discharged within 30 days after the Foreign Subsidiary
receives notice thereof and the claims secured thereby are being actively
contested in good faith by appropriate proceedings and against which an adequate
reserve has been established; (xi) Liens created in connection with the
extension or renewal of any secured Indebtedness or other obligations permitted
under the terms of this Agreement; provided, however, that the principal amount
of the Indebtedness or other obligations secured thereby shall not exceed the
principal amount of the Indebtedness or other obligations so secured at the time
of such extension or renewal and that any Lien granted in connection with such
extension or renewal shall be limited to the same property that secured the
Indebtedness or other obligations so extended or renewed; and (xii) in addition
to the foregoing, and with the prior written consent of the Agent and the
financial advisor to the Banks in each instance, other Liens securing
Indebtedness permitted hereunder and incurred after the Filing Date, and which
Indebtedness secured by such Liens, in the aggregate, is less than the
equivalent of U.S. $10,000,000 at any one time outstanding.
SECTION 6.2 Merger, etc. Consolidate or merge with or into another Person except
that (x) any Guarantor may merge with or into any other Guarantor and (y) any
Foreign Subsidiary may merge with or into any other Foreign Subsidiary, provided
that if either of such Foreign Subsidiaries is directly owned by the Borrower or
any Guarantor, the successor Foreign Subsidiary shall also be directly owned by
the Borrower or a Guarantor. The Borrower shall give the Agent no less than 10
days' prior written notice before the consummation of any merger permitted
hereby.
SECTION 6.1
SECTION 6.3 Indebtedness. Contract, create, incur, assume or suffer to exist any
Indebtedness, or enter into any Hedge Agreement, except for (i) Indebtedness
under this Agreement; (ii) Indebtedness incurred prior to the Filing Date
(including existing Capitalized Leases); (iii) Indebtedness incurred subsequent
to the Filing Date secured by purchase money Liens (exclusive of Capitalized
Leases) in an aggregate amount not to exceed the equivalent of U.S. $10,000,000;
(iv) Capitalized Leases to the extent of Capital Expenditures permitted by
Section 6.04; (v) Indebtedness arising from Investments among the Borrower and
the Subsidiaries, and among Foreign Subsidiaries, that are permitted hereunder;
(vi) Indebtedness owed to Chase or any banking Affiliates in respect of any
overdrafts and related liabilities arising from treasury, depository and cash
management services or in connection with any automated clearing house transfers
of funds; (vii) inter-company Indebtedness in existence on the Filing Date and
set forth on Schedule 6.03(vii) hereto; (viii) additional loans and advances by
the Borrower or any Guarantor to Foreign Subsidiaries in an aggregate amount at
any one time outstanding not in excess of the amounts set forth in Section 6.10
(provided that (A) such loans and advances shall be made on a demand basis or
(if other than a demand basis) on the most favorable terms that are available to
the Borrower or such Guarantor (including with respect to collateral) as
determined in the Borrower's reasonable judgment after consultation with the
Agent and the financial advisor to the Banks, (B) all of such loans and advances
shall be evidenced by promissory notes bearing interest or discount rates, and
otherwise payable on terms, consistent with past practice or otherwise
satisfactory to the Agent and the financial advisor to the Banks, and providing
that payments thereunder shall be made without setoff, counterclaim or deduction
of any kind and (C) no such loans or advances may be made to any Foreign
Subsidiary that has become the subject of a voluntary or involuntary bankruptcy
or similar proceeding) and additional loans and advances among Foreign
Subsidiaries; (ix) Hedge Agreements that are entered into in the ordinary course
of business consistent with past practices; (x) Indebtedness incurred subsequent
to the Filing Date by a Foreign Subsidiary to a lender that is not an Affiliate
of such Foreign Subsidiary in an aggregate amount not in excess of the
equivalent of U.S. $25,000,000 at any one time outstanding; (xi) sale/lease back
transactions of Foreign Subsidiaries in an aggregate amount not in excess of the
equivalent of U.S. $5,000,000 at any one time outstanding; (xii) Indebtedness
incurred by Foreign Subsidiaries to lenders that are not Affiliates of such
Foreign Subsidiaries for the acquisition, construction or improvement of any
property after the Filing Date in an aggregate amount not in excess of the
equivalent of U.S. $5,000,000 at any one time outstanding; (xiii) obligations
incurred by a Foreign Subsidiary to the Borrower or Guarantors in connection
with a Letter of Credit procured under this Agreement on behalf of such Foreign
Subsidiary; and (xiv) Indebtedness incurred by the Borrower or a Guarantor to a
Foreign Subsidiary.
