SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
/X/ Annual report pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934 for the fiscal year ended October 31, 1999.
/ / 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 or Jurisdiction of (I.R.S. Employer Identification No.)
Incorporation or Organization)
3600 South Lake Drive, St. Francis, Wisconsin 53235-3716
(Address of Principal Executive Office) (Zip Code)
Registrant's Telephone Number, Including Area Code: (414) 486-6400
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Title of Each Class
Common Stock, $1 Par Value
Preferred Stock Purchase Rights
Indicate by check mark 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 check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. / /
The aggregate market value of Registrant's Common Stock held by
non-affiliates, as of February 11, 2000, based on a closing price of $0.875 per
share, was approximately $42.0 million.
The number of shares outstanding of Registrant's Common Stock, as of
February 11, 2000, was 47,949,089.
HARNISCHFEGER INDUSTRIES, INC.
(Debtor-in-Possession as of June 7, 1999)
INDEX TO
ANNUAL REPORT ON FORM 10-K
For The Year Ended October 31, 1999
Page
Part I
Item 1. Business.................................................... 3
Item 2. Properties.................................................. 6
Item 3. Legal Proceedings........................................... 8
Item 4. Submission of Matters to
a Vote of Security Holders................................. 9
Part II
Item 5. Market for Registrant's Common
Equity and Related Stockholder Matters..................... 9
Item 6. Selected Financial Data..................................... 10
Item 7. Management's Discussion and Analysis of
Financial Condition and Results of Operations.............. 11
Item 7a. Quantitative and Qualitative Disclosures
About Market Risk........................................... 22
Item 8. Financial Statements and Supplementary Data.................. 23
Item 9. Changes in and Disagreements with Accountants
on Accounting and Financial Disclosure...................... 24
Part III
Item 10. Directors and Executive Officers of the Registrant........... 24
Item 11. Executive Compensation....................................... 26
Item 12. Security Ownership of Certain Beneficial Owners
and Management.............................................. 31
Item 13. Certain Relationships and Related Transactions............... 31
Part IV
Item 14. Exhibits, Financial Statement Schedules, and
Reports on Form 8-K........................................ 32
Signatures ...................................................... 66
PART I
Item 1. Business
General
Harnischfeger Industries, Inc. ("Harnischfeger" or the "Company") is
involved in the worldwide manufacture, distribution and servicing of surface
mining equipment (P&H Mining Equipment or "P&H") and underground mining
machinery (Joy Mining Machinery or "Joy"). Harnischfeger is the direct successor
to a business begun over 115 years ago which, at October 31, 1999, through its
subsidiaries, manufactures and markets products classified into two business
segments: Surface Mining Equipment and Underground Mining Machinery. P&H is a
major producer of surface mining equipment for the extraction of ores and
minerals and provides extensive operational support for many types of equipment
used in surface mining. Joy is a major manufacturer of underground mining
equipment for the extraction of bedded minerals and offers comprehensive service
locations near major mining regions worldwide.
This document contains forward-looking statements. When used in this
document, terms such as "anticipate", "believe", "estimate", "expect",
"indicate", "may be", "objective", "plan", "predict", "will be", and the like
are intended to identify such statements. Forward-looking statements are subject
to certain risks, uncertainties and assumptions that could cause actual results
to differ materially from those projected, including without limitation, those
described below under the heading "Cautionary Factors".
Reorganization Under Chapter 11
On June 7, 1999, the Company and substantially all of 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, and P&H Mining Equipment. The Debtors' Chapter
11 cases are jointly administered for procedural purposes only under case number
99-2171. The issue of substantive consolidation of the Debtors has not been
addressed. Unless Debtors are substantively consolidated under a confirmed plan
of reorganization, payment of prepetition claims of each Debtor may
substantially differ from payment of prepetition claims of other Debtors. See
also Item 7 - Management's Discussion and Analysis of Financial Condition and
Results of Operations for further discussion of the bankruptcy proceedings.
Discontinued Operation
On October 8, 1999, the Company announced its plan to dispose of its Pulp
and Paper Machinery segment owned by Beloit Corporation and its subsidiaries
(the "Beloit Segment"). See Item 7 - Management's Discussion and Analysis of
Financial Condition and Results of Operations. This segment has been classified
as a discontinued operation as is more fully discussed in Note 3 - Discontinued
Operations in Notes to Consolidated Financial Statements included in Item 8 -
Financial Statements and Supplementary Data and Item 14 - Exhibits, Financial
Statement Schedules, and Reports on Form 8-K. Accordingly, Item 1 - Business and
Item 2 - Properties describe the Company's continuing businesses without the
Beloit Segment.
DIP Facility
On July 8, 1999, the Bankruptcy Court approved a two-year, $750 million
Revolving Credit Term Loan and Guaranty Agreement underwritten by Chase
Manhattan Bank (the "DIP Facility"). The DIP Facility is more fully discussed in
Item 7- Management's Discussion and Analysis of Financial Condition and Results
of Operations and Note 10 - Borrowings and Credit Facilities in Notes to
Consolidated Financial Statements included in Item 8 - Financial Statements and
Supplementary Data and Item 14 - Exhibits, Financial Statement Schedules, and
Reports on Form 8-K.
Surface Mining Equipment
P&H is the world's largest producer of electric mining shovels and, in
recent years, large walking draglines and is a major provider of manufacturing,
repair and support services for the surface mining industry through it's MinePro
Services group. In addition, P&H is a significant producer of large diameter
blasthole drills and dragline bucket products. P&H products are used in mines,
quarries and earth moving operations in the digging and loading of coal, copper,
gold, iron ore, lead, zinc, bauxite, uranium, phosphate, stone, clay and other
minerals and ores. P&H MinePro Services personnel are strategically located
close to customers in major mining centers around the world to provide service,
training, repairs, rebuilds, used equipment services, parts and enhancement
kits.
Electric mining shovels range in capacity from 18 to 80 cubic yards.
Capacities for walking draglines range from 20 to 150 cubic yards. Blasthole
drill models have drilling diameters ranging from 9 to 22 inches and bit load
capacities from 70,000 to 150,000 pounds.
P&H has a relationship in the electric mining shovel business with Kobe
Steel, Ltd. ("Kobe") pursuant to which P&H licenses Kobe to manufacture certain
electric mining shovels and related replacement parts in Japan. P&H has the
exclusive right to market Kobe-manufactured mining shovels and parts outside
Japan (except in the case of certain government sales). In addition, P&H is
party to an agreement with a corporate unit of the People's Republic of China
licensing the manufacture and sale of two models of electric mining shovels and
related components. This relationship provides P&H with an opportunity to sell
component parts for shovels built in China.
Underground Mining Machinery
Joy believes it is a leading manufacturer of underground mining equipment.
It manufactures and services mining equipment for the underground extraction of
coal and other bedded materials. Joy has significant facilities in Australia,
South Africa, the United Kingdom and the United States, as well as sales offices
in Poland, India, Russia, and the People's Republic of China. Joy products
include: continuous miners; complete longwall mining systems; longwall shearers;
roof supports; armored face conveyors; shuttle cars; continuous haulage systems;
flexible conveyor trains; and roof bolters. Joy also maintains an extensive
network of service and replacement parts distribution centers to rebuild and
service equipment and to sell replacement parts in support of its installed
base. This network includes eight service centers in the United States and five
outside of the United States, all of which are strategically located in major
underground mining regions.
Certain Financial Information
Financial information about our business segments and geographic areas of
operation are contained in Note 24 - Business Segment Information in Notes to
Consolidated Financial Statements included in Item 8 - Financial Statements and
Supplementary Data and Item 14 - Exhibits, Financial Statement Schedules, and
Reports on Form 8-K.
International Operations
Foreign sales of the Surface Mining Equipment segment generated
approximately 65% of the segment's consolidated net sales in 1999, 68% in 1998,
and 71% in 1997. Foreign sales of the Underground Mining Machinery segment
approximated 43% in 1999, 27% in 1998, and 42% in 1997. See Note 24 - Business
Segment Information in Notes to Consolidated Financial Statements included in
Item 8 - Financial Statements and Supplementary Data and Item 14 - Exhibits,
Financial Statement Schedules, and Reports on Form 8-K.
Harnischfeger's international operations are subject to certain risks not
generally applicable to its domestic businesses, including currency
fluctuations, changes in tariff restrictions, restrictive regulations of foreign
governments (including price and exchange controls), and other governmental
actions. Harnischfeger has entered into various foreign currency exchange
contracts with major international financial institutions designed to minimize
its exposure to exchange rate fluctuations on foreign currency transactions. See
"Cautionary Factors" below for additional risks associated with international
operations.
Employees
As of October 31, 1999, Harnischfeger employed approximately 6,780 people
in its continuing operations, of which approximately 4,350 were employed in the
United States. Approximately 1,635 of the U. S. employees are represented by
local unions under collective bargaining agreements. Harnischfeger believes that
it maintains generally good relationships with its employees.
Seasonality
The Company's businesses, excluding aftermarket activity, are subject to
cyclical movements in the markets for both surface and underground mining
equipment.
Distribution
P&H and Joy sales are made mostly through the segments' headquarters and
sales offices located around the world. The manufacture and sale of repair and
replacement parts and the servicing of equipment are important aspects of the
Company's businesses.
Competitive Conditions
P&H and Joy conduct their domestic and foreign operations under highly
competitive market conditions, requiring that their products and services be
competitive in price, quality, service and delivery.
P&H is the leading manufacturer of electric mining shovels and, in recent
years, large walking draglines. P&H's shovels and draglines compete with similar
products made by another U.S. manufacturer and, in certain foreign markets in
smaller sizes of such equipment, with foreign manufacturers. These products also
compete with hydraulic mining excavators, large rubber tired front end loaders
and bucket wheel excavators in certain mining applications. P&H's large rotary
blasthole drills compete with several worldwide drill manufacturers. P&H's
aftermarket services compete with a large number of primarily regional
suppliers.
Joy believes it is a leading manufacturer of underground mining equipment.
Its continuous mining machinery, longwall shearers, continuous haulage
equipment, roof supports and armored face conveyors compete with a number of
worldwide manufacturers of such equipment. Joy's rebuild services compete with a
large number of local repair shops. Joy competes with various regional suppliers
in the sale of replacement parts for Joy equipment.
Both P&H and Joy compete on the basis of providing superior productivity,
reliability and service and lower overall cost to their customers.
Backlog
Backlog by business segment for the Company's continuing operations as of
October 31 was:
In thousands 1999 1998 1997
- --------------------------------------------------------------------------------
Surface Mining Equipment $ 141,950 $ 204,451 $ 165,987
Underground Mining Machinery 218,458 181,555 192,353
------------- ------------- -------------
$ 360,408 $ 386,006 $ 358,340
============= ============= =============
Raw Materials
P&H purchases raw and semi-processed steel, castings, forgings, copper and
other materials from a number of suppliers. In addition, component parts, such
as engines, bearings, controls, hydraulic components, and a wide variety of
mechanical and electrical items, are purchased from approximately 1,500
suppliers. Purchases of materials and components are made on a competitive basis
with no single source being dominant.
Joy purchases electric motors, gears, hydraulic parts, electronic
components, forgings, steel, clutches and other components and raw materials
from outside suppliers. Although Joy purchases certain components and raw
materials from a single supplier, alternative sources of supply are available
for all such items. Joy believes that it has adequate sources of supply for
component parts and raw materials for its manufacturing requirements. No single
source is dominant.
Patents and Licenses
P&H and Joy and their respective subsidiaries own numerous patents and
trademarks and have patent licenses from others relating to their respective
products and manufacturing methods. Also, patent licenses are granted to others
throughout the world and royalties are received under most of these licenses.
While Harnischfeger does not consider any particular patent or license or group
of patents or licenses to be essential to its respective businesses, it
considers its patents and licenses significant to the conduct of its businesses
in certain product areas.
Research and Development
Harnischfeger maintains a strong commitment to research and development
with engineering staffs that are engaged in full-time research and development
of new products and improvement of existing products. P&H and Joy pursue
technological development through the engineering of new products, systems and
applications; the improvement and enhancement of licensed technology; and
synergistic acquisitions of technology by segment. Research and development
expenses were $11.1 million in 1999, $18.0 million in 1998 and $15.7 million in
1997.
Environmental and Health and Safety Matters
The activities of the Company are regulated by federal, state and local
statutes, regulations and ordinances relating to both environmental protection
and worker health and safety. These laws govern current operations, require
remediation of environmental impacts associated with past or current operations,
and under certain circumstances provide for civil and criminal penalties and
fines, as well as injunctive and remedial relief. The Company's foreign
operations are subject to similar requirements as established by their
respective countries.
The Company has expended substantial managerial and financial resources in
developing and implementing actions for continued compliance with these
requirements. The Company believes that it has substantially satisfied these
diverse requirements. However, because these requirements are complex and, in
many areas, rapidly evolving, there can be no guarantee against the possibility
of sizeable additional costs for compliance in the future. These same
requirements must also be met by the Company's competitors and, therefore, the
costs for present and future compliance with these laws should not create a
competitive disadvantage. Further, these laws have not had, and are not
presently expected to have, a material adverse effect on the Company.
The Company's operations or facilities have been and may become the subject
of formal or informal enforcement actions or proceedings for alleged
noncompliance with either environmental or worker health and safety laws or
regulations. Such matters have typically been resolved through direct
negotiations with the regulatory agency and have typically resulted in
corrective actions or abatement programs. However, in some cases, fines or other
penalties have been paid. Historically, neither such commitments nor such
penalties have been material.
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. Actual results may differ
materially. In addition to the assumptions and other factors referred to
specifically in connection with such statements, the following factors, among
others, could cause actual results to differ materially from those contemplated.
The Company's principal businesses involve designing, manufacturing,
marketing and servicing large, complex machines. Significant 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 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, between 25% and 65%
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 Company's degree of success in executing its plan of
disposition of Beloit; the ability to successfully prepare, have confirmed
and implement a plan of reorganization; the availability of financing and
refinancing; and the Company's ability to comply with covenants in its 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 and other ores and minerals;
the cash flows of customers; the cost and availability of financing to
customers and the ability of customers to obtain regulatory approval for
investments in mining projects; consolidations among customers; work
stoppages at customers or providers of transportation; and the timing,
severity and duration of customer buying cycles.
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 customers 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; 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 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 2. Properties
As of October 31, 1999, the following principal properties of the Company's
continuing operations were owned, except as indicated. All of these properties
are generally suitable for operations.
Harnischfeger owns a 94,000 square foot office building in St. Francis,
Wisconsin, which is used as its worldwide corporate headquarters.
SURFACE MINING EQUIPMENT LOCATIONS
Floor Space Land Area
Location (Sq. Ft.) (Acres) Principal Operations
Milwaukee, Wisconsin.........1,067,000 46 Electric mining shovels,
electric and diesel-electric
draglines and large diameter
rotary blasthole drills.
Milwaukee, Wisconsin......... 180,000 13 Electrical products.
Cleveland, Ohio.............. 270,000 8 Gearing manufacturing.
Cleveland, Ohio.............. 70,000 (1) 2 Rebuild service center.
Gillette, Wyoming............ 29,500 (2) 3 Rebuild service center.
Mesa, Arizona................ 17,000 5 Rebuild service center.
Kilgore, Texas............... 12,400 4 Rebuild Service Center
Bassendean, Australia........ 72,500 5 Components and parts for
mining machinery.
Mt. Thorley, Australia....... 81,800 11 Components and parts for
mining machinery.
Mackay, Australia............ 35,500 3 Components and parts for
mining machinery.
Johannesburg, So. Africa.... 44,000 (3) 1 Rebuild service center.
Belo Horizonte, Brazil....... 37,700 1 Components and parts for
mining shovels.
Santiago, Chile.............. 6,800 1
Antofagasta, Chile........... 21,000 1 Rebuild service center.
Calama, Chile................ 5,500 1
UNDERGROUND MINING MACHINERY LOCATIONS
Floor Space Land Area
Location (Sq. Ft.) (Acres) Principal Operations
Franklin, Pennsylvania....... 739,000 58 Underground mining machinery,
components and parts.
Reno, Pennsylvania........... 121,400 22 Components and parts for
mining machinery.
Brookpark, Ohio.............. 85,000 4 Components and parts for
mining machinery.
Solon, Ohio.................. 101,200 10.6 Components and parts for
mining machinery.
Abingdon, Virginia .......... 63,400 22 Underground mining machinery
and components.
Bluefield, Virginia.......... 102,160 15
Duffield, Virginia........... 90,000 11
Homer City, Pennsylvania..... 79,920 10
Meadowlands, Pennsylvania.... 117,899 13 Mining machinery rebuild,
Mt. Vernon, Illinois......... 107,130 12 service and parts sales.
Price, Utah.................. 44,200 6
Wellington, Utah............. 68,000 60
Kurri Kurri, Australia....... 61,000 7 Mining machinery rebuild,
service and parts sales.
McCourt Road, Australia...... 101,450 33 Underground mining machinery,
components and parts.
Parkhurst, Australia......... 33,500 15 Rebuild service center.
Cardiff, Australia........... 22,600 (4) 3 Repair service center.
Wollongong, Australia........ 27,000 (4) 4 Roof bolting equipment.
Steeledale, South Africa..... 285,140 12.6 Underground mining machinery,
components and parts.
Wadeville, South Africa...... 184,620 28.6 Underground mining machinery
assembly and service.
Pinxton, England............. 76,000 10 Service and rebuild.
Wigan, England............... 337,000 27 Mining machinery, components
and parts.
Worcester, England........... 100,000 9 Mining machinery, components
and parts.
- -------------------------
(1) Under a lease expiring in 2002.
(2) Under a lease expiring in 2000.
(3) Under a lease expiring in 2005.
(4) Under a lease expiring in 2001.
The surface mining equipment segment operates warehouses in Casper and
Gillette, Wyoming; Cleveland, Ohio; Hibbing, Minnesota; Charleston, West
Virginia; Milwaukee, Wisconsin; Mesa, Arizona; Elco, Nevada; Hinton, Sparwood,
and Cornwall, Canada; Mt. Thorley, Australia; Belo Horizonte, Brazil; Santiago,
Iquique and Calama, Chile; Johannesburg, South Africa; and Puerto Ordaz,
Venezuela. The warehouses in Casper, Hibbing, Milwaukee, Mt. Thorley, Belo
Horizonte and Johannesburg are owned; the others are leased. In addition, the
segment leases sales offices throughout the United States and in principal
surface mining locations in other countries.
The underground mining machinery segment operates warehouses in Green
River, Wyoming; Pineville, West Virginia; Brookwood, Alabama; Carlsbad, New
Mexico; Norton, Virginia; Lovely and Henderson, Kentucky; Cardiff, Emerald,
Kurri Kurri, Moranbah and Lithgow, Australia; Hendrina and Secunda, South
Africa. All warehouses are owned except for the warehouses in Lovely and
Henderson, Kentucky; and Secunda, South Africa, which are leased.
Item 3. Legal Proceedings
Chapter 11 Bankruptcy Filing
As a result of the bankruptcy filings, litigation relating to prepetition
claims against the Debtors is stayed. The Bankruptcy Court has, however, lifted
the stay with regard to certain litigation. See also Item 1 - Reorganization
under Chapter 11 and Item 7 - Management's Discussion and Analysis of Financial
Condition and Results of Operations for information regarding our bankruptcy
proceedings, which is incorporated herein by reference.
General
The Company is a party to litigation matters and claims that are normal in
the course of its operations. 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.
Environmental
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.
Other Matters
The Company and certain of its present and former 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 prepetition 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 under APP
Arbitration below) violated the federal securities laws. The Company has sought
to extend the stay imposed by the Bankruptcy Code to stay this litigation.
Because the Company's motion has not yet been resolved, this litigation is
currently stayed.
The Company and certain of its current and former directors have been named
defendants in a purported class action, entitled Brickell Partners, Ltd.,
Plaintiff v. Jeffery T. Grade et. al., in the Court of Chancery of the State of
Delaware. This prepetition 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.
Potlatch Litigation
Filed originally in 1995, the Potlatch lawsuit is a prepetition claim
against Beloit related to a 1989 purchase of pulp line washers supplied by
Beloit for less than $15 million. In June 1997, a Lewiston, Idaho jury awarded
Potlatch $95 million in damages in the case which, together with fees, costs and
interest to April 2, 1999, approximated $120 million. On April 2, 1999 the
Supreme Court of Idaho vacated the judgment 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 filed a motion with the
Bankruptcy Court to lift the stay. The Company opposed this motion and the
motion was denied.
APP Arbitration
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 million. The first two machines were substantially paid for
and installed at APP facilities in Indonesia. Beloit sold approximately $44
million 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. Beloit 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.
Beloit received a $46 million down payment from APP and issued letters of credit
in the amount of the down payment. In addition, the Company repurchased various
notes receivable due from APP in December 1998 and February 1999 of $2.8 million
and $16.2 million, 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. 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 million 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
million paid to Beloit's Asian subsidiaries for the second two machines. APP
also seeks recovery of other damages it alleges were caused by Beloit's Asian
subsidiaries' claimed breaches. The $46 million is included in liabilities
subject to compromise. See Note 9 - Liabilities Subject to Compromise in Notes
to Consolidated Financial Statements included in Item 8 - Financial Statements
and Supplementary Data and Item 14 - Exhibits, Financial Statement Schedules,
and Reports on Form 8-K. The APP arbitration involving Beloit's non-Debtor
affiliates is not stayed by the Bankruptcy Code. In addition, APP seeks a
declaration in the arbitration that it has no liability under certain promissory
notes. A hearing on the merits began on January 31, 2000 and is expected to
continue for approximately four weeks. A decision of the arbitration panel is
expected in March or April, 2000. 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 prohibits Beloit from acting on the notes receivable
from APP except in the Singapore arbitration. Beloit and its Asian subsidiaries
will vigorously defend against all of APP's assertions. APP has attempted to
draw on approximately $15.9 million 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 letters
of credit. 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, but has been stayed pending the outcome of the Singapore
arbitration with APP. 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 the assets associated with these
two machines to alternative customers.
Item 4. Submission of Matters to a Vote of Security Holders
No matters were submitted to a vote of security holders during the last
quarter of fiscal 1999.
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters
Harnischfeger common stock (including the associated preferred stock
purchase rights) traded on the New York Stock Exchange (NYSE) and Pacific
Exchange under the symbol "HPH" until December 8, 1999. Currently, the Company's
stock is traded over the counter using the symbol "HRZI". At January 31, 2000,
there were approximately 2,300 holders of record of Harnischfeger common stock.
The following table sets forth the high and low sales prices as reported on
the NYSE and dividends paid for the periods indicated:
Fiscal 1999 Dividends
High Low (per share)
------------ ---------------- ----------
First Quarter $ 11 3/8 $ 8 1/16 $ 0.10
Second Quarter 11 1/4 5 1/4 -
Third Quarter 10 3/16 11/16 -
Fourth Quarter 2 1 -
Fiscal 1998 Dividends
High Low (per share)
------------ ---------------- ----------
First Quarter $ 40 $ 32 5/32 $ 0.10
Second Quarter 35 15/16 27 0.10
Third Quarter 32 24 13/16 0.10
Fourth Quarter 24 7/8 6 1/8 0.10
Shortly before the filing of this report, the common stock traded at a
price of approximately $ 7/8 per share. As a result of the Chapter 11
proceedings, the Company will not pay cash dividends in the foreseeable future.
The Company's DIP Facility contains covenants which restrict the declaration and
payment of dividends.
Item 6. Selected Financial Data
The following table sets forth certain selected historical financial data
of the Company as of October 31, on a consolidated basis. The selected
consolidated financial data was derived from the Consolidated Financial
Statements of the Company. Beloit has been classified as a discontinued
operation as of October 31, 1999 and, accordingly, the results of operations of
prior years have been restated to reflect classifying the Beloit segment as a
discontinued operation. The balance sheet data has not been restated for 1998
and other prior years. The selected consolidated financial data should be read
in conjunction with the Consolidated Financial Statements of the Company
appearing in Item 8 - Financial Statements and Supplementary Data and Item 14 -
Exhibits, Financial Statement Schedules, and Reports on Form 8-K.
<TABLE>
<CAPTION>
RESULTS OF OPERATIONS
Years Ended October 31,
1999* 1998 1997 1996 1995
In thousands except per share amounts ----------- ----------- ---------- ----------- -----------
- -------------------------------------- ----------- ----------- ---------- ----------- -----------
Revenues
<S> <C> <C> <C> <C> <C>
Net sales $ 1,114,146 $ 1,212,307 $ 1,467,341 $ 1,405,936 $ 941,779
Other income 3,909 1,324 18,023 5,769 5,530
----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- -----------
1,118,055 1,213,631 1,485,364 1,411,705 947,309
Cost of sales 922,806 916,970 1,090,947 1,035,812 696,337
Product development, selling and
administrative expenses 238,952 235,268 217,629 213,492 148,164
Strategic and financing initiatives 7,716 -- -- -- --
Reorganization items 20,304 -- -- -- --
Restructuring charge 11,997 -- -- -- --
Charge related to executive changes 19,098 -- -- -- --
----------- ----------- ----------- ----------- -----------
(102,818) 61,393 176,788 162,401 102,808
Interest expense - net (28,865) (70,600) (70,259) (60,988) (38,717)
Joy Merger cost -- -- -- -- (17,459)
Gain on sale of Measurex investment -- -- -- -- 29,657
----------- ----------- ----------- ----------- -----------
Operating income (loss) (131,683) (9,207) 106,529 101,413 76,289
(Provision) benefit for income taxes (220,448) 24,608 (36,519) (36,898) (28,320)
Minority interest (957) (1,035) (2,129) (1,547) (1,359)
----------- ----------- ----------- ----------- -----------
Income (loss) from continuing operations (353,088) 14,366 67,881 62,968 46,610
Income (loss) from discontinued operations,
net of applicable income taxes (798,180) (184,399) 70,399 51,249 36,223
Gain (loss) on disposal of discontinued operations,
net of applicable income taxes (529,000) 151,500 -- -- (21,948)
Extraordinary loss on retirement of debt,
net of applicable income taxes -- -- (12,999) -- (3,481)
----------- ----------- ----------- ----------- -----------
Net income (loss) $(1,680,268) $ (18,533) $ 125,281 $ 114,217 $ 57,404
=========== =========== =========== =========== ===========
Earnings (Loss) Per Share - Basic
Income (loss) from continuing operations $ (7.62) $ 0.31 $ 1.42 $ 1.34 $ 1.00
Income (loss) from and net gain (loss)
on disposal of discontinued operations (28.65) (0.71) 1.47 1.08 0.32
Extraordinary loss on retirement of debt -- -- (0.27) -- (0.08)
----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- -----------
Net income (loss) per common share $ (36.27) $ (0.40) $ 2.62 $ 2.42 $ 1.24
=========== =========== =========== =========== ===========
=========== =========== =========== =========== ===========
Earnings (Loss) Per Share - Diluted
Income (loss) from continuing operations $ (7.62) $ 0.31 $ 1.41 $ 1.32 $ 1.00
Income (loss) from and net gain (loss)
on disposal of discontinued operations (28.65) (0.71) 1.45 1.08 0.31
Extraordinary loss on retirement of debt -- -- (0.27) -- (0.08)
----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- -----------
Net income (loss) per common share $ (36.27) $ (0.40) $ 2.59 $ 2.40 $ 1.23
=========== =========== =========== =========== ===========
=========== =========== =========== =========== ===========
Average Shares Outstanding
Basic 46,329 46,445 47,827 47,196 46,218
Diluted 46,329 46,445 48,261 47,565 46,659
Dividends Per Common Share $ 0.10 $ 0.40 $ 0.40 $ 0.40 $ 0.40
Bookings $ 1,088,548 $ 1,239,973 $ 1,390,161 $ 1,406,381 $ 972,419
Backlog $ 360,408 $ 386,006 $ 358,340 $ 453,480 $ 221,540
</TABLE>
*Beloit has been classified as a discontinued operation as of October 31,
1999 and the results of operations of prior years have been restated
accordingly.
<TABLE>
<CAPTION>
OTHER FINANCIAL DATA
Dollar amounts in thousands As of October 31,
except per share amounts 1999* 1998 1997 1996 1995
- ---------------------------------- ------------ ------------ ------------ ------------ ------------
Working Capital:
<S> <C> <C> <C> <C> <C>
Current assets $ 758,385 $ 1,463,144 $ 1,588,712 $ 1,410,250 $ 1,213,390
Current liabilities 571,216 1,026,280 1,180,497 1,077,127 723,303
------------ ------------ ------------ ------------ ------------
Working capital $ 187,169 $ 436,864 $ 408,215 $ 333,123 $ 490,087
Current ratio 1.3 1.4 1.3 1.3 1.7
------------ ------------ ------------ ------------ ------------
Plant and Equipment
Net properties $ 210,747 $ 613,581 $ 657,100 $ 634,045 $ 487,656
Capital expenditures 26,610 133,925 126,401 76,555 67,875
Depreciation expense 26,613 66,769 67,156 63,342 53,008
------------ ------------ ------------ ------------ -------------
Total Assets $ 1,711,813 $ 2,787,259 $ 2,924,535 $ 2,690,029 $ 2,040,767
------------ ------------ ------------ ------------ ------------
Debt and Capitalized Lease
Obligations
<S> <C> <C> <C> <C> <C>
Long-term obligations (1) $ 226,127 $ 1,001,573 $ 725,193 $ 662,137 $ 462,991
Short-term notes payable 86,538 117,607 214,126 45,261 18,921
Liabilities subject to compomise 1,193,554 -- -- -- --
------------ ------------ ------------ ------------ ------------
$ 1,506,219 $ 1,119,180 $ 939,319 $ 707,398 $ 481,912
Minority Interest $ 6,522 $ 43,838 $ 97,724 $ 93,652 $ 89,611
------------ ------------ ------------ ------------ ------------
Debt to Capitalization Ratio (2), (3) -- 61.2% 52.6% 48.0% 42.6%
------------ ------------- ------------ ------------ ------------
Shareholders' Equity (Deficit) ($ 1,025,151) $ 666,850 $ 749,660 $ 673,485 $ 559,276
Book value per common share (3) $ -- $ 14.52 $ 15.93 $ 14.15 $ 11.98
Common shares outstanding (4) 46,516 45,916 47,046 47,598 46,693
------------- ------------ ------------ ------------ ------------
Number of (End of Year):
Employees 6,800 13,700 17,700 17,100 14,000
Common shareholders of record 2,300 2,100 1,861 1,972 2,114
</TABLE>
* Items for the year ended October 31, 1999 exclude the discontinued Beloit
operation.
(1) Includes amounts classified as current portion of long-term obligations.
(2) Total debt to the sum of total debt, minority interest and shareholders'
equity (deficit).
(3) Data omitted for 1999 due to lack of comparability with prior periods.
(4) As of end of year, excluding SECT shares.
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations
On June 7, 1999, Harnischfeger Industries, Inc. (the "Company") and
substantially all of 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"). Beloit is being presented as a
discontinued operation as is more fully discussed in Note 3 - Discontinued
Operations in Notes to Consolidated Financial Statements included in Item 8 -
Financial Statements and Supplementary Data and Item 14 - Exhibits, Financial
Statement Schedules, and Reports on Form 8-K. The Debtors' Chapter 11 cases are
jointly administered for procedural purposes only under case number 99-2171. The
issue of substantive consolidation of the Debtors has not been addressed. Unless
Debtors are substantively consolidated under a confirmed plan of reorganization,
payment of prepetition claims of each Debtor may substantially differ from
payment of prepetition claims of other Debtors.
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 of the Debtors generally may not be enforced. In
addition, under the Bankruptcy Code, the Debtors may assume or reject executory
contracts and unexpired leases. Additional prepetition claims may arise from
such rejections, and from the determination by the Bankruptcy 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 that were deemed burdensome or of no value to the Company. As of the
date of this report, the Debtors had not completed their review of all their
prepetition executory contracts and leases for assumption or rejection. See also
Note 9 - Liabilities Subject to Compromise in Notes to Consolidated Financial
Statements included in Item 8 - Financial Statements and Supplementary Data and
Item 14 - Exhibits, Financial Statement Schedules, and Reports on Form 8-K.
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. Funds of qualified pension
plans and savings plans are in trusts and protected under federal regulations.
All required contributions are current in the respective plans.
The Company has the exclusive right, until June 8, 2000, subject to meeting
certain milestones regarding delivery to the Official Committee of Unsecured
Creditors of a business plan, plan of reorganization term sheet and certain
portions of a disclosure statement prior to that time, to file a plan of
reorganization. Such period may be extended at the discretion of the Bankruptcy
Court. Subject to certain exceptions set forth in the Bankruptcy Code,
acceptance of a plan of reorganization requires approval of the Bankruptcy Court
and the affirmative vote (i.e. more than 50% of the number and at least 66-2/3%
of the dollar amount, both with regard to claims actually voted) of each class
of creditors and equity holders whose claims are impaired by the plan.
Alternatively, absent the requisite approvals, the Company may seek Bankruptcy
Court approval of its reorganization plan under "cramdown" provisions of the
Bankruptcy Code, assuming certain tests are met. If the Company fails to submit
a plan of reorganization within the exclusivity period prescribed or any
extensions thereof, any creditor or equity holder will be free to file a plan of
reorganization with the Court and solicit acceptances thereof.
February 29, 2000 was set as the last date creditors may file proofs of
claim under the Bankruptcy Code. There may be differences between the amounts
recorded in the Company's schedules and financial statements and the amounts
claimed by the Company's creditors. Litigation may be required to resolve such
disputes. The Company's schedules are available from the Poorman-Douglas
Corporation, telephone: 503-350-5954.
The Company will incur significant costs associated with the
reorganization. The amount of these expenses, which are being expensed as
incurred, is expected to significantly affect future results. See Note 6 -
Reorganization Items in Notes to Consolidated Financial Statements included in
Item 8 - Financial Statements and Supplementary Data and Item 14 - Exhibits,
Financial Statement Schedules, and Reports on Form 8-K.
Currently, it is not possible to predict the length of time the Company
will operate under the protection of Chapter 11, the outcome of the Chapter 11
proceedings in general, or the effect of the proceedings on the business of the
Company or on the interests of the various creditors and security holders. Under
the Bankruptcy Code, postpetition liabilities and prepetition liabilities (i.e.,
liabilities subject to compromise) must be satisfied before shareholders can
receive any distribution. The ultimate recovery to shareholders, if any, will
not be determined until the end of the case when the fair value of the Company's
assets is compared to the liabilities and claims against the Company. There can
be no assurance as to what value, if any, will be ascribed to the common stock
in the bankruptcy proceedings. The U.S. Trustee for the District of Delaware has
appointed an Official Committee of Equity Holders to represent shareholders in
the proceedings before the Bankruptcy Court.
The accompanying Consolidated 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 going concerns. As a result of the Debtors' Chapter 11 filings, 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. Other than recording the estimated loss on the sale of the
Beloit discontinued operations, the Consolidated 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 October 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.
Surface Mining Equipment
The following table sets forth certain data from the Consolidated Statement
of Operations of the Company for the fiscal years ended October 31:
In thousands 1999 1998 1997
- --------------------------------------------------------------------------------
Net sales $ 498,343 $ 443,330 $ 489,789
Operating Profit $ 33,976 $ 31,416 $ 60,459
Bookings $ 435,842 $ 481,794 $ 447,915
Sales of the Surface Mining Equipment segment were $498.3 million in fiscal
1999, a 12% increase from 1998 sales of $443.3 million. Continued market
softness for original equipment resulted in only a small increase in capital
sales of 2%. Product innovation and superior product support for customers led
to a 55% increase in sales of electric mining shovels. This was offset by
decreases in sales related to draglines and drills that resulted from generally
low commodity prices and a combination of mine closures, production cutbacks at
mines and deferral of new mine startups. Aftermarket sales increased 22% as
customers took advantage of increased parts and service offerings. Sales in 1997
were $489.8 million and included very strong capital sales that were 48% greater
than 1999 and 45% greater than 1998.
Operating profit was $34.0 million or 6.8% of sales in 1999, compared to
operating profit of $31.4 million and 7.1% in 1998 and $60.5 million and 12.3%
in 1997, respectively. The higher operating profit in 1999 as compared to 1998
was primarily due to increased aftermarket sales, although the negative effect
of the 1998 United Steelworkers' strike in Milwaukee was also significant.
Operating profit in 1998 was lower than 1997 because of the decrease in capital
sales and the effect of the strike. These costs were partially offset by
reductions in operating expenses from cost reduction initiatives and reduced
headcounts.
Bookings amounted to $435.8 million in 1999 compared to $481.8 million in
1998. The decrease is primarily due to continued market softness for original
equipment. Bookings in 1997 were $447.9 million and included strong capital
bookings that were 41% greater than 1998. Aftermarket bookings in 1998 were 45%
greater than 1997.
The Chapter 11 filing in the third quarter impacted operating results in
several ways. Supplier shipments in the latter part of the year were lower than
expected resulting in lost sales and production inefficiencies. Collection
difficulties increased as some customers delayed paying outstanding receivables
due to their own operating difficulties and their concerns about the Company's
financial condition. As a result, the third quarter of 1999 reflected charges
amounting to approximately $5.0 million for additional warranty expense and
excess and obsolete inventory accruals.
The Surface Mining Equipment segment has generally maintained its overall
market position and its product by product price realization.
Underground Mining Machinery
The following table sets forth certain data from the Consolidated Statement
of Operations of the Company for the fiscal years ended October 31:
In thousands 1999 1998 1997
- --------------------------------------------------------------------------------
Net sales $ 615,803 $ 768,977 $ 977,552
Operating profit (loss) $ (65,893) $ 50,568 $ 141,344
Bookings $ 652,706 $ 758,179 $ 933,107
Sales of the Underground Mining Machinery segment were $615.8 million in
fiscal 1999, a 20% decrease from 1998 sales of $769 million. Shipments of new
underground coal mining machines declined in the United States and Australia.
This is primarily due to decreased mining activity resulting from depressed coal
prices and excess coal stockpiles, particularly at mines, and continuing
consolidation of the underground coal mining industry in the United States as
mining companies consolidate and close some of their less efficient mines.
Stricter environmental regulations on U.S. mining companies also constrained
their capital expenditures. In addition, changes in underground coal mining
regulations in South Africa caused mining houses there to postpone the purchase
of equipment while they reassess their capital equipment needs. Economic
instability in Russia prevented our customers in that country from obtaining
financing necessary to finalize the purchase of equipment they have on order.
Depressed coal prices and overcapacity in Australian coal mines led
producers there to close mines and cut costs, thus reducing their spending on
new equipment. Repair service sales in the United States and the United Kingdom
continued to reflect softness in the aftermarket in those countries, resulting
primarily from mine closures and production cutbacks.
Sales of continuous miners and longwall shearing machines were lower in
1999 than in 1998. In the aftermarket, the $30 million decrease in net sales in
1999 as compared to 1998 resulted from a $21 million reduction in machine
rebuilds in the United Kingdom and lower component repair sales in the United
States. The continued reduction in machine rebuilds in the UK reflects the lower
number of underground coal mines in operation in that market.
Net sales in 1998 were 21% or $200 million lower than net sales in 1997.
The decrease in sales from 1997 resulted primarily from a $150 million decline
in new equipment sales and a $40 million decrease in machine rebuild shipments.
The new equipment sales decrease in 1998 included the impact of $60 million
sales of third party equipment into Russia in 1997 that was part of a large
system order that was not repeated in 1998. In addition, the global softness in
the market for new underground mining equipment began in 1998 and Joy
experienced lower shipments for all of its new equipment (with the exception of
longwall shearing machines) in all of its global markets.
In 1999, Joy reported an operating loss of $65.9 million compared to an
operating profit of $50.6 million in 1998. The 1999 operating loss included
approximately $12 million of restructuring charges which were recorded in the
third and fourth quarters as part of Joy's actions to reduce its cost structure
in response to reductions in sales revenue over the previous two years. In
addition, in the third quarter of 1999, Joy recorded $63.5 million of charges
associated with revised valuation estimates concerning accounts receivables,
inventories and warranty reserves. The remaining reduction in operating profit
in 1999 was the result of the decrease in net sales partially offset by
approximately $45 million of cost reductions.
Operating profit in 1998 was $50.6 million compared to $141.3 million in
1997. The decrease in operating profit in 1998 resulted primarily from decreases
in gross margins and manufacturing burden absorption due to reduced net sales.
New order bookings were 14% lower in 1999 than they were in 1998. This
decrease in new orders received was experienced for both new equipment and
aftermarket products, primarily in the United States and in the United Kingdom.
In the United States, consolidations among coal producers, combined with the
supply of coal exceeding demand, led to a continued soft market in 1999. In the
United Kingdom, activity in the coal industry remains at a low level as the few
remaining mines concentrate on reducing costs.
New order bookings in 1998 were 19% lower than they were in 1997. The
decrease in new orders in 1998 was almost entirely associated with the decrease
in demand for new equipment on a global basis. In the United States, roof
support orders were $100 million higher in 1997 compared to 1998 as there were
significantly fewer roof support systems being replaced in 1998. Additionally,
in 1997 the United Kingdom received a new equipment order from a Russian
customer that included $25 million of third party equipment that did not recur
in 1998.