SECTION 6.4 Capital Expenditures. Make Capital Expenditures during each fiscal
quarter listed below in an aggregate amount in excess of the amount specified
opposite such fiscal quarter, provided that if the amount of the actual Capital
Expenditures that are made during any fiscal quarter is less than the amount
thereof that is permitted to be made during such fiscal quarter, the unused
portion thereof may be carried forward to and made during the immediately
following two fiscal quarters:
Fiscal Quarter Ending Maximum Capital Expenditures
July 31, 1999 $22,253,000
October 31, 1999 $17,340,000
January 31, 2000 $20,797,000
April 30, 2000 $23,079,000
July 31, 2000 $25,578,000
October 31, 2000 $25,571,000
January 31, 2001 $19,327,000
April 30, 2001 $23,701,000
Thereafter through Maturity Date $ 7,221,000
SECTION 6.5 EBITDA. (a) Permit cumulative EBITDA for each period commencing on
August 1, 1999 and ending on the last day of each fiscal month listed below to
be less than the amount specified opposite such fiscal month:
Fiscal Month EBITDA
August, 1999 ($10,819,000)
September, 1999 ($8,388,000)
October, 1999 ($4,344,000)
November, 1999 ($1,145,000)
December, 1999 $444,000
January, 2000 $9,049,000
February, 2000 $12,312,000
March, 2000 $17,098,000
April, 2000 $25,168,000
May, 2000 $29,985,000
June, 2000 $36,665,000
July, 2000 $48,286,000
August, 2000 $54,293,000
September, 2000 $63,563,000
October, 2000 $78,536,000
November, 2000 $83,824,000
December, 2000 $89,867,000
January, 2001 105,581,000
February, 2001 $113,903,000
March, 2001 $124,736,000
April, 2001 $142,830,000
May, 2001 $153,047,000
b) Permit EBITDA to be negative for any month commencing with March 2000.
SECTION 6.6 Guarantees and Other Liabilities. Purchase or repurchase (or agree,
contingently or otherwise, so to do) the Indebtedness of, or assume, guarantee
(directly or indirectly or by an instrument having the effect of assuring
another's payment or performance of any obligation or capability of so doing, or
otherwise), endorse or otherwise become liable, directly or indirectly, in
connection with the obligations, stock or dividends of any Person, except (i)
for any guaranty of Indebtedness or other obligations of the Borrower or any
Subsidiary if the Indebtedness is permitted by this Agreement, (ii) by
endorsement of negotiable instruments for deposit or collection in the ordinary
course of business and (iii) as otherwise agreed in writing by the Agent.
SECTION 6.7 Chapter 11 Claims. Incur, create, assume, suffer to exist or permit
any other Superpriority Claim which is pari passu with or senior to the claims
of the Agent and the Banks against the Borrower and the Guarantors hereunder,
except for the Carve-Out.
SECTION 6.8 Dividends; Capital Stock. Declare or pay, directly or indirectly,
any dividends or make any other distribution or payment, whether in cash,
property, securities or a combination thereof, with respect to (whether by
reduction of capital or otherwise) any shares of capital stock (or any options,
warrants, rights or other equity securities or agreements relating to any
capital stock), or set apart any sum for the aforesaid purposes, provided that
any Subsidiary may pay dividends or make other distributions to the Borrower or
to any other Subsidiary and to any third party who, on account of an equity
interest in such Subsidiary, is legally entitled to a pro rata share of such
payment.
SECTION 6.9 Transactions with Affiliates. Sell or transfer any property or
assets to, or otherwise engage in any other material transactions with, any of
its Affiliates (other than the Borrower and the Subsidiaries), other than in the
ordinary course of business at prices and on terms and conditions not less
favorable to the Borrower or its Subsidiaries than could be obtained on an
arm's-length basis from unrelated third parties and transactions among the
Borrower and its Subsidiaries in the ordinary course of business and consistent
with past practices, or as may be otherwise satisfactory to the Agent and the
financial advisor to the Banks.