The Chapter 11 filing in the third quarter impacted operating results in
several ways. Supplier shipments in the latter part of the year were lower than
expected resulting in lost sales and production inefficiencies. The decision was
made to discontinue several equipment models that were either not required by
customers or that no longer provided sufficient margins to be attractive.
Collection difficulties increased as some customers delayed paying outstanding
receivables due to their own operating difficulties and their concerns about the
Company's financial condition and continued ability to fulfill commitments.
The Underground Mining Machinery segment has generally maintained its
overall market position and its product by product price realization.
The third and fourth quarters of fiscal 1999 reflected the following
charges against earnings:
Underground Mining
In thousands Machinery
- -------------------------------------------------------------
Changes in estimates:
Allowance for doubtful accounts $ 5,300
Warranty and other 22,000
Excess and obsolete inventory 36,200
------------
63,500
Restructuring charges 11,997
------------
$ 75,497
============
The restructuring charges of $12.0 million were recorded for
rationalization of certain of Joy's original equipment manufacturing capacity
and the reorganization and reduction of its operating structure on a global
basis. Costs of $7.3 million were charged in the third quarter, primarily for
the impairment of certain assets related to a facility rationalization announced
in January 2000. In addition, charges amounting to $4.7 million (third quarter
$0.9 million; fourth quarter $3.8 million) were made for severance of
approximately 240 employees. Additional future cash charges of approximately
$12.9 million in connection with the cost reduction initiatives will commence
during fiscal 2000.
Strategic and Financing Initiatives
The Company incurred $7.7 million of charges related to certain consulting
and legal costs associated with strategic financing and business alternatives
investigated prior to the Chapter 11 filing.
Reorganization Items
Reorganization expenses are 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.
Net reorganization expenses in fiscal 1999 consisted of the following:
In thousands
-------------------------------------------------------------------
Professional fees directly related to the filing $ 14,457
Rejected equipment leases 2,322
Amortization of DIP financing costs 3,125
Accrued retention plan costs 730
Interest earned on DIP proceeds (330)
-----------
$ 20,304
===========
Cash payments made during fiscal 1999 with respect to the professional fees
listed above were $2.6 million.
Charge Related to Executive Changes
In connection with certain management organizational changes that occurred
during the third quarter of fiscal 1999, a charge to earnings of $19.1 million
was made. The charge was primarily associated with supplemental retirement,
restricted stock, and long-term compensation plan obligations. This charge
consisted of $0.6 million paid prior to the Chapter 11 filing, adjustments of
$10.0 million reducing the carrying value of the applicable plan assets and an
accrued liability of $8.5 million which has been classified in the consolidated
balance sheet as part of the liabilities subject to compromise.
Income Taxes
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 $387.3 million. 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 net operating loss and tax credit
benefits in the near term is unlikely. Should the Company's plan of
reorganization result in a significantly modified capital structure, SOP 90-7
would require the Company to apply fresh start accounting. Under fresh start
accounting, realization of net operating loss and tax credit benefits first
reduces any reorganization goodwill until exhausted and thereafter is reported
as additional paid-in capital. In certain substantial changes in the Company's
ownership should occur, there could be an annual limitation on the amount of the
federal carryforwards which the Company may be able to utilize.
Discontinued Operations
Beloit Corporation
In light of continuing losses at Beloit and following an evaluation of the
prospects of reorganizing the Pulp and Paper Machinery segment, on October 8,
1999 the Company announced its plan to dispose of the segment. Subsequently,
Beloit notified certain of its foreign subsidiaries that they could no longer
expect funding of their operations to be provided by either Beloit or the
Company. Certain of the notified subsidiaries have since filed for or were
placed into receivership or other applicable forms of judicial supervision in
their respective countries.
On November 7, 1999, the Bankruptcy Court approved procedures and an
implementation schedule for the divestiture plan (the "Court Sales Procedures").
Two sales agreements were approved under the Court Sales Procedures on February
1, 2000 and three sales agreements were approved under the Court Sales
Procedures on February 8, 2000. These agreements have been entered into by
Beloit with respect to the sale of a majority of its businesses and operating
assets. Closing on certain of these transactions is subject to regulatory
approval and the completion of information satisfactory to the applicable buyer
concerning certain representations and warranties by Beloit. The Company expects
that closings on all these sales agreements will occur by the end of the second
quarter of fiscal 2000.
The Company has classified this segment as a discontinued operation in its
Consolidated Financial Statements as of October 31, 1999 and has, accordingly,
restated its consolidated statements of operations for prior periods. The
Company has not restated its consolidated balance sheets or consolidated
statements of cash flow for prior periods. Revenues for this segment were $684.0
million, $851.4 million, and $1,300.0 million in 1999, 1998, and 1997,
respectively. Income (loss) from discontinued operations was ($798.2 million),
($188.8 million) and $45.3 million in 1999, 1998, and 1997, respectively.
The loss from discontinued operations of $798.2 million includes (i)
allocated interest expense of approximately $30.0 million based on Beloit's
portion of the consolidated debt, (ii) restructuring charges of $78.7 million in
the third quarter and $3.6 million in the fourth quarter, (iii) additional
estimated losses on APP contracts of $87.0 million in the second quarter and
$163.5 million in the third quarter, (iv) additional expenses of $143.1 million
in the third quarter reflecting the effects of changes in other accounting
estimates and (v) reorganization expenses of $136.1 million in the third quarter
associated with the closing of a pulp and paper mill and the related rejection
of a 15-year operating lease. The Company did not record an income tax benefit
with respect to the 1999 loss. See Note 12 - Income Taxes in Notes to
Consolidated Financial Statements included in Item 8 - Financial Statements and
Supplementary Data and Item 14 - Exhibits, Financial Statement Schedules, and
Reports on Form 8-K. The elements of the 1999 loss from discontinued operations
are discussed below.
|X| The restructuring charges primarily related to a strategic
reorganization of Beloit. This reorganization rationalized certain
product offerings from a full breadth of product lines to more
specific offerings. As part of the restructuring, outsourcing was
expected to increase significantly. The charge consisted of facility
closure charges including estimated amounts for reductions in assets
to net realizable values of $74.1 million and accruals for closing and
disposal costs of $8.2 million related to closing certain
manufacturing facilities, engineering offices and research and
development centers. In connection with these restructuring charges,
the Company expected to reduce headcount at Beloit by at least 600
employees. These actions included staff reductions in manufacturing,
engineering, marketing, product development and administrative support
functions.
|X| The additional estimated losses on APP contracts primarily relate to
the Company's efforts to mitigate damages with respect to the APP
matter more fully discussed below and to improve short-term liquidity.
Beloit's Asian subsidiaries had sought to sell the assets associated
with two papermaking machines to alternative customers. The Company
recorded an $87.0 million 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 $147.7 million reserve in the third
quarter to reflect the Company's determination that the foreseeable
market conditions for this type of large paper machine did not support
valuing these machines at greater than estimated liquidation values.
The Company also recorded a $15.8 million charge in the third quarter
for changes in estimates of costs associated with the first two
machines sold to APP.
|X| The additional estimated losses on contracts and other expenses
reflecting changes in other accounting estimates relate to the
Company's provisions for excess and obsolete inventory, doubtful
accounts receivable, and anticipated losses on contracts. These
changes in estimates were 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.
The need for these changes in estimates arose 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 third
quarter charges were originally classified in the consolidated
statement of operations as follows:
In thousands
-------------------------------------------------------
Charged to product development,
selling, and administrative expenses:
Allowance for doubtful accounts $ 35,900
-------------
Charged to cost of sales:
Warranties and other 32,400
Excess and obsolete inventory 25,000
Losses on contracts 49,800
------------
$107,200
------------
$143,100
=============
|X| Reorganization expenses of $136.1 million relate to Princeton Paper
Company, LLC, ("Princeton Paper"), a subsidiary of Beloit and one of the
Debtors, who had, until July 1999, 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 $82.1 million relating to the decision to
close Princeton Paper including a charge of $54.0 million relating to the
rejection of the lease. The characterization and treatment of the lease in
the bankruptcy case could affect Beloit's ultimate liability for the lease
payments. Beloit has provided $54.0 million as an estimate of the claims
which may be allowed by the Bankruptcy Court.
Cash flow used by Beloit in operating activities during fiscal 1999 was
$222.2 million. The principal sources of funding for Beloit was provided by its
operations, credit facilities of its subsidiaries and the Company. Between the
Chapter 11 filing on June 7, 1999 and October 31, 1999, the cash used by Beloit
was $116.0 million and was provided primarily through the DIP Facility. Beloit
and the other Debtors are jointly and severally liable under the DIP Facility.
Between October 31, 1999 and January 31, 2000, Beloit has used additional cash
of approximately $40.0 million.
During 1999, the Company recorded an estimated loss of $529.0 million on
the disposal of the Pulp and Paper Machinery segment. The amount by which the
estimated loss recognized during fiscal 1999 differs from the ultimate loss
resulting from the realization of the divestiture plan and any Beloit
contingencies will be reported as an adjustment to the loss on disposal of
discontinued operations in the future period during which the amount is
ultimately determined. The Company did not record an income tax benefit
associated with this estimated loss. See Note 12 - Income Taxes in Notes to
Consolidated Financial Statements included in Item 8 - Financial Statements and
Supplementary Data and Item 14 - Exhibits, Financial Statement Schedules, and
Reports on Form 8-K. This estimated loss is comprised of the following:
In thousands
- --------------------------------------------------------------------------------
Estimated loss on the disposal of the businesses and assets $ (472,118)
Accrued estimated operating losses and facility wind-down costs (43,304)
Accured post petition letters of credit, guarantees and sureties (12,500)
Accrued post-closing environmental costs (7,000)
Accrued employee termination costs (12,000)
Gain on curtailment of defined benefit pension plans 17,922
-----------
Net estimated loss on the disposal of discontinued operations $ (529,000)
===========
The elements of the estimated loss on the disposal of the segment are
discussed below.
|X| The estimated loss on the disposal of the Beloit businesses and assets of
$472.1 million anticipates that there will be approximately $243.2 million
in sales proceeds from the five sales agreements approved under the Court
Sales Procedure and an additional $34.4 million in proceeds, based
primarily on appraisals, from the disposition of the remaining 13 domestic
and 18 international operations that will be sold or liquidated by the end
of the wind-down process.
|X| The accrual for estimated operating losses and wind-down costs represents
approximately $28.3 million in estimated operating losses from October 31,
1999 until the facilities are sold or operations otherwise cease and
approximately $15.0 million for the wind-down costs for facilities that
will be sold or liquidated.
|X| The accrual for estimated additional costs under post petition letters of
credit, guarantees and sureties of $12.5 million represents estimated
additional customer contract claims as a result of the divestiture plan.
|X| The accrual for estimated employee termination costs reflects estimated
severance and related benefits costs with respect to approximately 1,071
employees, the majority of whom received applicable notifications during
January 2000.
|X| The accrual for estimated post-closing environmental costs of $7.0 million
relate to (i) cost estimates for the removal of asbestos and hazardous
wastes at certain facilities being sold or closed and (ii) increased
estimated costs associated with the completion of certain remediation
activities at one of Beloit's domestic manufacturing facilities assuming
the activities will be performed by a buyer or subcontracted to a
third-party.
|X| The gain on the curtailment of defined benefit plans of $17.9 million
reflects the elimination of future years of service accruals.
At October 31, 1999, Beloit was contingently liable to banks, financial
institutions, and others for approximately $20.0 million for outstanding
letters of credit and bank guarantees. This amount was all issued by non-US
banks for non-US Beloit subsidiaries. Beloit may also guarantee performance
of its equipment at levels specified in sales contracts without the
requirement of a letter of credit.
The assets and liabilities of discontinued operations are comprised of the
following as of October 31, 1999:
In thousands
- --------------------------------------------------------------------------------
Assets:
Cash and cash equivalents $ 19,290
Accounts receivable - net 153,761
Inventories 110,770
Other current assets 18,662
Property, plant and equipment - net 311,424
Other non-current assets 39,691
Goodwill and other intangibles 96,520
Allowance for estimated loss on disposal (472,118)
-------------
Total assets, representing estimated disposal cash proceeds $ 278,000
=============
Liabilities:
Post-petition liabilities:
Trade accounts payable $ (57,111)
Employee compensation and benefits (14,605)
Accrued contract losses, restructuring costs and other (76,859)
Funded debt and capitalized lease obligations (24,080)
Operating losses and facility wind-down costs (43,304)
Post-petition letters of credit, guarantees and sureties (12,500)
Employee termination costs (12,000)
Post-closing environmental costs (7,000)
-------------
Total post-petition liabilities (247,459)
-------------
Pre-petition liabilities:
Trade accounts payable (145,955)
Funded debt (14,128)
Advance payments and progress billings (125,696)
Accrued warranties (34,054)
Princeton Paper lease (54,000)
APP claims (46,000)
Pension and other (53,437)
Minority interest (21,536)
-------------
Total pre-petition liabilities (494,806)
-------------
Total liabilities, including liabilities subject to compromise $ (742,265)
=============
As of October 31, 1999, there were approximately $766.0 million in net
intercompany liabilities owed by certain corporations comprising the Beloit
segment to certain non-Beloit affiliated corporations included in the
Consolidated Financial Statements. Additionally, there are substantial
intercompany accounts between certain corporations within the Beloit
segment. Many of the corporations comprising the Beloit segment and
possessing intercompany accounts are Debtors under the Chapter 11 filing
and several others, subsequent to October 31, 1999, have been placed in
receivership or other applicable forms of judicial supervision in their
respective countries. A substantial portion of the intercompany accounts
arose prior to the Chapter 11 filing. In light of the Chapter 11 filing,
receiverships and other applicable forms of judicial supervision, the
realizability of these accounts may be uncertain. All intercompany
accounts, including Beloit intracompany accounts, have been eliminated in
the Consolidated Financial Statements in accordance with generally accepted
accounting principles. While such intercompany obligations eliminate in the
preparation of consolidated financial statements, they remain obligations
on a separate legal entity basis.
Other Beloit Matters:
o The Potlatch lawsuit, filed originally in 1995, related to a 1989
purchase of pulp line washers supplied by Beloit for less than $15.0
million. In June 1997, a Lewiston, Idaho jury awarded Potlatch $95.0
million in damages in the case which, together with fees, costs and
interest to April 2, 1999, approximated $120.0 million. 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 filed a motion with the Bankruptcy Court to lift the
stay. The Company opposed this motion and the motion was denied.
o 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 $600.0 million. The first two machines
were substantially paid for and installed at APP facilities in
Indonesia. Beloit sold approximately $44.0 million 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. Beloit 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.
Beloit received a $46.0 million 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 $2.8 million and $16.2 million, 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. 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 $125.0 million 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 $46.0 million paid to Beloit's Asian subsidiaries for
the second two machines. APP also seeks recovery of other damages it
alleges were caused by Beloit's Asian subsidiaries' claimed breaches.
The $46.0 million is included in liabilities subject to compromise.
See Note 9 - Liabilities Subject to Compromise in Notes to
Consolidated Financial Statements included in Item 8 - Financial
Statements and Supplementary Data and Item 14 - Exhibits, Financial
Statement Schedules, and Reports on Form 8-K. In addition, APP seeks a
declaration in the arbitration that it has no liability under certain
promissory notes. A hearing on the merits began on January 31, 2000
and is expected to continue for approximately four weeks. A decision
of the arbitration panel is expected in March or April, 2000. 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 prohibits Beloit from acting on the notes receivable from APP
except in the Singapore arbitration. Beloit and its Asian subsidiaries
will vigorously defend against all of APP's assertions. APP has
attempted to draw on approximately $15.9 million 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, but has been stayed pending the outcome of the
Singapore arbitration with APP. 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 the assets associated with these two
machines to alternative customers.
Material Handling
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 Material Handling segment
recorded revenues of $130.5 million in 1998 (prior to the divestiture)
and $353.4 million in 1997. Income (loss) from discontinued operations
included income of $4.4 million in 1998 and $25.1 million in 1997
derived from this segment. The Company reported a $151.5 million
after-tax gain on the sale of this discontinued operation in the
second quarter of fiscal 1998. Proceeds consisted of $341.0 million in
cash and preferred stock, originally valued at $4.8 million, with a
12.25% payment-in-kind dividend; $7.2 million 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 15.6% of the outstanding common stock. In
view of continuing operating losses by Material Handling, the Company
reduced to zero the $5.4 million carrying value of its investment in
this business during the third quarter of 1999.
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. In addition, the recorded amounts of: (i) the estimated cash proceeds
to be realized upon the disposal of Beloit's assets to be sold or liquidated,
and (ii) the estimated cash requirements to fund Beloit's remaining costs and
claims, could be materially different from the actual amounts.
Under the Bankruptcy Code, postpetition liabilities and prepetition
liabilities (i.e., liabilities subject to compromise) must be satisfied before
shareholders can receive any distribution. The ultimate recovery to
shareholders, if any, will not be determined until the end of the case when the
fair value of the Company's assets is compared to the liabilities and claims
against the Company. There can be no assurance as to what value, if any, will be
ascribed to the common stock in the bankruptcy proceedings. The U.S. Trustee for
the District of Delaware has appointed an Official Committee of Equity Holders
to represent the shareholders in the proceedings before the Bankruptcy Court.
Working Capital
Working capital of continuing operations, excluding liabilities subject to
compromise, as of October 31, 1999, was $179.2 million including $54.7 million
of cash and cash equivalents, as compared to working capital of $436.9 million
including $30.0 million of cash and cash equivalents as of October 31, 1998. The
decrease in working capital is due primarily to: (i) the inclusion in 1998 of
Beloit's working capital of $189.6 million, (ii) additional restructuring
charges and changes in other accounting estimates of the realizability of
certain accounts receivable and inventory, primarily related to the Underground
Mining Machinery segment, in 1999, (iii) the provision in 1999 of a full
valuation allowance on deferred income tax assets, (iv) the classification of
the Australian term loan facility as a current liability in 1999, (v) higher
professional fee accruals in 1999 due to the Chapter 11 filing, (vi) the effects
of a major inventory reduction program in 1999, primarily impacting the
Underground Mining Machinery segment and (vii) higher trade payables in 1999 at
both continuing segments due to the stay on prepetition liabilities as of the
bankruptcy filing date.
Cash Flow from Continuing Operations
Cash flow from operating activities was $10.6 million for fiscal 1999
compared to cash flow used by continuing operations of $429.1 million for the
comparable period in 1998. The reduction in cash used between periods is due
primarily to (i) the inclusion in 1998 of cash of $347.8 million used in
Beloit's operations, (ii) working capital reductions during 1999 as described
above, (iii) lower interest payments of $49.9 million in 1999 due to the effect
of the Chapter 11 filing and (iv) lower income tax payments of $43.9 million in
1999, the aggregate effect of which more than offset the decrease in operating
income of $111.7 million in 1999, primarily in the Underground Mining Machinery
segment.
Cash flow used by investment and other transactions was $30.7 million for
fiscal 1999 compared to cash flow provided by investment and other transactions
of $289.8 million for fiscal 1998. The change is primarily due to the receipt of
proceeds from the sale of J&L Fiber Services ($109.4 million) and Material
Handling ($341.0 million) during 1998. In addition, the level of capital
expenditures and other investments in the business in 1999 declined from the
prior period.
DIP Facility
On July 8, 1999 the Bankruptcy Court approved a two-year, $750 million
Revolving Credit Term Loan and Guaranty Agreement underwritten by the Chase
Manhattan Bank (the "DIP Facility") consisting of three tranches: (i) Tranche A
is a $350 million revolving credit facility with sublimits for import
documentary letters of credit of $20 million and standby letters of credit of
$300 million; (ii) Tranche B is a $200 million term loan facility; and (iii)
Tranche C is a $200 million 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 million 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 million to foreign subsidiaries for
specified limited purposes, including up to $90 million for working capital
needs of foreign subsidiaries and $110 million of loans and $110 million of
letters of credit for support or repayment of existing credit facilities. The
Company may use up to $40 million (of the $240 million) to issue stand-by
letters of credit to support foreign business opportunities. Beginning August 1,
1999, the DIP Facility imposes monthly minimum EBITDA tests and quarterly limits
on capital expenditures. At October 31, 1999, $167 million in direct borrowings
had been drawn under the DIP Facility and classified as a long-term obligation
and letters of credit in the face amount of $30.3 million had been issued under
the DIP Facility. The Debtors are jointly and severally liable under the DIP
Facility.
The DIP Facility benefits from superpriority administrative claim status as
provided for under the Bankruptcy Code. Under the Bankruptcy Code, a
superpriority claim is senior to unsecured prepetition claims and all other
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
(plus a fronting fee of 0.25% to the Agent) 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.
In proceedings filed with the Bankruptcy Court, the Company 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:
|X| The Company 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 million;
(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 million; or (c) make postpetition loans or
advances to, or investments in, Beloit or any of Beloit's subsidiaries in
excess of $115 million. In September 1999, the Company notified the
Creditors Committee and MFS Funds that it intended to exceed the $115
million amount. The Company subsequently agreed, with the approval of the
Bankruptcy Court, to provide the Creditors Committee with weekly cash
requirement forecasts for Beloit, to restrict funding of Beloit to
forecasted amounts, to provide the Creditors Committee access to
information about the Beloit divestiture and liquidation process, and to
consult with Creditors Committee regarding the Beloit divestiture and
liquidation process.
|X| In addition, the Company agreed to give notice to the Creditors Committee
and to the MFS Funds with respect to any liens created by or on a foreign
subsidiary or on any of its assets to secure any indebtedness.
|X| The Company agreed to notify the MFS Funds of any reduction in the net book
value of Joy of ten percent or more from $364 million after which MFS Funds
would be entitled to receive periodic financial statements for Joy. As of
October 31, 1999, MFS Funds is entitled to receive periodic financial
statements for Joy.
Without appropriate waivers from the Chase Manhattan Bank, completion of
the sale of Beloit would violate certain negative covenants in the DIP Facility
dealing with liens, asset sales and fundamental changes in business. In
addition, minimum EBITDA tests in the DIP Facility did not anticipate the
discontinuance of the Pulp and Paper Machinery segment. In light of the
Company's plan in October, 1999 to dispose of this segment, the minimum EBITDA
tests were no longer consistent with the Company's continuing operations. As of
January 31, 2000, the Company and the Chase Manhattan Bank entered into a Waiver
and Amendment Letter which waives compliance with certain negative covenants of
the DIP Facility as they relate to the sale of the assets of Beloit and amends
the EBITDA tests in the DIP Facility to levels that are appropriate for the
Company's continuing businesses. The Waiver and Amendment Letter also waives the
provisions of the DIP Facility which otherwise would require conversion of
revolving borrowings to term loans. Continuation of unfavorable business
conditions or other events could require the Company to seek further
modifications or waivers of certain covenants of the DIP Facility. In such
event, there is no certainty that the Company would obtain such modifications or
waivers to avoid default under the DIP Facility.
In light of the decision to dispose of the Beloit Segment, the Company and
Chase Manhattan Bank began negotiations to restructure the DIP Facility to
further align the provisions of the DIP Facility with the Company's continuing
businesses. There can be no assurance that such negotiations will result in
modifications to the DIP Facility.
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 businesses, there can be no assurances that such sources
will prove to be sufficient.
Year 2000 Systems Preparedness
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 implemented a Year 2000 readiness
plan for information technology systems ("IT") and non-IT equipment, facilities
and systems. All material IT and non-IT equipment, processes and software were
compliant and resulted in no material Y2K issues as of the date of this report.
While no material Y2K problems have been encountered to date and none are
expected, it is possible that such problems could arise as the year progresses.
Total expenses on the project through October 31, 1999 were approximately
$5.5 million 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. The cost of implementing SAP at Joy is excluded
as this system implementation was undertaken primarily to improve business
processes.
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
undertakes transactions to hedge this impact. The hedge instrument is considered
effective if it offsets partially or completely the negative impact on earnings,
equity and cash flow due to fluctuations in interest and foreign exchange rates.
In accordance with the Company's policy, the Company does not execute
derivatives that are speculative or that increase the Company's risk from
interest rate or foreign exchange rate fluctuations. At October 31, 1999 the
Company was not party to any interest rate derivative contracts. Foreign
exchange derivatives at that date were exclusively in the form of forward
exchange contracts executed over the counter. The counterparties to these
contracts are several commercial banks, all of which hold investment grade
ratings, but there is a concentration of these contracts held with The Chase
Manhattan Bank which is currently the only institution entering into new forward
foreign exchange contracts with the Company and those subsidiaries involved in
the reorganization proceedings.
The Company has adopted a Foreign Exchange Risk Management Policy. It is a
risk-averse policy under which most exposures that impact earnings and cash flow
are fully hedged, subject to a net $5 million equivalent of permitted exposures
per currency. Exposures that impact only equity or 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 committed receipts or payments denominated in a
foreign currency. These exposures normally arise from imports and exports of
goods and from intercompany trade and lending activity.
As of October 31, 1999, the nominal or face value of forward foreign
exchange contracts to which the Company was a party was $210.2 million in
absolute U.S. dollar equivalent terms.
Accounting Pronouncements
In June 1998, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards No. 133, "Accounting for Derivative
Instruments and Hedging Activities" ("FAS 133"). FAS 133 (as amended by FAS 137)
is effective for all fiscal quarters of all fiscal years beginning after June
15, 2000 (November 1, 2000 for the Company). FAS 133 requires that all
derivative instruments be recorded on the balance sheet at their fair value.
Changes in the fair value of derivatives are recorded each period in current
earnings or other comprehensive income, depending on whether the derivative is
part of a hedge transaction. For fair-value hedge transactions in which the
Company is hedging, changes in an asset's, liability's or firm commitment's fair
value and changes in the fair value of the derivative instrument will generally
be offset in the income statement by changes in the fair value of the hedged
item. For cash-flow hedge transactions, in which the Company is hedging the
variability of cash flows related to a variable rate asset, liability or
forecasted transaction, changes in the fair value of the derivative instrument
will be reported in other comprehensive income. The gains and losses on the
derivative instrument that are reported in other comprehensive income will be
reclassified as earnings in the periods in which earnings are impacted by the
variability of the cash flows of the hedged item. The ineffective portion of all
hedges will be recognized in current period earnings.
The Company has not yet determined the impact that the adoption of FAS 133
will have on its results of operations.
Item 7A. Quantitative and Qualitative Disclosures about Market Risk
See "Market Risk" in Item 7 - Management's Discussion and Analysis of
Financial Condition and Results of Operations.
Item 8. Financial Statements and Supplementary Data
See the audited Consolidated Financial Statements and Financial Statement
Schedule of Harnischfeger Industries, Inc. attached hereto and listed in the
index.
<TABLE>
<CAPTION>
Unaudited Quarterly Financial Data
1999 Quarterly Financial Data Fiscal Quarter* 1999
(In thousands except
per share amounts) First Second Third Fourth Year
------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net sales $ 264,437 $ 294,334 $ 273,693 $ 281,682 $ 1,114,146
Gross profit (loss) 63,027 71,109 (17,199) 74,403 191,340
Operating income (loss) 10,784 16,015 (135,613) 5,996 (102,818)
Income (loss) from continuing operations (386) 4,399 (362,993) 5,892 (353,088)
Loss from discontinued operation (16,013) (78,657) (656,410) (47,100) (798,180)
Loss on disposal of discontinued
operation -- -- -- (529,000) (529,000)
---------- -------- ----------- ----------- ----------
Net loss $ (16,399) $ (74,258) $(1,019,403) $ (570,208) $(1,680,268)
========= ========== ============ ============ ===========
Earnings(Loss) Per Share - Basic:
Income (loss) from continuing
operations $ (0.01) $ 0.09 $ (7.81) $ 0.12 $ (7.62)
Loss from and net loss on disposal
of discontinued operation (0.35) (1.69) (14.11) (12.38) (28.65)
---------- --------- ----------- ----------- -----------
Net loss per share: $ (0.36) $ (1.60) $ (21.92) $ (12.26) $ (36.27)
========== ========= =========== =========== ===========
Earnings (Loss) Per Share - Diluted
Income (loss) from continuing
operations $ (0.01) $ 0.09 $ (7.81) $ 0.12 $ (7.62)
Loss from and net loss on disposal
of discontinued operation (0.35) (1.69) (14.11) (12.38) (28.65)
---------- --------- ----------- ---------- -----------
Net loss per share $ (0.36) $ (1.60) $ (21.92) $ (12.26) $ (36.27)
========= ========= =========== ========== ===========
</TABLE>
<TABLE>
<CAPTION>
1998 Quarterly Financial Data Fiscal Quarter* 1998
(In thousands except
per share amounts) First Second Third Fourth Year
-------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net sales $ 321,122 $ 280,746 $ 338,727 $ 271,712 $ 1,212,307
Gross profit 87,869 79,323 70,116 58,029 295,337
Operating income (loss) 32,910 18,617 11,072 (1,206) 61,393
Income (loss) from continuing operations 8,914 7,974 (5,434) 2,912 14,366
Loss from discontinued operations (30,481) (79,828) (33,170) (40,920) (184,399)
Gain on disposal of discontinued
operation -- 151,500 -- -- 151,500
---------- --------- ---------- --------- -----------
Net income (loss) $ (21,567) $ 79,646 $ (38,604) $ (38,008) $ (18,533)
========== ========= ========== ========= ===========
Earnings (Loss) Per Share - Basic
Income (loss) from continuing
operations $ 0.19 $ 0.17 $ (0.11) $ 0.06 $ 0.31
Income (loss) from and net gain
on disposal of discontinued
operations (0.65) 1.54 (0.72) (0.88) (0.71)
----------- --------- ---------- --------- -----------
Net income (loss) per share $ (0.46) $ 1.71 $ (0.83) $ (0.82) $ (0.40)
=========== ========= ========== ========= ============
Earnings (Loss) Per Share - Diluted
Income (loss) from continuing
operations $ 0.19 $ 0.17 $ (0.11) $ 0.06 $ 0.31
Income (loss) from and net gain
on disposal of discontinued
operations (0.65) 1.54 (0.72) (0.88) (0.71)
----------- --------- ---------- --------- -----------
Net income (loss) per share $ (0.46) $ 1.71 $ (0.83) $ (0.82) $ (0.40)
=========== ========= ========== ========= ===========
</TABLE>
*See Notes to Consolidated Financial Statements for descriptions of unusual
items affecting quarters.
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
None
PART III
Item 10. Directors and Executive Officers of the Registrant
Directors of the Registrant
The following table contains certain information (including principal
occupation, business experience and beneficial ownership of the Company's Common
Stock as of January 31, 2000) regarding the directors of the Company. All shares
beneficially owned by the directors under the Directors Stock Compensation Plan
are voted by the trustee of the Company's Deferred Compensation Trust as
directed by the Company's Management Policy Committee.
<TABLE>
<CAPTION>
Director Current Shares
Since Term Owned(1)
<S> <C> <C> <C>
Donna M. Alvarado........Principal of Aguila International, an 1992 2000 13,613(2)
international business development
consulting firm, since 1994. President
and Chief Executive Officer of Quest
International, a non-profit educational
organization, from 1989 to 1994.
Director, Park National Bank and
Birmingham Steel Corp. Age 51.
Harry L. Davis..........Professor of Creative Management at the 1987 2000 29,117(3)
University of Chicago since 1994. Professor
of Marketing from 1963 to 1994. Deputy
Dean of the Graduate School of Business
at the University of Chicago from 1983 to 1993.
Director, Golden Rule Insurance Company and
Peter Martin Associates. Age 62.
John Nils Hanson........Vice Chairman, Chief Executive Officer 1996 2000 207,894(4)
and President since 1999. Vice
Chairman, President and Chief Operating
Officer from 1998 to 1999. President and
Chief Operating Officer from 1996 to 1998.
Executive Vice President and Chief Operating
Officer from 1995 to 1996. President and
Chief Executive Officer of Joy Technologies
Inc. from 1994 to 1995. President, Chief
Operating Officer and Director of Joy
Technologies Inc. from 1990 to 1995.
Director, Arrow Electronics. Age 58.
Stephen M. Peck.........Maintains an investment office at Gilder, 1998 2000 12,000(5)
Gagnon, Howe & Co. since 1988. General
Partner at Wilderness Partners, L.P., an
investment partnership, since 1989. Director
of Fresenius Medical Care, OFFIT Investment
Funds, Banyan Strategic Realty Trust and
Grand Union Co. Serves as a member of the
Advisory Boards of the Torrey Funds and
Brown Simpson Asset Management. Chairman
of Mount Sinai-NYU Health. Non-employee
Chairman of the Board of Grand Union Company.
Age 65.
John D. Correnti.........Chairman and Chief Executive Officer, 1994 2001 9,361(3)
Birmingham Steel Corp., a major steel
producer, since 1999. Chief Executive
Officer, Vice Chairman and Director of
Nucor Corporation, a major steel producer,
from 1996 to 1999. President, Chief Operating
Officer and Director of Nucor from 1991 to
1995. Director, Navistar International
Corporation. Age 52.
Robert B. Hoffman........Chairman of the Board of the Company 1994 2001 16,550(6)
since 1999. Vice Chairman and Chief
Financial Officer of Monsanto Company,
a diversified company in agriculture,
pharmaceuticals and food products, from
1997 to 1999. Senior Vice President and
Chief Financial Officer from 1994 to 1997.
Director, Kemper Scudder Group of Municipal
Funds. Age 63.
Jean-Pierre Labruyere....Chairman and Chief Executive since 1972 1994 2001 19,397(3)
of Labruyere, Eberle S.A., a financial holding
company based in France with global interests
in many business areas including food
distribution, laser printing, electronic
archiving and wine production. Director,
Promodes S.A., Algeco S.A. and Martin Maurel
Bank - Banque de France Adviser. Age 62.
Robert M. Gerrity........Chairman and Chief Executive Officer of 1994 2002 3,747(7)
Antrim Group Inc., a technology corporation,
since 1996. Director and former President and
Chief Executive Officer of Ford New
Holland, now New Holland n.v., a London-
based agricultural and industrial equipment
manufacturer. Director, Libralter Engineered
Systems, Birmingham Steel Corp. and
Standard Motor Products, Inc. Age 62.
L. Donald LaTorre........President of L & G Management Consultants 1997 2002 16,707(8)
Corporation since 1997. Retired Director of
Engelhard Corporation, a world-leading provider
of environmental technologies, specialty
chemical products, engineered materials
and related services, since 1997. President
and Chief Operating Officer from 1995 to
1997. Senior Vice President and Chief
Operating Officer from 1990 to 1995.
Trustee, Bloomfield College; Chairman
and Director, Mercer University School
of Engineering Board. Age 62.
Leonard E. Redon.........Director, Rochester Area Operations, and 1997 2002 16,055(3)
Vice President, Eastman Kodak Company,
a company engaged worldwide in developing,
manufacturing and marketing consumer and
commercial imaging products, since 1997.
President and Chief Executive Officer
of Qualex, Inc., the world's largest wholesale
photo processor, in 1997. Vice President of
Eastman Kodak Company and President,
Customer Equipment Services Division of
Eastman Kodak, 1995 to 1997. General
Manager and Vice President of
Government and Education Markets from
1994 to 1995. Age 48.
</TABLE>
- -------------------
Notes
(1) Beneficial ownership of these shares consists of sole voting power and sole
investment power except as noted below. None of the directors beneficially
owned 1% or more of the Company's Common Stock.
(2) Includes 13,113 shares beneficially owned under the Directors Stock
Compensation Plan.
(3) Shares beneficially owned under the Directors Stock Compensation Plan.
(4) Includes 68,057 shares of exercisable options.
(5) Includes 5,000 shares held indirectly by his wife.
(6) Includes 15,550 shares beneficially owned under the Directors Stock
Compensation Plan.
(7) Includes 2,747 shares beneficially owned under the Directors Stock
Compensation Plan.
(8) Includes 15,707 shares beneficially owned under the Directors Stock
Compensation Plan.
Executive Officers of the Registrant
The following table sets forth the executive officers of the Company, their
ages, their offices with the Company, and the period during which they have been
executive officers of the Company.
<TABLE>
<CAPTION>
Name Age Current Office and Principal Occupation Years as Officer
<S> <C> <C>
John Nils Hanson...... 58 Chief Executive Officer since 1999. Vice Chairman since 4
1998; President and Chief Operating Officer since 1995;
President and Chief Executive Officer of Joy 1990 to 1995.
Director since 1996.
James A. Chokey....... 56 Executive Vice President for Law and Government Affairs since 2
1997. Senior Vice President, Law and Corporate Development of
Beloit from 1996 to 1997. Prior to joining the Company, Mr.
Chokey held similar positions with Cooper Industries, A.O.
Smith Corporation, RTE Corporation and Joy Technologies Inc.
Robert N. Dangremond.. 56 Senior Vice President and Chief Restructuring Officer since -
1999. Principal with turnaround management firm Jay Alix &
Associates.
Kenneth A. Hiltz...... 47 Senior Vice President and Chief Financial Officer since -
1999. Principal with turnaround management firm Jay Alix &
Associates.
Wayne F. Hunnell...... 53 Senior Vice President since 1998. President and Chief 1
Operating Officer of Joy since 1998; Vice President and
Controller of Joy from 1995 to 1998. Vice President and
Controller of P&H from 1993 to 1995.
Robert W. Hale........ 53 Senior Vice President since 1997. President and Chief 2
Executive Officer of P&H since 1994.
Mark E. Readinger..... 46 Senior Vice President since 1997. President of Beloit 2
since 1998; President and Chief Operating Officer
of Joy from 1996 to 1998; Senior Vice President of Marketing
and General Manager of the Joy North American Aftermarket
Operations from 1994 to 1996.
</TABLE>
The business address of each of the executive officers is: 3600 South Lake
Drive, St. Francis, Wisconsin 53235-3716. All executive officers are citizens of
the United States of America. Officers are elected annually but may be removed
at any time at the discretion of the Board of Directors. There are no family
relationships between the executive officers.
Involvement in Certain Legal Proceedings.
On June 7, 1999, the Company and substantially all of its domestic
operating subsidiaries, including Beloit, Joy, and P&H, filed for reorganization
under Chapter 11 of the U.S. Bankruptcy Code. Several of the Company's officers
are also officers or directors of other subsidiaries of the Company which filed
for reorganization under Chapter 11. As such, each of the Company's executive
officers has been associated with a corporation that filed a petition under the
federal bankruptcy laws within the last five years. In addition, Mr. Dangremond
served as Restructuring Officer and Chief Financial Officer of Zenith
Electronics Corporation and as interim Chief Executive Officer and President of
Forstmann & Company when those firms filed petitions under Chapter 11 of the
United States Bankruptcy Code in 1999 and 1995, respectively.
Section 16(a) Beneficial Ownership Reporting Compliance.
Based solely upon a review of Forms 3 and 4 and amendments thereto
furnished to the Company during the last fiscal year and Forms 5 and amendments
thereto furnished to the Company with respect to the last fiscal year, and
written representations from reporting persons that no Form 5 is required, the
Company is not aware that any director, officer or beneficial owner of more than
10% of the Company's Common Stock failed to file on a timely basis reports
required by Section 16(a) of the Securities Exchange Act of 1934 during the last
fiscal year except in the case of Herbert S. Cohen who was elected Vice
President and Controller on September 13, 1999 and whose Form 3 initial report
of ownership indicating that he owned no shares of Common Stock was filed with
the Securities and Exchange Commission on January 12, 2000. Mr. Cohen has not
had reportable transactions in the Company's Common Stock.
Item 11. Executive Compensation
Summary Compensation Table.
The following table shows compensation awarded to, earned by or paid to the
Company's current Chief Executive Officer, each of the four most highly
compensated executive officers (other than the Chief Executive Officer) who were
serving as executive officers at the end of fiscal 1999, and the Company's
former Chief Executive Officer for services rendered to the Company and its
subsidiaries during fiscal 1999, 1998 and 1997. Two of the Company's executive
officers, Mr. Dangremond and Mr. Hiltz, are employed by Jay Alix & Associates.
Amounts earned by Jay Alix & Associates during fiscal 1999 are disclosed in Item
13 - Certain Relationships and Related Transactions.
<TABLE>
<CAPTION>
===================================================================================================================================
Annual Compensation Long-Term Compensation
---------------------------------------------------------------------------
---------------------------------------------------------------------------
Awards Payouts
----------------------------------------
Other Restricted
Annual Stock Securities LTIP
Name Bonus Compensation Awards Underlying Payouts All Other
and Salary ($) ($) ($) Options/SARs ($) Compensation
Principal Position Year ($) (1) (1) (2) (#) (3) ($)
- -----------------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
John Nils Hanson 1999 653,520 - 145,684 (4) - - - 6,726 (5)
Vice Chairman,
President and Chief 1998 462,900 - 43,716 (6) - 12,616 (7) - 8,550
Executive Officer 1997 432,600 260,973 122,699 - - 47,755 233,894
- -----------------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------------
James A. Chokey 1999 296,800 - 41,542 (8) - - - 6,351 (5)
Executive Vice President,
Secretary and 1998 254,400 - 136,229 (9) - 6,004 (7) - 6,102
General Counsel 1997 213,336 109,441 36,480 - - - 114,613
- ----------------------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------------------
Robert W. Hale 1999 235,020 - - - - - 3,846 (5)
Senior Vice President and 1998 230,850 - - - 9,314 (7) - 8,550
President and CEO 1997 207,700 98,793 - - - 93,278 4,101
Harnischfeger Corporation
- ----------------------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------------------
Wayne F. Hunnell (10) 1999 240,500 - 6,867 (11) - - - 3,004 (5)
Senior Vice President and
President and COO 1998 221,323 57,856 6,949 (11) - 1,208 (7) - 1,440
Joy Technologies Inc.