SECTION 6.1
SECTION 6.10 Investments, Loans and Advances.Purchase, hold or acquire any
capital stock, evidences of indebtedness or other securities of, make or permit
to exist any loans or advances to, or make or permit to exist any investment in,
any other Person (all of the foregoing, "Investments"), except for (i) ownership
by the Borrower or the Guarantors of the capital stock of each of the
Subsidiaries listed on Schedule 3.05, (ii) Permitted Investments, (iii) advances
and loans among the Borrower and the Guarantors in the ordinary course and
consistent with past practice, (iv) advances and loans by the Borrower or the
Guarantors to Foreign Subsidiaries the terms of which advances and loans comply
with Section 6.03(viii), provided that the aggregate amount of such advances and
loans shall not exceed in the aggregate (x) $90,000,000 in the case of advances
and loans to finance the working capital requirements of Foreign Subsidiaries or
(y) $110,000,000 in the case of advances and loans that are used to repay the
Indebtedness of Foreign Subsidiaries, and provided, further, that the sum of the
advances and loans that are permitted by this Section 6.10(iv) plus the Letter
of Credit Outstandings of Letters of Credit issued for the benefit of Foreign
Subsidiaries and described in clauses (ii)(x)(A) and (B) of the definition of
the term "Letter of Credit" plus the aggregate amount of Indebtedness that is
secured by liens permitted by Section 6.01(vi) shall not exceed the aggregate
amount of $290,000,000 at any one time, and provided, further, that no such
advances or loans shall be made to finance payments to Asia Pulp & Paper Co.
Ltd.; and (v) Investments, advances and loans among Foreign Subsidiaries.
Nothing herein shall preclude the Borrower or any Subsidiary from forming
additional Foreign Subsidiaries so long as the effect of such transaction is not
to change the direct or indirect ownership or control of any assets that are
presently directly or indirectly owned or controlled by the Foreign Subsidiaries
whose ownership interests are pledged to the Banks hereunder. Notwithstanding
anything to the contrary contained in this Agreement, (1) the maximum dollar
amounts of the loans and advances that may be made pursuant to clauses (iv)(x)
and (y) of the first sentence of this Section 6.10, and the maximum amount of
Letters of Credit that are described in clauses (ii)(x)(A) and (B) of the
definition of the term "Letter of Credit", may be adjusted upwards or downwards
with the prior written consent of the Agent and the financial advisor to the
Banks, but only so long as the sum of the loans and advances that may be made
pursuant to such clauses, plus the aggregate of such Letters of Credit, does not
exceed $240,000,000 in the aggregate and (2) the sum of the aggregate loans and
advances made pursuant to clauses (iv)(x) and (y) of the first sentence of this
Section 6.10 plus the Letter of Credit Outstandings of Letters of Credit issued
for the benefit of Foreign Subsidiaries and described in clauses (ii)(x)(A) and
(B) of the definition of the term "Letter of Credit" shall not exceed
$240,000,000 in the aggregate at any time.
SECTION 6.11 Disposition of Assets. Sell or otherwise dispose of any assets
(including, without limitation, the capital stock of any Subsidiary) except for
(i) sales of inventory, fixtures and equipment in the ordinary course of
business, (ii) sales or other dispositions of other assets having a fair market
value not exceeding $10,000,000 in the aggregate; (iii) sales of excess or
obsolete property, plant and equipment; (iv) non-recourse receivable sales by
Foreign Subsidiaries; and (v) dispositions that are otherwise permitted by this
Agreement.
SECTION 6.12 Nature of Business. Modify or alter in any material manner the
nature and type of its business as conducted at or prior to the Filing Date or
the manner in which such business is conducted (except as required by the
Bankruptcy Code).
SECTION 6.13 Dividend Restrictions. Without the prior written consent of the
Agent and the financial advisor to the Banks, the Borrower shall not, and shall
not permit its Subsidiaries, to permit or place or agree to permit or place, any
restriction, directly or indirectly, on (i) the payment of dividends or other
distributions by any Subsidiary to the Borrower or (ii) the making of advances
or other cash payments by any Subsidiary to the Borrower."