- ----------------------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------------------
Mark E. Readinger 1999 325,000 - 29,569 (11) - - - 2,088 (5)
Senior Vice President and
President 1998 329,010 - 50,000 (12) - - - 1,827
Beloit Corporation 1997 259,885 175,220 1,031 - - - 3,983
- ---------------------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------------------
Jeffery T. Grade 1999 443,912 - 20,795 (13) - - - 5,742,704 (15)
Former Chief Executive 1998 700,008 - 126,856 (14) - 261,863 (7) - 8,550
Officer 1997 660,000 - 406,393 - - 246,011 686,052
</TABLE>
Notes
(1) Participants in the Company's Executive Incentive Plan may elect to defer
up to 100% of their cash bonuses by converting them into Common Stock at a
25% discount from the price of the Common Stock on a date selected by the
Human Resources Committee near the beginning of the fiscal year. All such
stock is held in the Company's Deferred Compensation Trust and may not be
withdrawn by a participant as long as the participant remains an employee
of the Company. All of the named executive officers elected to convert 100%
of their cash bonuses into Common Stock under this plan in each of the last
three fiscal years except Mr. Hanson who elected to convert 50% of his 1997
cash bonus into Common Stock under the plan, Mr. Chokey who elected to
convert 50% of his 1997 cash bonus into Common Stock under the Plan, Mr.
Hale who elected to convert 60% of his 1997 cash bonus into Common Stock
under the Plan, Mr. Hunnell who elected to convert 25% of his 1998 and 1997
cash bonuses into Common Stock under the Plan, and Mr. Readinger who
elected to receive his 1997 bonus in cash. The Executive Incentive Plan
also provides that dividends on shares held in participants' accounts are
reinvested in Common Stock at a 25% discount from market prices. Any
positive dollar values of the differences between (i) the bonus amount
converted and the market value of the shares purchased and (ii) the dollar
amounts attributable to the discount upon the reinvestment of dividends are
included in the "Other Annual Compensation" column. The dollar value of the
bonus amounts that have been converted into stock and deferred are reported
in the "LTIP Payouts" and "All Other Compensation" columns.
(2) No restricted Common Stock is outstanding.
(3) Represents the portion of the bonus earned, if any, that resulted from
bonuses that were "banked" in prior years under the Company's incentive
compensation programs.
(4) Includes $121,597 related to country club expenses and initial membership
fees.
(5) Represents group term life insurance premiums paid by the Company for the
benefit of the executives.
(6) Includes $31,133 related to automobile expenses.
(7) All options granted in 1998 equal the number of shares withheld for tax
purposes in connection with the distribution in 1998 of shares from the
Company's Deferred Compensation Trust as a result of accounting rule
changes in 1998.
(8) Represents $25,722 related to automobile expenses and $15,820 related to
country club expenses.
(9) Includes $50,150 related to automobile expenses and $83,420 related to
country club expenses and initial membership fees.
(10) Information for Mr. Hunnell covers fiscal year 1999 and fiscal year 1998,
the year he became an executive officer of the Company.
(11) Represents automobile expenses.
(12) Represents payment made to Mr. Readinger in connection with his transfer to
Beloit.
(13) Includes $19,530 related to automobile expenses.
(14) Includes $33,156 representing dollar amounts attributable to the discount
upon reinvestment of dividends on Common Stock held under the Executive
Incentive Plan and $63,177 related to automobile expenses.
(15) Represents $400,000 paid and $5,342,704 payable to Mr. Grade under the
terms of the Termination and Release Agreement dated as of May 24, 1999 and
$3,563 in group term life insurance premiums paid by the Company. The
$5,342,704 payable is treated as a prepetition claim in the Company's
bankruptcy proceedings.
Options/SAR Grants Table.
No grants of stock options or SARs were made during the last fiscal year to
the executive officers named in the Summary Compensation Table.
Aggregated Option/SAR Exercises and Fiscal Year-End Option/SAR Value Table.
The following table shows information with respect to the executive
officers named in the Summary Compensation Table concerning the number and value
of options outstanding at the end of the last fiscal year. No options were
exercised by executive officers during the last fiscal year.
<TABLE>
<CAPTION>
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR
AND FY-END OPTION/SAR VALUES (1)
===========================================================================================
Number of Securities Value of Unexercised
Underlying Unexercised in-the-Money Options/
Options/SARs at SARs at Fiscal Year-
Fiscal Year-End (#) End ($) (2)
--------------------------------------------------------------------
--------------------------------------------------------------------
Name Exercisable Unexercisable Exercisable Unexercisable
- -------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
John Nils Hanson 68,057 (3) 7,750 -- --
James A. Chokey 12,129 875 -- --
Robert W. Hale 28,564 1,750 -- --
Wayne F. Hunnell 7,008 625 -- --
Mark E. Readinger 24,744 -- -- --
Jeffery T. Grade 261,863 -- -- --
</TABLE>
Notes
(1) No Stock Appreciation Rights (SARs) are outstanding.
(2) All outstanding options have exercise prices above the closing price of the
Company's Common Stock on the New York Stock Exchange at the end of the
fiscal year of $1.125.
(3) Includes 6,191 options under the Joy Technologies Inc. Stock Option Plan
(the "Joy Option Plan"). As a consequence of the merger of the Company and
Joy Technologies Inc. in November, 1994, all options that had been granted
under the Joy Option Plan to any Joy Technologies Inc. employees were
converted into options to purchase the Company's Common Stock.
Long-Term Incentive Plan ("LTIP") Awards Table.
No long-term incentive plan awards were made during the last fiscal year to
the executive officers named in the Summary Compensation Table.
Defined Benefit or Actuarial Plan Disclosure.
The following table sets forth the estimated annual benefits payable upon
retirement at normal retirement age for the years of service indicated under the
Company's defined benefit pension plan (and excess benefit arrangements defined
below) at the indicated remuneration levels.
Remuneration covered by the plan includes the following amounts reported in
the Summary Compensation Table: salary and bonus (including the cash value of
bonuses forgone for stock under the Executive Incentive Plan).
The years of service credited for each of the executive officers named in
the Summary Compensation Table are: John Nils Hanson, 10 years; Mark E.
Readinger, 5 years; Robert W. Hale, 11 years; Wayne F. Hunnell, 21 years; James
A. Chokey, 17 years; and Jeffery T. Grade, 31 years.
Benefits are based both upon credited years of service with the Company or
its subsidiaries and the highest consecutive five year average annual salary and
incentive compensation during the last ten calendar years of service. Estimated
benefits under the retirement plan are subject to the provisions of the Internal
Revenue Code which limit the annual benefits which may be paid from a tax
qualified retirement plan. Amounts in excess of such limitations are payable
from the general funds of the Company under the Company's Supplemental
Retirement Plan. The estimated benefits in the table do not reflect offsets
under the plan of 1.25% per year of service (up to a maximum of 50%) of the
Social Security benefit.
<TABLE>
<CAPTION>
===========================================================================================
Years of Service
- -------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------
Remuneration 10 15 20 25 30 35
- -------------------- -------- -------- -------- -------- -------- ----------
- -------------------- -------- -------- -------- -------- -------- ----------
<S> <C> <C> <C> <C> <C> <C>
$ 300,000 . . . . $ 45,000 $ 67,500 $ 90,000 $112,500 $135,000 $157,500
- -------------------- -------- -------- -------- -------- -------- --------
- -------------------- -------- -------- -------- -------- -------- --------
400,000 . . . . 60,000 90,000 120,000 150,000 180,000 210,000
- -------------------- -------- -------- -------- -------- -------- --------
- -------------------- -------- -------- -------- -------- -------- --------
500,000 . . . . 75,000 112,500 150,000 187,500 225,000 262,500
- -------------------- -------- -------- -------- -------- -------- --------
- -------------------- -------- -------- -------- -------- -------- --------
600,000 . . . . 90,000 135,000 180,000 225,000 270,000 315,000
- -------------------- -------- -------- -------- -------- -------- --------
- -------------------- -------- -------- -------- -------- -------- --------
700,000 . . . . 105,000 157,500 210,000 262,500 315,000 367,500
- -------------------- -------- -------- -------- -------- -------- --------
- -------------------- -------- -------- -------- -------- -------- --------
800,000 . . . . 120,000 180,000 240,000 300,000 360,000 420,000
- -------------------- -------- -------- -------- -------- -------- --------
- -------------------- -------- -------- -------- -------- -------- --------
900,000 . . . . 135,000 202,500 270,000 337,500 405,000 472,500
- -------------------- -------- -------- -------- -------- -------- --------
- -------------------- -------- -------- -------- -------- -------- --------
1,000,000 . . . . 150,000 225,000 300,000 375,000 450,000 525,000
==================== ======== ======== ======== ======== ======== ========
</TABLE>
Compensation of Directors.
- -------------------------
Directors who are not officers or employees of the Company receive an
annual retainer fee of $22,600 and a fee of $1,250 for each Board and Board
committee meeting attended. Committee chairs receive $1,500 for each committee
meeting attended. Directors who are employees of the Company earn no additional
remuneration for their services as directors.
The Company has a Directors Stock Compensation Plan under which
non-employee directors are allowed to elect to defer up to 100% of their fees by
converting their fees into Common Stock to be held in trust until termination of
their status as directors.
The Company also has an incentive compensation plan for outside directors
based on the same performance targets used for the Company's Executive Incentive
Plan. Under the plan, non-employee directors are eligible to earn annual
incentive compensation awards in addition to annual retainer and meeting fees.
Incentive compensation is determined by multiplying $25,000 by a figure which
represents the performance of the Company in a given year expressed as a
percentage of the performance target for that year. Incentive compensation
awards are converted into shares of Common Stock under the Directors Stock
Compensation Plan and held in trust until the director's status as a director
terminates. No incentive compensation awards were earned under the Directors
Stock Compensation Plan for the last fiscal year.
Following the resignation of then Chairman and Chief Executive Officer,
Jeffery T. Grade, on May 24, 1999, Mr. Robert B. Hoffman was elected
non-employee Chairman. In June, 1999, the Human Resources Committee of the Board
of Directors considered the compensation to be paid to Mr. Hoffman as a
non-employee Chairman. Following recommendations from outside consultants as to
compensation paid in comparable situations, it was determined that Mr. Hoffman
should receive a quarterly payment of $125,000 (such amount to be periodically
reviewed by the Human Resources Committee), in addition to outside director
retainer and meeting fees.
In 1997, the Board established a long-term compensation plan for outside
directors that would award stock to directors if certain stock price targets
were achieved. The minimum stock price at which awards could be made is $53.13.
In light of the Company's Chapter 11 filing, it is unlikely that awards will be
made under this plan.
Employment Contracts, Termination of Employment and Change-in-Control
Arrangements.
The Company's Key Employee Retention Plan was approved by the Bankruptcy
Court in September, 1999. This plan covers approximately 142 employees,
including each of the executive officers named in the Summary Compensation Table
(other than the former Chief Executive Officer), and provides emergence bonuses
and severance and change-in-control benefits. Emergence is defined as the
earlier of the consummation of a plan of reorganization or the consummated sale
or substantially complete liquidation of the Company or, in the case of each of
the presidents of the Company's three principal domestic operating subsidiaries,
the respective operating subsidiaries. Emergence bonus payments for executive
officers named in the Summary Compensation Table (excluding the former Chief
Executive Officer) would be 85% of base salary.
Severance benefits for the executive officers named in the Summary
Compensation Table (excluding the former Chief Executive Officer) under the Key
Employee Retention Plan would be paid in the event of an involuntary
termination, other than for cause, and would amount to two year's base salary,
payable over 24 months, with mitigation after twelve months. Medical benefit
continuation for up to 24 months and outplacement assistance is also provided.
Change-in-control benefits for the executive officers named in the Summary
Compensation Table (excluding the former Chief Executive Officer) under the Key
Employee Retention Plan would be paid in the event of an involuntary termination
of employment, other than for cause, or a voluntary termination for "good
reason" during the 24-month period following a change-in-control of the Company.
Benefits to the executive officers named in the Summary Compensation Table
(excluding the former Chief Executive Officer) under this provision would equal
the lesser of three years base salary plus target bonus or the maximum amount
that would not cause the payment to be non-deductible to the Company under
Section 280G of the Internal Revenue Code and would be paid in a lump sum.
In the event of a change-in-control that would entitle the executive
officers named in the Summary Compensation Table to benefits under the Key
Employee Retention Plan, they must elect between the change-in-control benefits
provided by the Key Employee Retention Plan, which is treated as a post-petition
administrative expense, and their pre-petition claim under the change-in-control
provisions of the Company's Long-Term Compensation Plan for Key Executives. The
Long-Term Compensation Plan for Key Executives provides for payments in the
event that prior to November 1, 2001 there is a change-in-control of the Company
or a termination of employment of the executive. The payments would vary
depending on the highest reported sales price of the Common Stock during the
sixty-day period prior to and including the date of the change-in-control. At a
change-in-control price of $25 per share or less, the payment would be fifty
percent of the total share award an executive could be awarded under the plan
times $25. Similar payments would be made under the Long-Term Compensation Plan
for Key Executives in the case of an involuntary or constructive termination of
employment. Assuming a $25 or lower per share price, the approximate amounts
that would be payable under this plan to the executives named in the Summary
Compensation Table are: John Nils Hanson, $2,603,538; James A. Chokey,
$1,627,188; Mark E. Readinger, $1,301,775; Wayne F. Hunnell, $1,301,775; and
Robert W. Hale, $1,301,775.
<PAGE>
The Company's Executive Incentive Plan provides for the distribution of
accrued benefits following termination of a participant's employment with the
Company. The plan also provides that, in the event of a change-in-control of the
Company, the Company will make cash payments to participants equal to the number
of shares of Common Stock then allocated to such participants' accounts times
the highest per-share price actually paid in connection with such
change-in-control. The 1996 Stock Incentive Plan provides that, upon a
change-in-control, all outstanding option grants become exercisable. All
existing options under the 1988 Incentive Stock Plan become exercisable upon a
change-in-control.
Item 12. Security Ownership of Certain Beneficial Owners and Management
The following table lists the beneficial ownership of Common Stock as of
February 11, 2000 by any person known to the Company to own beneficially more
than 5% of its Common Stock, each of the executive officers named in the Summary
Compensation Table, and the Company's executive officers and directors as a
group. Beneficial ownership of these shares consists of sole voting power and
sole investment power except as noted below. As of February 11, 2000, no person
had filed a Schedule 13G with the Securities and Exchange Commission indicating
beneficial ownership of more than 5% of the Company's Common Stock.
Name and Address Shares Percent
of Beneficial Owner Owned of Class(1)
John Nils Hanson 207,894 (2) 0.4%
James A. Chokey 20,047 (3) less than 0.1%
Robert W. Hale 40,148 (4) less than 0.1%
Wayne F. Hunnell 9,385 (5) less than 0.1%
Mark E. Readinger 27,744 (6) less than 0.1%
All executive officers and directors
as a group (16 persons) 424,250 (7) 0.9%
Jeffery T. Grade 1,033,427 (8) 2.2%
- -----------------------
Notes:
(1) Based on 47,949,089 shares of Common Stock outstanding.
(2) Includes 68,057 shares Mr. Hanson has a right to acquire upon exercise of
stock options.
(3) Includes 12,129 shares Mr. Chokey has a right to acquire upon exercise of
stock options.
(4) Includes 28,564 shares Mr. Hale has a right to acquire upon exercise of
stock options.
(5) Includes 7,008 shares Mr. Hunnell has a right to acquire upon exercise of
stock options.
(6) Shares Mr. Readinger has a right to acquire upon exercise of stock options.
(7) Includes 143,502 shares which are subject to currently exercisable options.
(8) Based on Company records. Includes 261,863 shares Mr. Grade has a right to
acquire upon exercise of stock options.
See Item 10 - Directors and Executive Officers for additional information
on beneficial ownership of Common Stock by directors. All shares beneficially
owned by the directors under the Directors Stock Compensation Plan are voted by
the trustee of the Company's Deferred Compensation Trust as directed by the
Company's Management Policy Committee.
Item 13. Certain Relationships and Related Transactions
Transactions with Management and Others; Indebtedness of Management.
Prior to the acquisition of Joy Technologies Inc. ("JTI") by the Company in
1994, JTI lent John Nils Hanson, then an executive of JTI and currently an
executive officer and director of the Company, $240,000 in connection with a
program in which JTI lent executives money to encourage them to purchase and own
JTI stock. The Company succeeded to the loan as a result of the JTI acquisition.
The loan matured in 1997 and was extended by the Company in 1997, 1998 and 1999
for one-year periods. Mr. Hanson paid interest on the balance at the annual rate
of 6.22%. The loan was forgiven during fiscal 1999. As a result, Mr. Hanson was
credited with receiving income of $488,304 during the last fiscal year in the
form of the $240,000 loan forgiveness and $248,304 of tax liability resulting
from the loan forgiveness.
Mr. Dangremond and Mr. Hiltz, non-employee executive officers of the
Company, and several other financial professionals currently working on behalf
of the Company, are principals or employees of the turnaround
management-consulting firm of Jay Alix & Associates. The Company has retained
Jay Alix & Associates to provide certain financial expertise to assist the
Company during the pendency of its bankruptcy case. During fiscal 1999, the
Company incurred fees of $1,948,926 payable to Jay Alix & Associates. The
Company expects to continue to incur fees with Jay Alix & Associates during the
pendency of the Company's bankruptcy case.
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K
(a) The following documents are filed as part of this report:
(1) Financial Statements:
The response to this portion of Item 14 is submitted in a separate section
of this report. See the audited Consolidated Financial Statements and
Financial Statement Schedule of Harnischfeger Industries, Inc. attached
hereto and listed on the index on page 2 of this report.
(2) Financial Statement Schedule:
The response to this portion of Item 14 is submitted in a separate section
of this report. See the audited Consolidated Financial Statements and
Financial Statement Schedule of Harnischfeger Industries, Inc. attached
hereto and listed on the index on page 2 of this report.
(3) Exhibits
Number Exhibit
------- ----------------------------------------------------------------------
3 (a) Restated Certificate of Incorporation of Harnischfeger Industries, Inc.
(incorporated by reference to Exhibit 3(a) to Report of Harnischfeger
Industries, Inc. on Form 10-Q for the quarter ended April 30, 1997).
(b) Bylaws of Harnischfeger Industries, Inc., as amended November 22, 1999.
(c) Certificate of Designations of Preferred Stock, Series D (incorporated by
reference to Exhibit 28.1(b) to Registrant's Current Report on Form 8-K
dated March 25, 1992).
4 (a) 9.1% Series A Senior Note Agreement dated as of September 15, 1989
(incorporated by reference to Exhibit 4(b) to Report of Harnischfeger
Industries, Inc. on Form 10-K for the year ended October 31, 1991, File
No.1-9299).
(b) 9.1% Series B Senior Note Agreement dated as of October 15, 1989
(incorporated by reference to Exhibit 4(c) to Report of Harnischfeger
Industries, Inc. on Form 10-K for the year ended October 31, 1991, File
No.1-9299).
(c) 8.95% Series C Senior Note Agreement dated as of February 15,
1991(incorporated by reference to Exhibit 4(d) to Report of Harnischfeger
Industries, Inc. on Form 10-K for the year ended October 31, 1991, File No.
1-9299).
(d) 8.9% Series D Senior Note Agreement dated as of October 1, 1991
(incorporated by reference to Exhibit 4(e) to Report of Harnischfeger
Industries, Inc. on Form 10-K for the year ended October 31, 1991, File No.
1-9299).
(e) Indenture for Debentures between Harnischfeger Industries, Inc. and
Continental Bank, National Association, Trustee, dated March 1, 1992
(incorporated by reference to Exhibit 4(f) to Report of Harnischfeger
Industries, Inc. on Form 10-K for the year ended October 31, 1992, File No.
1-9299).
(f) First Supplemental Indenture for Debentures between Harnischfeger
Industries, Inc. and Continental Bank, National Association, Trustee, dated
June 12, 1992 (incorporated by reference to Exhibit 4(g) to Report of
Harnischfeger Industries, Inc. on Form 10-K for the year ended October 31,
1992, File No. 1-9299).
(g) Registration Statement filed on Form S-3, for issuance of Debt Securities
of up to $200,000,000 dated April 10, 1996, File No. 333-2401.
(h) Registration Statement filed on Form S-3, for issuance of Debt Securities
of up to $200,000,000 dated February 23, 1998, File No. 333-46429.
(i) Rights Agreement dated as of February 8, 1989 between the Registrant and
the First National Bank of Boston, as Rights Agent, which includes as
Exhibit A the Certificate of Designations of Preferred Stock, Series D,
setting forth the terms of the Preferred Stock, Series D; as Exhibit B the
Form of Rights Certificate; and as Exhibit C the Summary of Rights to
Purchase Preferred Stock, Series D (incorporated by reference to Exhibit 1
to Registrant's Registration Statement on Form 8-A filed on February 9,
1989).
(j) Amendment No. 1 to the Rights Agreement dated as of October 9, 1995
(incorporated by reference to Exhibit 4(j) to Report of Harnischfeger
Industries, Inc. on Form 10-K for the year ended October 31, 1997, File No.
1-9299).
(k) Amendment No. 2 to the Rights Agreement dated as of September 15, 1998
(incorporated by reference to Exhibit 4(k) to Report of Harnischfeger
Industries, Inc. on Form 10-K for the year ended October 31, 1998, File No.
1-9299).
(l) Harnischfeger Industries, Inc. Stock Employee Compensation Trust Agreement
effective as of March 23, 1993 (incorporated by reference to Exhibit 4(k)
to Report of Harnischfeger Industries, Inc. on Form 10-K for the year ended
October 31, 1993, File No.1-9299).*
(m) Amendment One to Harnischfeger Industries, Inc. Stock Employee Compensation
Trust Agreement dated January 1, 1994 (incorporated by reference to Exhibit
4(j) to Report of Harnischfeger Industries, Inc. on Form 10-K for the year
ended October 31, 1995, File No. 1-9299).*
(n) Amendment Two to Harnischfeger Industries, Inc. Stock Employee Compensation
Trust Agreement dated May 6, 1995 (incorporated by reference to Exhibit
4(k) to Report of Harnischfeger Industries, Inc. on Form 10-K for the year
ended October 31, 1995, File No. 1-9299).*
(o) $500,000,000 Credit Agreement dated as of October 17, 1997 among
Harnischfeger Industries, Inc. as borrower and each other financial
institution which from time to time thereto as lenders, Chase Manhattan
Bank as Administrative Agent, First Chicago Markets, Inc. as Syndication
Agent and Royal Bank of Canada as Documentation Agent (incorporated by
reference to Exhibit 4(n) to Report of Harnischfeger Industries, Inc. on
Form 10-K for the year ended October 31, 1997, File No.1-9299).
(p) Revolving Credit, Term Loan and Guaranty Agreement dated as of June 7, 1999
among Harnischfeger Industries, Inc. as Borrower and The Chase Manhattan
Bank, as Administrative Agent (incorporated by reference to Exhibit 10(a)
to Report of Harnischfeger Industries, Inc. on Form 10-Q for the quarter
ended April 30, 1999).
(q) First Amendment to Revolving Credit, Term Loan and Guaranty Agreement,
dated July 8, 1999 (incorporated by reference to Exhibit 10(a) to Report of
Harnischfeger Industries, Inc. on Form 10-Q for the quarter ended July 31,
1999).
(r) Second Amendment to Revolving Credit, Term Loan and Guaranty Agreement,
dated July 8, 1999 (incorporated by reference to Exhibit 10(b) to Report of
Harnischfeger Industries, Inc. on Form 10-Q for the quarter ended July 31,
1999).
(s) Waiver and Amendment Letter dated as of January 31, 2000 to Revolving
Credit, Term Loan and Guarantee Agreement dated July 8, 1999.
10 (a) Harnischfeger Industries, Inc. 1988 Incentive Stock Plan, as amended on
March 6, 1995 (incorporated by reference to Exhibit 10(a) to Report of
Harnischfeger Industries, Inc. on Form 10-K for the year ended October 31,
1995, File No. 01-9299).*
(b) Harnischfeger Industries, Inc. Stock Incentive Plan as amended and restated
as of September 12, 1998 (incorporated by reference to Exhibit 10(b) to
Report of Harnischfeger Industries, Inc. on Form 10-K for the year ended
October 31, 1998, File No. 1-9299).*
(c) Harnischfeger Industries, Inc. Executive Incentive Plan, as amended and
restated as of September 9, 1998 (incorporated by reference to Exhibit
10(c) to Report of Harnischfeger Industries, Inc. on Form 10-K for the year
ended October 31, 1998, File No. 1-9299).*
(d) Long-Term Compensation Plan for Key Executives, as amended and restated as
of December 17, 1998 (incorporated by reference to Exhibit 10(b) to Report
of Harnischfeger Industries, Inc. on Form 10-Q for the quarter ended
January 31, 1999, File No. 1-9299).*
(e) Harnischfeger Industries, Inc. Supplemental Retirement Plan, as amended and
restated as of June 3, 1999.*
(f) Directors Stock Compensation Plan, as amended and restated as of August 24,
1998 (incorporated by reference to Exhibit 10(f) to Report of Harnischfeger
Industries, Inc. on Form 10-K for the year ended October 31, 1998, File No.
1-9299).*
(g) Service Compensation Agreement for Directors effective as of June 1, 1992
(incorporated by reference to Exhibit 10(g) to Report of Harnischfeger
Industries, Inc. on Form 10-K for the year ended October 31, 1992, File
No.1-9299).*
(h) Long-Term Compensation Plan for Directors, as amended and restated as of
February 9, 1998 (incorporated by reference to Exhibit 10(e) to Report of
Harnischfeger Industries, Inc. on Form 10-Q for the quarter ended January
31, 1998, File No. 1-9299).*
(i) Joy Technologies Inc. 1991 Stock Option and Equity Incentive Plan dated
November 12, 1991 (incorporated by reference to Exhibit 99-1999.1 to
Registration Statement on Form S-8, File No. 33-57209).*
(j) Amendment to Joy Technologies Inc. 1991 Stock Option and Equity Incentive
Plan dated November 29, 1994 (incorporated by reference to Exhibit
99-1999.2 to Registration Statement on Form S-8, File No. 33-57209).*
(k) Harnischfeger Industries Deferred Compensation Trust as amended and
restated as of October 9, 1995 (incorporated by reference to exhibit 10 to
Report of Harnischfeger Industries, Inc. on Form 10-Q for the quarter ended
January 31, 1995, File No. O1-9299).*
(l) Amendment No. 1 to Harnischfeger Industries Deferred Compensation Trust as
amended and restated as of October 9, 1995 (incorporated by reference to
Exhibit 10(j) to Report of Harnischfeger Industries, Inc. on Form 10-K for
the year ended October 31, 1996, File No. 01-9299).*
(m) Termination and Release Agreement dated as of May 24, 1999 by and between
Harnischfeger Industries, Inc. and Jeffery T. Grade (incorporated by
reference to Exhibit 10(c) to Report of Harnischfeger Industries, Inc. on
Form 10-Q for the quarter ended April 30, 1999).*
(n) Termination and Release Agreement dated as of May 24, 1999 by and between
Harnischfeger Industries, Inc. and Francis M. Corby, Jr. (incorporated by
reference to Exhibit 10(d) to Report of Harnischfeger Industries, Inc. on
Form 10-Q for the quarter ended April 30, 1999).*
(o) Form of Key Employee Retention Plan letter dated October 20, 1999 between
Harnischfeger Industries, Inc. and John Nils Hanson, James A. Chokey,
Robert W. Hale, Wayne F. Hunnell and Mark E. Readinger.*
11 Statement Re: Computation of Earnings Per Share, filed herewith.
21 Subsidiaries of the Registrant.
23 Consent of PricewaterhouseCoopers LLP.
24 Powers of Attorney.
25 Financial Data Schedules.
* Represents a management contract or compensatory plan or arrangement
required to be filed as an exhibit pursuant to Item 14(c) of Form 10-K.
(b) Reports on Form 8-K
None.
HARNISCHFEGER INDUSTRIES, INC.
(Debtor-in-Possession as of June 7, 1999)
Form 10-K Item 8 and Items 14(a)(1) and 14(a)(2)
Index to Consolidated Financial Statements
And Financial Statement Schedule
The following Consolidated Financial Statements of Harnischfeger
Industries, Inc. and the related Report of Independent Accountants are included
in Item 8 - Financial Statements and Supplementary Data and Item 14 - Exhibits,
Financial Statement Schedules, and Reports on Form 8-K:
Page in This
Item 14(a) (1): Form 10-K
- --------------------------------------------------------------------------------
Report of Independent Accountants 35
Consolidated Statement of Operations for the
fiscal years ended October 31, 1999, 1998 and 1997 35
Consolidated Balance Sheets at
October 31, 1999 and 1998 36
Consolidated Statements of Cash Flow for
the fiscal years ended
October 31, 1999, 1998 and 1997 37
Consolidated Statement of Shareholders'
Equity (Deficit) for the
fiscal years ended October 31, 1999, 1998 and 1997 38
Notes to Consolidated Financial Statements 39
The following Consolidated Financial Statement schedule of Harnischfeger
Industries, Inc. and related Report of Independent Accountants is included in
Item 14(a)(2):
Report of Independent Accountants on Financial
Statement Schedule for the Years Ended
October 31, 1999, 1998 and 1997 67
Schedule II. Valuation and Qualifying Accounts 67
All other schedules are omitted because they are either not applicable or
the required information is shown in the financial statements or notes thereto.
Financial statements of less than 50% owned companies have been omitted
because the proportionate share of their profit before income taxes and total
assets are less than 20% of the respective consolidated amounts and investments
in such companies are less than 20% of consolidated total assets.
REPORT OF INDEPENDENT ACCOUNTANTS
To The Directors and Shareholders
of Harnischfeger Industries, Inc.
In our opinion, the Consolidated Financial Statements appearing in the
accompanying index present fairly, in all material respects, the financial
position of Harnischfeger Industries, Inc. and its subsidiaries (the "Company")
at October 31, 1999 and 1998, and the results of their operations and their cash
flows for each of the three years in the period ended October 31, 1999, in
conformity with accounting principles generally accepted in the United States.
These financial statements are the responsibility of the Company's management;
our responsibility is to express an opinion on these financial statements based
on our audits. We conducted our audits of these statements in accordance with
auditing standards generally accepted in the United States, which require that
we plan and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements, assessing the accounting principles used and
significant estimates made by management, and evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for the opinion expressed above.
The accompanying Consolidated Financial Statements have been prepared
assuming the Company will continue as a going concern. As discussed in Note 2 -
Significant Accounting Policies in Notes to Consolidated Financial Statements,
the Company has incurred substantial losses from operations and has experienced
liquidity issues resulting in the filing for Chapter 11 Bankruptcy protection on
June 7, 1999, which raises substantial doubt about its ability to continue as a
going concern. The Consolidated Financial Statements do not include any
adjustments that might result from the outcome of this uncertainty.
/S/ PRICEWATERHOUSECOOPERS LLP
PricewaterhouseCoopers LLP
Milwaukee, Wisconsin
February 11, 2000
<TABLE>
<CAPTION>
Harnischfeger Industries, Inc.
(Debtor-in-Possession as of June 7, 1999)
Consolidated Statement of Operations
- -------------------------------------------------------------------------------------------
In thousands except per share amounts Years Ended October 31,
- ------------------------------------------- ---------------------------------------------
1999 1998 1997
- ------------------------------------------- ---------------- ----------- -------------
Revenues
<S> <C> <C> <C>
Net Sales $ 1,114,146 $ 1,212,307 $ 1,467,341
Other Income 3,909 1,324 18,023
----------- ------------- -----------
1,118,055 1,213,631 1,485,364
Cost of sales 922,806 916,970 1,090,947
Product development, selling
and administrative expenses 238,952 235,268 217,629
Strategic and financing initiatives 7,716 -- --
Reorganization items 20,304 -- --
Restructuring charges 11,997 -- --
Charge related to executive changes 19,098 -- --
----------- ------------- -----------
Operating income (loss) (102,818) 61,393 176,788
Interest expense - net (excludes
contractual interest expense of
$31,230 for 1999) (28,865) (70,600) (70,259)
----------- ------------- -----------
Income (loss) before (provision) benefit for
income taxes and minority interest (131,683) (9,207) 106,529
Benefit (provision) for income taxes (220,448) 24,608 (36,519)
Minority interest (957) (1,035) (2,129)
----------- ------------- -----------
Income (loss) from continuing operations (353,088) 14,366 67,881
Income (loss) from discontinued operations,
net of applicable income taxes (798,180) (184,399) 70,399
Gain (loss) on disposal of discontinued operations,
net of applicable income taxes in 1998 (529,000) 151,500 --
Extraordinary loss on retirement of debt,
net of applicable income taxes -- -- (12,999)
----------- ------------- -----------
Net income (loss) $(1,680,268) $ (18,533) $ 125,281
=========== ============= ===========
Basic earnings (loss) per share:
Income (loss) from continuing operations $ (7.62) $ 0.31 $ 1.42
Income (loss) from and net gain (loss) on
disposal of discontinued operations (28.65) (0.71) 1.47
Extraordinary loss on retirement of debt -- -- (0.27)
----------- ------------- -----------
Net income (loss) per share $ (36.27) $ (0.40) 2.62
=========== ============= ===========
Diluted earnings (loss) per share:
Income (loss) from continuing operations $ (7.62) $ 0.31 $ 1.41
Income (loss) from and net gain (loss) on
disposal of discontinued operations (28.65) (0.71) 1.45
Extraordinary loss on retirement of debt -- -- (0.27)
----------- ------------- -----------
Net income (loss) per share $ (36.27) $ (0.40) $ 2.59
=========== ============= ===========
</TABLE>
See accompanying notes to consolidated financial statements
Harnischfeger Industries, Inc.
(Debtor-in-Possession as of June 7, 1999)
Consolidated Balance Sheet
In thousands October 31,
- ------------------------------------------------------------------------
1999 1998
------------ ------------
Assets
Current Assets:
Cash and cash equivalents (including cash
equivalents of $48,211 and
$6,816, in 1999 and 1998,
respectively) $ 57,453 $ 30,012
Accounts receivable-net 202,830 692,326
Inventories 447,655 610,478
Prepaid income taxes -- 74,186
Other 50,447 56,142
----------- -----------
758,385 1,463,144
Assets of discontinued Beloit operations 278,000 --
Property, Plant and Equipment:
Land and improvements 38,379 61,454
Buildings 131,961 289,789
Machinery and equipment 274,485 792,222
----------- -----------
444,825 1,143,465
Accumulated depreciation (234,078) (529,884)
----------- -----------
210,747 613,581
Investments and Other Assets:
Goodwill 358,191 480,625
Intangible assets 37,693 49,090
Deferred income taxes -- 44,781
Other 68,797 136,038
----------- -----------
464,681 710,534
----------- -----------
$ 1,711,813 $ 2,787,259
=========== ===========
See accompanying notes to consolidated financial statements.
<TABLE>
<CAPTION>
Harnischfeger Industries, Inc.
(Debtor-in-Possession as of June 7, 1999)
Consolidated Balance Sheet
- --------------------------------------------------------------------------------
In thousands October 31,
- ---------------------------------------------------------------------------------
1999 1998
- --------------------------------------------------- ------------ -----------
Liabilities and Shareholders' Equity (Deficit)
Current Liabilities:
Short-term notes payable, including current
<S> <C> <C>
portion of long-term obligations $ 144,568 $ 156,383
Trade accounts payable 70,012 333,624
Employee compensation and benefits 43,879 73,334
Advance payments and progress billings 45,340 115,320
Accrued warranties 39,866 58,053
Income taxes payable 101,832 7,693
Accrued contract losses, restructuring
charges, and other liabilities 125,719 281,873
----------- -----------
571,216 1,026,280
Long-term Obligations 168,097 962,797
Other Non-current Liabilities:
Liability for postretirement benefits 31,990 34,187
Accrued pension costs 15,465 40,812
Other 7,855 12,495
----------- -----------
55,310 87,494
Liabilities Subject to Compromise 1,193,554 --
Liabilites of discontinued Beloit operation, including
liabilities subject to compromise of $494,806 742,265 --
Minority Interests 6,522 43,838
Commitments and Contingencies (Notes 9 and 21) -- --
Shareholders' Equity (Deficit):
Common stock, $1 par value (51,668,939 and
51,668,939 shares issued, respectively) 51,669 51,669
Capital in excess of par value 572,573 586,509
Retained earnings (deficit) (1,468,938) 216,065
Accumulated comprehensive (loss) (79,960) (60,289)
Less:
Stock employee compensation trust (1,433,147 and
1,433,147 shares, respectively) at market (1,612) (13,525)
Treasury stock (3,865,101 and 4,465,101 shares,
respectively) at cost (98,883) (113,579)
----------- -----------
(1,025,151) 666,850
----------- -----------
$ 1,711,813 $ 2,787,259
=========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
<TABLE>
<CAPTION>
Harnischfeger Industries, Inc.
(Debtor-in-Possession as of June 7, 1999)
Consolidated Statement of Cash Flow
- --------------------------------------------------------------------------------
In thousands Years Ended October 31,
- ------------------------------------------------------ -------------------------------------------
1999 1998 1997
- ------------------------------------------------------- -------------- ------------ -------------
Operating Activities:
<S> <C> <C> <C>
Net income (loss) $ (1,680,268) $(18,533) $ 125,281
Add (deduct) - items not affecting cash:
(Income) loss from and net (gain) loss
on disposal of discontinued operations 1,327,180 (155,876) (25,063)
Restructuring charges 11,997 65,000 --
Reorganization items 14,615 -- --
Charge related to executive change 18,498 -- --
Minority interest, net of dividends paid 957 (54,981) 6,130
Depreciation and amortization 50,540 86,760 87,461
Increase (decrease) in income taxes, net
of change in valuation allowance 204,067 (201,771) 54,579
Other - net 5,834 (17,735) 1,449
Changes in Working Capital, exclusive of
acquisitions and divestitures
and net of liabilities subject to compromise:
Decrease (increase) in accounts receivable - net 11,075 51,590 (195,551)
Decrease (increase) in inventories 21,129 (68,773) (53,633)
(Increase) decrease in other current assets (18,881) 11,958 (23,637)
Increase (decrease) in trade accounts payable 40,412 (97,331) 119,671
Increase (decrease) in employee compensation
and benefits 6,424 (36,462) (26,987)
(Increase) decrease in advance payments and
progress billings 8,588 39,950 (55,281)
(Decrease) in accrued contract losses
and other liabilities (11,599) (32,892) (106,995)
-------------- ------------ -------------
Net cash provided by (used by)
continuing operations 10,568 (429,096) (92,576)
-------------- ------------ -------------
Investment and Other Transactions:
Acquisitions, net of cash acquired -- (40,192) (5,325)
Proceeds from sale of Material Handling -- 341,000 --
Proceeds from sale of J&L Fiber Systems -- 109,445 --
Net proceeds from sale of non-core Dobson
Park businesses -- 9,323 16,829
Property, plant and equipment acquired (26,610) (133,925) (126,401)
Property, plant and equipment retired 12,318 16,893 31,291
Deposit related to APP letters of credit
and other (16,434) (12,700) (746)
-------------- ------------ -------------
Net cash (used by) provided by
investment and other transactions (30,726) 289,844 (84,352)
-------------- ------------ -------------
Financing Activities:
Dividends paid (4,592) (18,556) (19,151)
Exercise of stock options -- 1,318 7,164
Purchase of treasury stock -- (33,154) (40,720)
Financing fees related to DIP Facility (15,000) -- --
Borrowings under DIP Facility 167,000 -- --
Borrowings under long-term obligations
prior to bankruptcy filing 125,000 -- --
Issuance of long-term obligations -- 292,300 261,411
Redemption of long-term obligations -- (11,763) (198,117)
Payments on long-term obligations (2,113) -- --
Increase (decrease) in short-term notes payable 18,910 (87,333) 161,644
-------------- ------------ -------------
Net cash provided by financing activities 289,205 142,812 172,231
-------------- ------------ -------------
Effect of Exchange Rate Changes on Cash and
Cash Equivalents (93) (2,931) (2,856)
Cash Used in Discontinued Operations (241,513) - -
-------------- ------------ -------------
Increase (decrease) in Cash and Cash Equivalents 27,441 629 (7,553)
Cash and Cash Equivalents at Beginning of Year 30,012 29,383 36,936
-------------- ------------ -------------
Cash and Cash Equivalents at End of Year $ 57,453 $ 30,012 $ 29,383
============== ============ =============
</TABLE>
See accompanying notes to consolidated financial statements.
<TABLE>
<CAPTION>
Harnischfeger Industries, Inc.