1-NY/997540.2
SECOND AMENDMENT
TO REVOLVING CREDIT, TERM
LOAN AND GUARANTY AGREEMENT
SECOND AMENDMENT, dated as of July 8, 1999 (the "Amendment"), to the
REVOLVING CREDIT, TERM LOAN AND GUARANTY AGREEMENT, dated as of June 7, 1999,
among HARNISCHFEGER INDUSTRIES, INC., a Delaware corporation (the "Borrower"), a
debtor and debtor-in-possession under Chapter 11 of the Bankruptcy Code, the
Guarantors named therein (the "Guarantors"), THE CHASE MANHATTAN BANK, a New
York banking corporation ("Chase"), each of the other financial institutions
party thereto (together with Chase, the "Banks") and THE CHASE MANHATTAN BANK,
as Agent for the Banks (in such capacity, the "Agent"):
W I T N E S S E T H:
WHEREAS, the Borrower, the Guarantors, the Banks and the Agent are
parties to that certain Revolving Credit, Term Loan and Guaranty Agreement,
dated as of June 7, 1999, as amended by that certain First Amendment to
Revolving Credit, Term Loan and Guaranty Agreement, dated as of July 8, 1999 (as
the same may be further amended, modified or supplemented from time to time, the
"Credit Agreement"); and
WHEREAS, the Borrower and the Guarantors have requested that from and
after the Effective Date (as hereinafter defined) of this Amendment, the Credit
Agreement be amended subject to and upon the terms and conditions set forth
herein;
NOW, THEREFORE, the parties hereto hereby agree as follows:
1. As used herein, all terms that are defined in the Credit Agreement shall have
the same meanings herein.
2. Section 2.01(b) of the Credit Agreement is hereby amended (i) by deleting the
words "two Business Days after the entry by the Bankruptcy Court of the Final
Order" appearing therein and by inserting in lieu thereof the words "three
Business Days after the first date upon which the aggregate principal amount of
outstanding Revolving Loans is equal to or in excess of $200,000,000" and (ii)
by inserting the following sentence at the end thereof:
"The Borrowings of the Term Loans provided for in the
first sentence of this subsection (b) shall be
effected on the date set forth above by a refinancing
of outstanding Revolving Loans with Term Loans."
3. Section 2.05(c) of the Credit Agreement is hereby amended by (i) inserting at
the end of the first sentence thereof the words ", provided that the Borrower
shall be deemed to have given notice of the making of the Term Loans (but not of
the Type thereof, as to which the fourth sentence of this Section shall remain
applicable) on the first date upon which the aggregate principal amount of
outstanding Revolving Loans is equal to or in excess of $200,000,000" and (ii)
deleting the words "except as provided in the last sentence of this Section
2.05(b)" from the second sentence thereof.
4. Section 2.13(b) of the Credit Agreement is hereby amended by inserting the
following immediately preceding the word "or" appearing at the end of clause (i)
of the first sentence thereof: ", provided that, notwithstanding anything to the
contrary contained herein, no such reimbursement shall be required upon the
refinancing of outstanding Revolving Loans with Term Loans pursuant to Section
2.01(b),".
5. Section 4.02(d) of the Credit Agreement is hereby amended by deleting the
words "no later than" appearing in the tenth line thereof.
6. On June 28, 1999, certain of the Borrower's direct and indirect Subsidiaries
(that had not previously filed voluntary petitions with the Bankruptcy Court)
filed voluntary petitions with the Bankruptcy Court initiating cases under
Chapter 11 of the Bankruptcy Code. By their execution at the foot hereof under
the signature counterpart titled "New Guarantors", each of such Subsidiaries
(the "New Guarantors") agrees to become a Guarantor under the Credit Agreement
as if it had originally executed the Credit Agreement, and agrees to comply with
all of the terms of the Credit Agreement, the other Loan Documents and the
Orders, and from and after the Effective Date hereof, each such New Guarantor
shall be deemed to be a Guarantor under the Credit Agreement, and the other Loan
Documents for all purposes, and all references to "Guarantor" in the Credit
Agreement and any other Loan Document shall be deemed to include the New
Guarantors. Upon the request of the Agent, each New Guarantor agrees to execute
and deliver such additional documents, instruments, agreements (including an
amendment to the Pledge Agreement) and statements, in form and substance
satisfactory to the Agent in order to effect the intentions contemplated by this
paragraph 5.