(Debtor-in-Possession as of June 7, 1999)
Consolidated Statement of Shareholders' Equity (Deficit)
Compre- Accumulated
Capital in hensive Retained Comprehensive
Common Excess of Income Earnings Income Treasury
In thousands Stock Par Value (Loss) (Deficit) (Loss) SECT Stock Total
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at October 31, 1996 $ 51,407 $ 615,089 $ 148,175 $ (37,584) $ (61,360) $ (42,242) $673,485
Comprehensive Income (Loss):
Net income -- -- $ 125,281 125,281 -- -- -- 125,281
Other Comprehensive Income (loss):
Currency translation adjustment -- -- (3,856) -- (3,856) -- -- (3,856)
Total Comprehensive
income (loss) $ 121,425
==========
Dividends paid ($.40 per share) -- -- (19,729) -- -- -- (19,729)
Dividends on shares held by SECT -- 578 -- -- -- -- 578
Exercise of 301,072 stock options 200 4,984 -- -- 1,980 -- 7,164
209,373 shares purchased by
employee and director benefit
plans -- 4,582 -- -- -- 3,888 8,470
1,062,457 shares acquired as
treasury stock -- -- -- -- -- (44,808) (44,808)
Adjust SECT shares to market value -- (2,950) -- -- 2,950 -- --
Amortization of unearned
compensation on restricted stock -- 3,075 -- -- -- -- 3,075
-------- --------- --------- --------- ---------- ------- -------
Balance at October 31, 1997 $ 51,607 $ 625,358 $ 253,727 $ (41,440) $ (56,430) $(83,162) $749,660
Comprehensive (Loss):
Net loss -- -- $ (18,533) (18,533) -- -- -- (18,533)
Other Comprehensive Loss:
Currency translation adjustment -- -- (18,849) -- (18,849) -- -- (18,849)
---------
Total Comprehensive loss $ (37,382)
==========
Exercise of 61,767 stock options 62 1,256 -- -- -- -- 1,318
Dividends paid ($.40 per share) -- -- (19,129) -- -- -- (19,129)
Dividends on shares held by SECT -- 573 -- -- -- -- 573
Adjust SECT shares to market value -- (42,905) -- -- 42,905 -- --
146,401 shares purchased by employee
and director benefit plans -- 1,527 -- -- -- 4,108 5,635
1,338,554 shares acquired as
treasury stock -- -- -- -- -- (33,154) (33,154)
Rabbi Trust shares -- -- -- -- -- (1,371) (1,371)
Amortization of unearned
compensation on restricted stock -- 700 -- -- -- -- 700
------- --------- --------- --------- --------- --------- --------
Balance at October 31, 1998 $51,669 $ 586,509 $ 216,065 $ (60,289) $ (13,525) $(113,579) $666,850
</TABLE>
See accompanying notes to consolidated financial statements.
<TABLE>
<CAPTION>
Compre- Accumulated
Capital in hensive Retained Comprehensive
Common Excess of Income Earnings Income Treasury
In thousands Stock Par Value (Loss) (Deficit) (Loss) SECT Stock Total
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at October 31, 1998 $ 51,669 $ 586,509 $ 216,065 $ (60,289) $(13,525) $(113,579) $ 666,850
Comprehensive Income (Loss):
Net loss -- -- $(1,680,268) (1,680,268) -- -- -- (1,680,268)
Other Comprehensive loss:
Change in additional minimum
pension liability -- -- (6,365) -- (6,365) -- -- (6,365)
Currency translation adjustment -- -- (13,306) -- (13,306) -- -- (13,306)
------------
Total Comprehensive
Income (Loss) $(1,699,939)
=============
Dividends paid ($.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) -- -- -- 15,582 5,547
Adjust SECT shares to market value -- (11,913) -- -- 11,913 -- --
Adjust Rabbi Trust shares -- -- -- -- -- (886) (886)
Unearned compensation expense on
executive contract buyout -- 7,462 -- -- -- -- 7,462
Amortization of unearned compensation
on restricted stock -- 407 -- -- -- -- 407
-------- --------- ----------- --------- --------- ---------- -----------
Balance at October 31, 1999 $ 51,669 $ 572,573 $(1,468,938) $ (79,960) $ (1,612) $ (98,883) $(1,025,151)
======== ========= =========== ========= ======== ========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
Harnischfeger Industries, Inc.
(Debtor-in-Possession as of June 7, 1999)
Notes to Consolidated Financial Statements
October 31, 1999
- --------------------------------------------------------------------------------
1. Reorganization under Chapter 11
On June 7, 1999, Harnischfeger Industries, Inc. (the "Company") and
substantially all of 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 Company's Pulp and
Paper Machinery segment owned by Beloit and its subsidiaries (the "Beloit
Segment") is being presented as a discontinued operation as is more fully
discussed in Note 3 - Discontinued Operations. The Debtors' Chapter 11
cases are jointly administered for procedural purposes only under case
number 99-2171. The issue of substantive consolidation of the Debtors has
not been addressed. Unless Debtors are substantively consolidated under a
confirmed plan of reorganization, payment of prepetition claims of each
Debtor may substantially differ from payment of prepetition claims of other
Debtors.
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 of the Debtors generally may not be
enforced. In addition, under the Bankruptcy Code, the Debtors may assume or
reject executory contracts and unexpired leases. Additional prepetition
claims may arise from such rejections, and from the determination by the
Bankruptcy 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 that were deemed burdensome or
of no value to the Company. As of February 11, 2000, the Debtors had not
completed their review of all their prepetition executory contracts and
leases for assumption or rejection. See also Note 9 - 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. Funds of qualified
pension plans and savings plans are in trusts and protected under federal
regulations. All required contributions are current in the respective
plans.
The Company has the exclusive right, until June 8, 2000, subject to meeting
certain milestones regarding delivery to the Official Committee of
Unsecured Creditors of a business plan, plan of reorganization term sheet
and certain portions of a disclosure statement prior to that time, to file
a plan of reorganization. Such period may be extended at the discretion of
the Bankruptcy Court. Subject to certain exceptions set forth in the
Bankruptcy Code, acceptance of a plan of reorganization requires approval
of the Bankruptcy Court and the affirmative vote (i.e. more than 50% of the
number and at least 66-2/3% of the dollar amount, both with regard to
claims actually voted) of each class of creditors and equity holders whose
claims are impaired by the plan. Alternatively, absent the requisite
approvals, the Company may seek Bankruptcy Court approval of its
reorganization plan under "cramdown" provisions of the Bankruptcy Code,
assuming certain tests are met. If the Company fails to submit a plan of
reorganization within the exclusivity period prescribed or any extensions
thereof, any creditor or equity holder will be free to file a plan of
reorganization with the Bankruptcy Court and solicit acceptances thereof.
February 29, 2000 was set as the last date creditors may file proofs of
claim under the Bankruptcy Code. There may be differences between the
amounts recorded in the Company's schedules and financial statements and
the amounts claimed by the Company's creditors. Litigation may be required
to resolve such disputes. Under the Bankruptcy Code, postpetition
liabilities and prepetition liabilities (i.e., liabilities subject to
compromise) must be satisfied before shareholders can receive any
distribution. The ultimate recovery of shareholders, if any, will not be
determined until the end of the case when the fair value of the Company's
assets is compared to the liabilities and claims against the Company. There
can be no assurance as to what value, if any, will be ascribed to the
common stock in the bankruptcy proceeding.
The Company will incur significant costs associated with the
reorganization. The amount of these expenses, which are being expensed as
incurred, is expected to significantly affect future results. See Note 6 -
Reorganization Items.
Currently, it is not possible to predict the length of time the Company
will operate under the protection of Chapter 11, the outcome of the Chapter
11 proceedings in general, or the effect of the proceedings on the business
of the Company or on the interest of the various creditors and security
holders.
2. Significant Accounting Policies
Basis of Presentation: The accompanying Consolidated Financial Statements
have been prepared on a going concern basis which contemplate 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 going concerns. As a result
of the Debtors' Chapter 11 filings, 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. Other than recording the estimated loss on the
disposal of the Beloit discontinued operations, the Consolidated 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 October 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.
Principles of Consolidation: The Consolidated Financial Statements include
the accounts of all majority-owned subsidiaries. All significant
intercompany balances and transactions have been eliminated in
consolidation.
Use of Estimates: The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities at the date of the financial statements, and the reported
amounts of revenues and expenses during the reporting period. Ultimate
realization of assets and settlement of liabilities in the future could
differ from those estimates.
Inventories: Inventories are stated at the lower of cost or market value.
Cost is determined by the last-in, first-out (LIFO) method for
substantially all domestic inventories and by the first-in, first-out
(FIFO) method for the inventories of foreign subsidiaries.
Revenue Recognition: Revenue is recognized generally upon shipment. Revenue
on long-term contracts of at least 6 months in duration is recorded using
the percentage-of-completion method for financial reporting purposes. Sales
of other products and services are recorded as products are shipped or
services are rendered.
Property, Plant and Equipment: Property, plant and equipment are stated at
historical cost. Expenditures for major renewals and improvements are
capitalized, while maintenance and repairs, which do not significantly
improve the related asset or extend its useful life are charged to expense
as incurred. For financial reporting purposes, plant and equipment is
depreciated primarily by the straight-line method over the estimated useful
lives of the assets which generally range from 5 to 20 years for
improvements, from 33 to 50 years for buildings and from 3 to 15 years for
machinery and equipment. Depreciation expense for 1999, 1998 and 1997 was
$26.6 million, $28.2 million and $26.3 million, respectively. Depreciation
claimed for income tax purposes is computed by accelerated methods.
Cash Equivalents: The Company considers all highly liquid debt instruments
with a maturity of three months or less at the date of purchase to be cash
equivalents.
Foreign Exchange Contracts: Exchange transaction gains or losses incurred
on forward foreign exchange contracts are reflected in income except where
the forward contract is designated as a hedge of a firm foreign currency
commitment. In this case the gain or loss is deferred and included in the
measurement of the related foreign currency transaction when it occurs,
unless it is estimated that deferral would result in a permanent loss in
which case it is recognized immediately.
Foreign Currency Translation: Exchange gains or losses incurred on
transactions conducted by one of the Company's operations in a currency
other than its functional currency are normally reflected in income. An
exception is made where the transaction is a long-term intercompany loan
that is not expected to be repaid in the foreseeable future. In this case
the transaction gain or loss is included in shareholder's equity as an
element of Comprehensive Income (Loss).
Assets and liabilities of international operations that have a functional
currency that is not the US dollar are translated into US dollars at
year-end exchange rates. Any gain or loss arising on this translation is
included in shareholders equity as an element of Comprehensive Income
(Loss). Assets and liabilities of operations which have the US dollar as
their functional currency (but which maintain their accounting records in
local currency) are re-measured into US dollars at year-end exchange rates,
except for non-monetary items for which historical rates are used. Exchange
gains or losses arising on re-measurement are recognized in income. Pre-tax
foreign exchange gains (losses) included in operating income (loss) were
$1.7 million, ($2.0 million), and ($0.7 million) in 1999, 1998 and 1997,
respectively.
Goodwill and Intangible Assets: Goodwill represents the excess of the
purchase price over the fair value of identifiable net assets of acquired
companies and is amortized on a straight-line basis over periods ranging up
to 40 years. The Company periodically reevaluates the carrying value and
estimated life of goodwill, using undiscounted cash flows, whenever
significant events or changes occur which might impair recovery of recorded
assets. The Company writes down recorded costs of assets to fair value,
based on discounted cash flows or market values, when recorded costs, prior
to impairment, are higher. Management believes that there is no further
impairment of the remaining goodwill included in the Company's Consolidated
Balance Sheet at October 31, 1999. The Company has filed for Bankruptcy
reorganization under Chapter 11 as described under Note 2 - Significant
Accounting Policies - Basis of Presentation, which could cause management
to reassess its estimate of the realizability of goodwill or its
amortization period. Factors used for this assessment in the future would
include management's estimate of each of the mining segments continuing
ability to generate positive cash flow and income from operations, as well
as the strategic significance of various assets to the Company's business
objectives. Other intangible assets, primarily comprising computer
software, are amortized over the shorter of their legal or economic useful
lives ranging from 3 to 12-1/2 years. Accumulated amortization was $83.1
million and $100.7 million at October 31, 1999 and 1998, respectively.
Other Non-current Assets: Other non-current assets in 1999 include
primarily prepaid pension and financing costs and a money market deposit
which is subject to restrictions over its use. In 1998, non-current assets
primarily comprised the investment in Princeton Paper Company and prepaid
pension costs.
Income Taxes: Deferred income taxes are recognized for the tax consequences
of temporary differences by applying enacted statutory tax rates applicable
to future years to differences between the financial statement carrying
amounts and the tax bases of existing assets and liabilities, and for tax
basis carryforwards. A valuation allowance is provided for deferred tax
assets where it is considered more likely than not that the Company will
not realize the benefit of such assets. (See Note 12 - Income Taxes.)
Research and Development Expenses: 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 $11.1
million, $18.0 million, and $15.7 million in 1999, 1998 and 1997,
respectively.
Earnings Per Share: Income (loss) per share is computed in accordance with
Statement of Financial Accounting Standards ("SFAS") No. 128, "Earnings per
Share." Basic income (loss) per common share is based upon the weighted
average number of common shares outstanding during each year. Diluted
income (loss) per common share is calculated based upon the sum of the
weighted average number of shares outstanding and the weighted average
numbers of potential dilutive common shares outstanding. There are no
differences in the income used to compute the Company's basic and diluted
income (loss) per share.
Comprehensive Income: In 1999, the Company adopted SFAS No. 130, "Reporting
Comprehensive Income." This Statement establishes rules for the reporting
of comprehensive income and its components. Comprehensive income consists
of net income (loss), foreign currency translation effects, and charges for
additional minimum pension liabilities and is presented in the Consolidated
Statement of Shareholders' Equity (Deficit).
Disclosures about Segments of an Enterprise and Related Information: During
1999, the Company adopted SFAS No. 131, "Disclosures about Segments of an
Enterprise and Related Information," which establishes standards for
reporting information about operating segments in annual financial
statements and interim financial reports. It also establishes standards for
related disclosures about products and services, geographic areas, and
major customers. The Company's continuing operations are divided into two
segments, surface mining equipment and underground mining equipment, based
on the Company's organizational structure for each of these products and
services.
Pensions and Other Postretirement Benefits: In 1999, the Company adopted
SFAS No. 132, "Employers' Disclosures about Pensions and Other
Postretirement Benefits." This statement revises employers' disclosures
about pension and other postretirement benefit plans and standardizes the
disclosure requirements for pensions and other postretirement benefits to
the extent practicable. It does not change the measurement or recognition
of those plans.
Future Accounting Changes: In June 1998, the Financial Accounting Standards
Board (FASB) issued SFAS No. 133, "Accounting for Derivative Instruments
and Hedging Activities" ("FAS 133"). FAS 133 (as amended by FAS 137) is
effective for all fiscal quarters of all fiscal years beginning after June
15, 2000 (November 1, 2000 for the Company). FAS 133 requires that all
derivative instruments be recorded on the balance sheet at their fair
value. Changes in the fair value of derivatives are recorded each period in
current earnings or other comprehensive income, depending on whether the
derivative is part of a hedge transaction and the type of hedge
transaction. For fair-value hedge transactions in which the Company is
hedging changes in an asset's, liability's or firm commitment's fair value,
changes in the fair value of the derivative instrument will generally be
offset in the income statement by changes in the fair value of the hedged
item. For cash-flow hedge transactions, in which the Company is hedging the
variability of cash flows related to a variable rate asset, liability or
forecasted transaction, changes in the fair value of the derivative
instrument will be reported in other comprehensive income. The gains and
losses on the derivative instrument that are reported in other
comprehensive income will be reclassified as earnings in the periods in
which earnings are impacted by the variability of the cash flows of the
hedged item. The ineffective portion of all hedges will be recognized in
current period earnings.
The Company has not yet determined the impact that the adoption of FAS 133
will have on its earnings or consolidated balance sheet.
Reclassifications: Reclassifications have been made to the financial
statements of prior periods to conform to the classifications of the
current period.
3. Discontinued Operations
Beloit Segment
In light of continuing losses at Beloit and following an evaluation of the
prospects of reorganizing the Pulp and Paper Machinery segment, on October
8, 1999, the Company announced its plan to dispose of the segment.
Subsequently, Beloit notified certain of its foreign subsidiaries that they
could no longer expect funding of their operations to be provided by either
Beloit or the Company. Certain of the notified subsidiaries have since
filed for or were placed into receivership or other applicable forms of
judicial supervision in their respective countries.
On November 7, 1999, the Bankruptcy Court approved procedures and an
implementation schedule for the divestiture plan (the "Court Sales
Procedures"). Two sales agreements were approved under the Court Sales
Procedures on February 1, 2000 and three sales agreements were approved
under the Court Sales Procedures on February 8, 2000. These agreements have
been entered into by Beloit with respect to the sale of a majority of its
businesses and operating assets. Closing on certain of these transactions
is subject to regulatory approval and the completion of information
satisfactory to the applicable buyer concerning certain representations and
warranties by Beloit. The Company expects that closings on all of these
sales agreements will occur by the end of the second quarter of fiscal
2000.
The Company has classified this segment as a discontinued operation in its
Consolidated Financial Statements as of October 31, 1999 and has,
accordingly, restated its consolidated statements of operations for prior
periods. The Company has not restated its consolidated balance sheets or
consolidated statements of cash flow for prior periods. Revenues for this
segment were $684.0 million, $851.4 million, and $1,300.0 million in 1999,
1998, and 1997, respectively. Income (loss) from discontinued operations
was ($798.2 million), ($188.8 million), and $45.3 million in 1999, 1998 and
1997, respectively.
The loss from discontinued operations of $798.2 million includes (i)
allocated interest expense of approximately $30.0 million based on Beloit's
portion of the consolidated debt, (ii) restructuring charges of $78.7
million in the third quarter and $3.6 million in the fourth quarter, (iii)
additional estimated losses on APP contracts of $87.0 million in the second
quarter and $163.5 million in the third quarter, (iv) additional expenses
of $143.1 million in the third quarter reflecting the effects of changes in
other accounting estimates and (v) reorganization expenses of $136.1
million in the third quarter associated with the closing of a pulp and
paper mill and the related rejection of a 15-year operating lease. The
Company did not record an income tax benefit with respect to the 1999 loss.
See Note 12 - Income Taxes. The elements of the 1999 loss from discontinued
operations are discussed below.
|X| The restructuring charges primarily related to a strategic
reorganization of Beloit. This reorganization rationalized certain
product offerings from a full breadth of product lines to more
specific offerings. As part of the restructuring, outsourcing was
expected to increase significantly. The charge consisted of facility
closure charges including estimated amounts for reductions in assets
to net realizable values of $74.1 million and accruals for closing and
disposal costs of $8.2 million related to closing certain
manufacturing facilities, engineering offices and research and
development centers. In connection with these restructuring charges,
the Company expected to reduce headcount at Beloit by at least 600
employees. These actions included staff reductions in manufacturing,
engineering, marketing, product development and administrative support
functions.
|X| The additional estimated losses on customer contracts primarily
relate to the Company's efforts to mitigate damages with respect to
the APP matter more fully discussed below and to improve short-term
liquidity. Beloit's Asian subsidiaries had sought to sell two
papermaking machines to alternative customers. The Company recorded an
$87.0 million 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 $147.7 million reserve in the third quarter to
reflect the Company's determination that the foreseeable market
conditions for this type of large paper machine did not support
valuing these machines at greater than estimated liquidation values.
The Company also recorded a $15.8 million charge in the third quarter
for changes in estimates of costs associated with the first two
machines sold to APP.
|X| The additional estimated losses on customer contracts and other
expenses reflecting changes in other accounting estimates relate to
the Company's provisions for excess and obsolete inventory, doubtful
accounts receivable, and anticipated losses on contracts. These
changes in estimates were 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.
The need for these changes in estimates arose 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 third
quarter charges were originally classified in the consolidated
statement of operations as follows:
In thousands
---------------------------------------------------
Charged to product development,
selling, and administrative expenses:
Allowance for doubtful accounts $ 35,900
----------
Charged to cost of sales:
Warranties and other 32,400
Excess and obsolete inventory 25,000
Losses on customer contracts 49,800
---------------
107,200
---------------
$ 143,100
===============
|X| Reorganization expenses of $136.1 million relate to Princeton Paper
Company, LLC, ("Princeton Paper"), a subsidiary of Beloit and one of
the Debtors, who had, until July 1999, 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
$82.1 million relating to the decision to close Princeton Paper
including a charge of $54.0 million relating to the rejection of the
lease. The characterization and treatment of the lease in the
bankruptcy case could affect Beloit's ultimate liability for the lease
payments. Beloit has provided $54 million as an estimate of the claims
which may be allowed by the Bankruptcy Court.