7. This Amendment shall not become effective until the date (the "Effective
Date") on which this Amendment shall have been executed by the Borrower, the
Guarantors, the New Guarantors, the Required Banks and the Agent, and the Agent
shall have received evidence satisfactory to it of such execution, provided that
the effectiveness of paragraph 5 of this Amendment shall be subject to the entry
by the Bankruptcy Court of an order satisfactory in form and substance to the
Agent (which order may be part of the Final Order) authorizing the New
Guarantors to become Guarantors under the Credit Agreement and the other Loan
Documents.
8. Except to the extent hereby amended, the Credit Agreement and each of the
Loan Documents remain in full force and effect and are hereby ratified and
affirmed.
9. The Borrower agrees that its obligations set forth in Section 10.05 of the
Credit Agreement shall extend to the preparation, execution and delivery of this
Amendment, including the reasonable fees and disbursements of special counsel to
the Agent.
1.
10. This Amendment shall be limited precisely as written and shall not be deemed
(a) to be a consent granted pursuant to, or a waiver or modification of, any
other term or condition of the Credit Agreement or any of the instruments or
agreements referred to therein or (b) to prejudice any right or rights which the
Agent or the Banks may now have or have in the future under or in connection
with the Credit Agreement or any of the instruments or agreements referred to
therein. Whenever the Credit Agreement is referred to in the Credit Agreement or
any of the instruments, agreements or other documents or papers executed or
delivered in connection therewith, such reference shall be deemed to mean the
Credit Agreement as modified by this Amendment.
11. This Amendment may be executed in any number of counterparts and by the
different parties hereto in separate counterparts, each of which when so
executed and delivered shall be deemed to be an original and all of which taken
together shall constitute but one and the same instrument.
12. This Amendment shall be governed by, and construed in accordance with, the
laws of the State of New York.
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be
duly executed as of the day and the year first above written.
BORROWER:
HARNISCHFEGER INDUSTRIES, INC.
By: _________________________
Title:
GUARANTORS:
AMERICAN ALLOY COMPANY
AMERICAN LONGWALL FACE CONVEYORS, INC.
AMERICAN LONGWALL, INC.
AMERICAN LONGWALL REBUILD, INC.
AMERICAN LONGWALL ROOF SUPPORTS, INC.
BELOIT CORPORATION
BELOIT PULPING GROUP, INC.
BENEFIT, INC.
FIELD REPAIR SERVICES LLC
FITCHBURG CORPORATION
HARNISCHFEGER CORPORATION
HARNISCHFEGER WORLD SERVICES CORPORATION
THE HORSBURGH & SCOTT COMPANY
JOY TECHNOLOGIES INC.
OPTICAL ALIGNMENT SYSTEMS AND INSPECTION
SERVICES, INC.
PRINCETON PAPER COMPANY, LLC
RCHH, INC.
SOUTH SHORE CORPORATION
SOUTH SHORE DEVELOPMENT LLC
By: _________________________
Title:
BELOIT TECHNOLOGIES, INC.
BWRC DUTCH HOLDINGS, INC.
BWRC, INC.
DOBSON PARK INDUSTRIES, INC.
HARNISCHFEGER TECHNOLOGIES, INC.
HCHC, INC.
HCHC UK HOLDINGS, INC.
HIHC, INC.
JOY MM DELAWARE, INC.
JOY TECHNOLOGIES DELAWARE, INC.
JTI UK HOLDINGS, INC.
By: _________________________
Title:
NEW GUARANTORS:
AMERICAN LONGWALL MEXICO, INC.
BELOIT INTERNATIONAL SERVICES, INC.
BELOIT IRON WORKS, INC.
DOBSON MANAGEMENT SERVICES, INC.
GULLICK DOBSON, INC.
HARNISCHFEGER CREDIT CORPORATION
HARNISCHFEGER OVERSEAS, INC.
JOY INTERNATIONAL SALES
CORPORATION, INC.
MINING SERVICES, INC.
MIP PRODUCTS, INC.
PEAC, INC.
PMAC, INC.
RADER RESOURCE RECOVERY, INC.
RYL, LLC
SMK COMPANY
By: _________________________
Title:
ECOLAIRE EXPORT FSC, INC.
ECOLAIRE INCORPORATED
INDUSTRIAL CLEAN AIR, INC.
J.P.D., INC.
JOY ENERGY SYSTEMS, INC.
JOY POWER PRODUCTS, INC.
NEW ECOLAIRE, INC.
P.W.E.C., INC.
PEABODY & WIND ENGINEERING CORPORATION
SMITH MACHINE WORKS, INC.
By: _________________________
Title:
BELOIT HOLDINGS, INC.
By: _________________________
Title:
JOY ENVIRONMENTAL TECHNOLOGIES, INC.
By: _________________________
Title:
PEOC, INC.
By: _________________________
Title:
AGENT:
THE CHASE MANHATTAN BANK,
Individually as a Tranche A Bank, Tranche B Bank and Tranche C Bank
and as Agent
By: _________________________
Title:
270 Park Avenue
New York, New York 10017
<TABLE>
<CAPTION>
Exhibit 11
HARNISCHFEGER INDUSTRIES, INC.
CALCULATION OF EARNINGS PER SHARE
(Dollar amounts in thousands except per share amounts)
Three Months Ended Nine Months Ended
July 31, July 31,
--------------------------- ----------------------------
1999 1998 1999 1998
<S> <C> <C> <C> <C>
Average common shares outstanding
Basic 46,516 46,339 46,267 46,499
============ ============= ============ =============
Diluted 46,516 46,339 46,267 46,499
============ ============= ============ =============
(Loss) from continuing operation $(1,019,403) $(38,604) $(1,110,060) $(136,401)
Income from discontinued operation,
net of applicable income taxes - - - 4,376
Gain on sale of discontinued operation,
net of applicable income taxes - - - 151,500
============ ============= ============ =============
Net Income (loss) $(1,019,403) $(38,604) $(1,110,060) $ 19,475
============ ============= ============ =============
Basic Earnings Per Share
(Loss) from continuing operations $ (21.92) (0.83) $ (23.99) $ (2.93)
Income and net gain from sale of
discontinued operation - - - 3.35
------------ ------------- ------------ -------------
Net Income (loss) $ (21.92) $ (0.83) $ (23.99) $ 0.42
============ ============= ============ =============
Diluted Earnings Per Share
(Loss) from continuing operations $ (21.92) $ (0.83) $ (23.99) $ (2.93)
Income and net gain from sale of
discontinued operation - - - 3.35
------------ ------------- ------------ -------------
Net Income (loss) $ (21.92) $ (0.83) $ (23.99) $ 0.42
============ ============= ============ =============
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
(Replace this text with the legend)
</LEGEND>
<CIK> 0000801898
<NAME> Harnischfeger Industries, Inc.
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> Oct-31-1999
<PERIOD-START> Nov-01-1998
<PERIOD-END> Jul-31-1999
<CASH> 60,016
<SECURITIES> 0
<RECEIVABLES> 664,870
<ALLOWANCES> 84,257
<INVENTORY> 543,154
<CURRENT-ASSETS> 1,250,888
<PP&E> 1,065,141
<DEPRECIATION> 542,592
<TOTAL-ASSETS> 2,448,520
<CURRENT-LIABILITIES> 1,230,975
<BONDS> 0
0
0
<COMMON> 51,669
<OTHER-SE> (502,260)
<TOTAL-LIABILITY-AND-EQUITY> 2,448,520
<SALES> 1,366,128
<TOTAL-REVENUES> 1,377,447
<CGS> 1,606,586
<TOTAL-COSTS> 2,219,537
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 57,611
<INCOME-PRETAX> (899,701)
<INCOME-TAX> (221,734)
<INCOME-CONTINUING> (1,110,060)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,110,060)
<EPS-BASIC> (23.99)
<EPS-DILUTED> (23.99)
</TABLE>