Cash flow used by Beloit in operating activities during fiscal 1999 was
$222.2 million. The principal sources of funding for Beloit was provided by
its operations, credit facilities of its subsidiaries and Harnischfeger
Industries, Inc. Between the Chapter 11 filing on June 7, 1999 and October
31, 1999, the cash used by Beloit was $116.0 million and was provided
primarily through the DIP Facility. Beloit and the other Debtors are
jointly and severally liable under the DIP Facility. Between October 31,
1999 and January 31, 2000, Beloit has used additional cash of approximately
$40.0 million.
During 1999, the Company recorded an estimated loss of $529.0 million on
the disposal of the Beloit Segment. The amount by which the ultimate
realization of the divestiture plan and any Beloit contingencies differ
from the estimated loss recognized during fiscal 1999 will be reported as
an adjustment to the loss on disposal of discontinued operations in the
future period during which the amount is ultimately determined. The Company
did not record an income tax benefit associated with this estimated loss.
See Note 12 - Income Taxes. This estimated loss is comprised of the
following:
In thousands
- -------------------------------------------------------------------------------
Estimated loss on the disposal of the businesses and assets $(472,118)
Accrued estimated operating losses and facility wind-down costs (43,304)
Accured post-petition letters of credit, guarantees and sureties (12,500)
Accrued post-closing environmental costs (7,000)
Accrued employee termination costs (12,000)
Gain on curtailment of defined benefit pension plans 17,922
------------
Net estimated loss on the disposal of discontinued operations $(529,000)
============
The elements of the estimated loss on the disposal of the segment are
discussed below.
|X| The estimated loss on the disposal of the Beloit businesses and assets
of $472.1 million anticipates that there will be approximately $243.2
million in sales proceeds from the five sales agreements approved
under the Court Sales Procedures and an additional $34.4 million in
proceeds, based primarily on appraisals, from the disposal of the
remaining 13 domestic and 18 international operations that will be
sold or liquidated by the end of the wind-down process.
|X| The accrual for estimated operating losses and wind-down costs
represents approximately $28.3 million in estimated operating losses
from October 31, 1999 until the facilities are sold or operations
otherwise cease and approximately $15.0 million for the wind-down
costs for facilities that will be sold or liquidated.
|X| The accrual for estimated additional costs under post-petition letters
of credit, guarantees and sureties of $12.5 million represents
estimated additional customer contract claims as a result of the
divestiture plan.
|X| The accrual for estimated employee termination costs reflects
estimated severance and related benefits costs with respect to
approximately 1,071 employees, the majority of whom received
applicable notifications during January 2000.
|X| The accrual for estimated post-closing environmental costs of $7.0
million relate to (i) cost estimates for the removal of asbestos and
hazardous wastes at certain facilities being sold or closed and (ii)
increased estimated costs associated with the completion of certain
remediation activities at one of Beloit's domestic manufacturing
facilities assuming the activities will be performed by a buyer or
subcontracted to a third-party.
|X| The gain on the curtailment of defined benefit plans of $17.9 million
reflects the elimination of future years of service accruals.
At October 31, 1999, Beloit was contingently liable to banks, financial
institutions, and others for approximately $20.0 million for outstanding
letters of credit and bank guarantees. This amount related to letters of
credit or other guarantees issued by non-US banks for non-US Beloit
subsidiaries. See Note 21 - Commitments, Contingencies and Off-Balance
Sheet Risks Beloit may also guarantee performance of its equipment at
levels specified in sales contracts without the requirement of a letter of
credit.
The assets and liabilities of discontinued operations are comprised of the
following as of October 31, 1999:
In thousands
- ----------------------------------------------------------------------------
Assets:
Cash and cash equivalents $ 19,290
Accounts receivable - net 153,761
Inventories 110,770
Other current assets 18,662
Property, plant and equipment - net 311,424
Other non-current assets 39,691
Goodwill and other intangibles 96,520
Allowance for estimated loss on disposition (472,118)
-------------
Total assets, representing estimated disposition cash proceeds $ 278,000
=============
Liabilities:
Post-petition liabilities:
Trade accounts payable $ (57,111)
Employee compensation and benefits, net of curtialment gain (14,605)
Accrued contract losses, restructuring costs and other (76,859)
Funded debt and capitalized lease obligations (24,080)
Operating losses and facility wind-down costs (43,304)
Post-petition letters of credit, guarantees and sureties (12,500)
Employee termination costs (12,000)
Post-closing environmental costs (7,000)
-------------
Total post-petition liabilities (247,459)
-------------
Pre-petition liabilities:
Trade accounts payable (145,955)
Funded debt (14,128)
Advance payments and progress billings (125,696)
Accrued warranties (34,054)
Princeton Paper lease (54,000)
APP claims (46,000)
Pension and other (53,437)
Minority interest (21,536)
-------------
Total pre-petition liabilities (494,806)
-------------
Total liabilities, including liabilities subject to compromise $ (742,265)
=============
As of October 31, 1999, there were approximately $766.0 million in net
intercompany liabilities owed by certain legal entities comprising the Beloit
Segment to certain non-Beloit affiliated legal entities included in the
Consolidated Financial Statements. Additionally, there are substantial
intercompany accounts between certain legal entities within the Beloit Segment.
Many of the legal entities comprising the Beloit Segment and possessing
intercompany accounts are Debtors under the Chapter 11 filing and several
others, subsequent to October 31, 1999, have been placed in receivership or
other applicable form of judicial supervision in their respective countries. A
substantial portion of the intercompany accounts arose prior to the Chapter 11
filing. In light of the Chapter 11 filing, receiverships and other applicable
forms of judicial supervision, the realizability of these accounts may be
uncertain. All intercompany accounts, including Beloit intracompany accounts,
have been eliminated in the Consolidated Financial Statements in accordance with
generally accepted accounting principles. While such intercompany obligations
eliminate in the preparation of consolidated financial statements, they remain
obligations on a separate legal entity basis.
Other Beloit Matters:
o The Potlatch lawsuit, filed originally in 1995, related to a 1989
purchase of pulp line washers supplied by Beloit for less than $15.0
million. In June 1997, a Lewiston, Idaho jury awarded Potlatch $95.0
million in damages in the case which, together with fees, costs and
interest to April 2, 1999, approximated $120.0 million. 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 filed a motion with the Bankruptcy Court to lift the
stay. The Company opposed this motion and the motion was denied.
o In fiscal 1996 and 1997, Beloit's Asian subsidiaries received orders
for four fine papermaking machines from Asia Pulp & Paper Co. Ltd.
("APP") for a total of approximately $600.0 million. The first two
machines were substantially paid for and installed at APP facilities
in Indonesia. Beloit sold approximately $44.0 million 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. Beloit 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.
Beloit received a $46.0 million 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 $2.8 million and $16.2 million, 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. 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 $125.0 million 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 $46.0 million paid to Beloit's Asian subsidiaries for
the second two machines. APP also seeks recovery of other damages it
alleges were caused by Beloit's Asian subsidiaries' claimed breaches.
The $46.0 million is included in liabilities subject to compromise.
See Note 9 - Liabilities Subject to Compromise. In addition, APP seeks
a declaration in the arbitration that it has no liability under
certain promissory notes. A hearing on the merits began on January 31,
2000 and is expected to continue for approximately four weeks. A
decision of the arbitration panel is expected in March or April, 2000.
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 prohibits Beloit from acting on the notes receivable from
APP except in the Singapore arbitration. Beloit and its Asian
subsidiaries will vigorously defend against all of APP's assertions.
APP has attempted to draw on approximately $15.9 million 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, but has been stayed pending the outcome of this
Singapore arbitration with APP. 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 the assets associated with these two
machines to alternative customers.
Material Handling Segment
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 Material Handling segment recorded revenues of
$130.5 million in 1998 (prior to the divestiture) and $353.4 million in
1997. Income (loss) from discontinued operations included income of $4.4
million in 1998 and $25.1 million in 1997 derived from this segment. The
Company reported a $151.5 million after-tax gain on the sale of this
discontinued operation in the second quarter of fiscal 1998. Proceeds
consisted of $341.0 million in cash and preferred stock, originally valued
at $4.8 million with a 12.25% payment-in-kind dividend; $7.2 million 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 15.6% of the outstanding common
stock. In view of continuing operating losses by Material Handling, the
Company reduced to zero the $5.4 million carrying value of its investment
in this business during the third quarter of 1999.
4. Changes in Estimates
The Company's provisions for excess and obsolete inventory, warranties and
doubtful accounts receivable are based on the Company's best estimates of
customer demand for new machines, rebuilds and services, costs of
financing, material and labor costs, and overall levels of customer
satisfaction with machine performance. The Chapter 11 filing in the third
quarter impacted operating results in several ways. Supplier shipments in
the latter part of the year were lower than expected resulting in lost
sales and production inefficiencies. The decision was made to discontinue
several equipment models that were either not required by customers or that
no longer provided sufficient margins to be attractive. Collection
difficulties increased as some customers delayed paying outstanding
receivables due to their own operating difficulties and their concerns
about the Company's financial condition and continued ability to fulfill
commitments.
The charges during the third quarter were as follows:
In thousands
-----------------------------------------------------------
Charged to product development,
selling, and administrative expenses:
Allowance for doubtful accounts $ 5,300
---------------
Charged to cost of sales:
Warranties and other 25,000
Excess and obsolete inventory 38,200
---------------
63,200
---------------
$ 68,500
===============
5. Strategic and Financing Initiatives
The Company incurred $7.7 million of charges related to certain
consulting and legal costs associated with strategic financing and
business alternatives investigated prior to the Chapter 11 filing.
6. 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. During
fiscal 1999, reorganization expenses related to continuing operations
were as follows:
In thousands
-------------------------------------------------------------
Professional fees directly related to the filing $ 14,457
Rejected equipment leases 2,322
Amortization of DIP financing costs 3,125
Accrued retention plan costs 730
Interest earned on DIP proceeds (330)
----------
$ 20,304
==========
The cash payments made during fiscal 1999 with respect to the
professional fees listed above were $2.6 million.
7. Charge Related to Executive Changes
In connection with certain management organizational changes that occurred
during the third quarter, a charge to earnings of $19.1 million was made.
The charge was primarily associated with supplemental retirement,
restricted stock, and long-term compensation plan obligations. This charge
consisted of $0.6 million paid prior to the Chapter 11 filing, adjustments
of $10.0 million reducing the carrying value of the applicable plan assets
and an accrued liability of $8.5 million which has been classified in the
consolidated balance sheet as part of the liabilities subject to
compromise.
8. Restructuring Charges
During 1999, restructuring charges of $12.0 million were recorded for
rationalization of certain of Joy's original equipment manufacturing
capacity and the reorganization and reduction of its operating structure on
a global basis. Costs of $7.3 million were charged in the third quarter,
primarily for the impairment of certain assets related to a facility
rationalization announced in January 2000. In addition, charges amounting
to $4.7 million (third quarter $0.9 million; fourth quarter $3.8 million)
were made for severance of approximately 240 employees. Additional future
cash charges of approximately $12.9 million in connection with continuing
cost reduction initiatives will commence during fiscal 2000.
Details of these restructuring charges are as follows:
In thousands
------------------------------------------------------------------
Original Reserve 10/31/99
Reserve Utilized Reserve
------------ -------------- ------------
Employee severance $ 4,727 $ 718 $ 4,009
Facility closures 7,270 - 7,270
------------ -------------- ------------
Total $11,997 $ 718 $11,279
============ ============== ============
9. 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 prepetition claims may arise from rejection of
additional executory contracts or unexpired leases by the Company. Under a
confirmed plan of reorganization, all prepetition claims may be paid and
discharged at amounts substantially less than their allowed amounts. The
issue of substantive consolidation of the Debtors has not been addressed.
Unless Debtors are substantively consolidated under a confirmed plan of
reorganization, payment of prepetition claims of each Debtor may
substantially differ from payment of prepetition claims of other Debtors.
Recorded liabilities:
On a consolidated basis, recorded liabilities subject to compromise under
Chapter 11 proceedings as of October 31, 1999 consisted of the following:
<TABLE>
<CAPTION>
In thousands
- -------------------------------------------------------------------------------------------------------------
Continuing Discontinued
Operations Operations Total
----------------- ---------------- ----------
<S> <C> <C> <C>
Trade accounts payable $ 95,830 $145,955 $ 241,785
Accrued interest expense, as of June 6, 1999 17,315 15 17,330
Accrued executive changes expense 8,518 - 8,518
Put obligation to preferred shareholders of subsidiary 5,457 - 5,457
8.9% Debentures, due 2022 75,000 - 75,000
8.7% Debentures, due 2022 75,000 - 75,000
7 1/4% Debentures, due 2025
(net of discount of $1,222) 148,778 - 148,778
6 7/8% Debentures, due 2027 (net of discount of $102) 149,898 - 149,898
Senior Notes, Series A through D, at - - -
interest rates of between 8.9% and - - -
9.1%, due 1999 to 2006 69,546 - 69,546
Revolving credit facility 500,000 - 500,000
IRC lease (Princeton Paper) - 54,000 54,000
APP claims - 46,000 46,000
Industrial Revenue Bonds, at interest rates of between
5.9% and 8.8%, due 1999 to 2017 18,615 14,128 32,743
Notes Payable 24,479 24,479
Other 5,118 - 5,118
Advance payments and progress billing - 125,696 125,696
Accrued warranties - 34,054 34,054
Minority interest - 21,536 21,536
Pension and other - 53,422 53,422
------------ ---------------- ---------------
$ 1,193,554 $ 494,806 $ 1,688,360
============ ================ ===============
</TABLE>
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 charged to earnings
for the period from June 7, 1999 to October 31, 1999 was $31.2 million.
Such interest is not being accrued since it is not probable that it will be
treated as an allowed claim. The Bankruptcy Code generally disallows the
payment of interest that accrues postpetition with respect to unsecured
claims.
Contingent liabilities:
Contingent liabilities as of the Chapter 11 filing date are also subject to
compromise. At October 31, 1999, the Company was contingently liable to
banks, financial institutions and others for approximately $311.2 million
for outstanding letters of credit, bank guarantees and surety bonds
securing performance of sales contracts and other guarantees in the
ordinary course of business. Of the $311.2 million, approximately $168.7
was issued by the Company on behalf of Beloit mattters. Of the total 1999
amount, approximately $213.9 million were issued by Debtor entities prior
to the bankruptcy filing and $48.8 million were issued under the DIP
Facility. Additionally, there were $48.5 million of outstanding letters of
credit or other guarantees issued by non-US banks for non-US subsidiaries.
Approximately $12.5 million has been accrued as part of the loss on
discontinued Beloit operations.
The Company is a party to litigation matters and claims that are normal in
the course of its operations. Generally, litigation related to "claims", as
defined by the Bankruptcy Code, is stayed. 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
the results of operations 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 3 - Discontinued Operations.
This matter is stayed by the automatic stay imposed by the Bankruptcy Code.
The Company and certain of its present and former senior executives have
been named as defendants in a class action, captioned 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 3 - Discontinued Operations violated the federal securities laws. The
Company has sought to extend the stay imposed by the Bankruptcy Code to
stay this litigation. Because the Company's motion has not yet been
resolved, this litigation is currently stayed.
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.
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.
10. Borrowings and Credit Facilities
Borrowings at October 31, consisted of the following:
In thousands 1999 1998
- ----------------------------------------------------------- ----------------
Domestic:
DIP Facility $ 167,000 $ -
8.9% Debentures due 2022 - 75,000
8.7% Debentures due 2022 - 75,000
7.25% Debentures due 2025 (net of
discount of $1,222) - 148,767
6.875% Debentures due 2027 (net of
discount of $102) - 149,894
Senior Notes, Series A through D, at
interest rates of between 8.9% and 9.1%,
due 1999 to 2006 - 69,546
Revolving Credit Facility - 375,000
Industrial Revenue Bonds - 32,820
Short term notes payable - 41,610
Other 227 380
Foreign:
Australian Term Loan, due 2000 57,734 56,965
Short term notes payable and bank overdrafts 86,539 51,937
Other 1,165 42,261
-------------- ----------------
312,665 1,119,180
Less: Amounts due within one year (144,568) (156,383)
-------------- ----------------
Long-term Obligations $ 168,097 $ 962,797
============== ================
The outstanding balance on the date of filing of the domestic borrowings
noted above in 1998 have been classified as liabilities subject to
compromise in 1999 (see Note 9 - Liabilities Subject to Compromise).
DIP Facility
On July 8, 1999 the Bankruptcy Court approved a two-year, $750 million
Revolving Credit, Term Loan and Guaranty Agreement underwritten by The
Chase Manhattan Bank (the "DIP Facility") consisting of three tranches: (i)
Tranche A is a $350 million revolving credit facility with sublimits for
import documentary letters of credit of $20 million and standby letters of
credit of $300 million; (ii) Tranche B is a $200 million term loan
facility; and (iii) Tranche C is a $200 million 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 million 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 million to foreign subsidiaries
for specified limited purposes, including up to $90 million for working
capital needs of foreign subsidiaries and $110 million of loans and $110
million of letters of credit for support or repayment of existing credit
facilities. The Company may use up to $40 million (of the $240 million) to
issue stand-by letters of credit to support foreign business opportunities.
Beginning August 1, 1999, the DIP Facility imposes monthly minimum EBITDA
tests and quarterly limits on capital expenditures. At October 31, 1999,
$167 million in direct borrowings had been drawn under the DIP Facility and
classified as a long-term obligation and letters of credit in the face
amount of $30.3 million had been issued under the DIP Facility. The Debtors
are jointly and severally liable under the DIP Facility.
The DIP Facility benefits from superpriority administrative claim status as
provided for under the Bankruptcy Code. Under the Bankruptcy Code, a
superpriority claim is senior to unsecured prepetition claims and all other
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 (plus a fronting fee of 0.25% to the Agent) 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.
In proceedings filed with the Bankruptcy Court, the Company 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:
|X| The Company 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 million; (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 million; or (c) make postpetition loans or advances
to, or investments in, Beloit or any of Beloit's subsidiaries in
excess of $115 million. In September 1999, the Company notified the
Creditor's Committee and MFS Funds that it intended to exceed the $115
million amount. The Company subsequently agreed, with the approval of
the Bankruptcy Court, to provide the Creditors Committee with weekly
cash requirement forecasts for Beloit, to restrict funding of Beloit
to forecasted amounts, to provide the Creditors Committee access to
information about the Beloit divestiture and liquidation process, and
to consult with the Creditors Committee regarding the Beloit
divestiture and liquidation process.
|X| In addition, the Company agreed to give notice to the Creditors'
Committee and to the MFS Funds with respect to any liens created by or
on a foreign subsidiary or on any of its assets to secure any
indebtedness.
|X| The Company agreed to notify the MFS Funds of any reduction in the net
book value of Joy of ten percent or more from $364 million after which
MFS would be entitled to receive periodic financial statements for
Joy. As of October 31, 1999, MFS Funds is entitled to receive periodic
financial statements for Joy.
Without appropriate waivers from The Chase Manhattan Bank, completion of
the sale of Beloit would violate certain negative covenants in the DIP
Facility dealing with liens, asset sales and fundamental changes in
business. In addition, minimum EBITDA tests in the DIP Facility did not
anticipate the discontinuance of the Pulp and Paper Machinery segment. In
light of the Company's plan in October 1999 to dispose of this segment, the
minimum EBITDA tests were no longer consistent with the Company's
continuing operations. As of January 31, 2000, the Company and The Chase
Manhattan Bank entered into a Waiver and Amendment Letter which waives
compliance with certain negative covenants of the DIP Facility as they
relate to the sale of the assets of Beloit and amends the EBITDA tests in
the DIP Facility to levels that are appropriate for the Company's
continuing businesses. The Waiver and Amendment Letter also waives the
provisions of the DIP Facility which otherwise would require conversion of
revolving borrowings to term loans. Continuation of unfavorable business
conditions or other events could require the Company to seek further
modifications or waivers of certain covenants of the DIP Facility. In such
event, there is no certainty that the Company would obtain such
modifications or waivers to avoid default under the DIP Facility.
In light of the decision to dispose of the Beloit Segment, the Company and
The Chase Manhattan Bank began negotiations to restructure the DIP Facility
to further align the provisions of the DIP Facility with the Company's
continuing businesses. There can be no assurance that such negotiations
will result in modifications to the DIP Facility.
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 businesses, there can be no assurances that such
sources will prove to be sufficient.
Foreign Credit Facilities
One of the Company's Australian subsidiaries maintains a committed
three-year A$90.0 million (US $57.7 million) term loan facility with a
group of four banks at a floating interest rate expressed in relation to
Australian dollar denominated Bank Bills of Exchange. As of October 31,
1999, the loan was fully drawn. As a result of the Company's filing for
Chapter 11 bankruptcy protection, the subsidiary is in default of the loan
conditions and a notice of default has been issued by the banks. This
situation renders the loan repayable on demand. The balance outstanding is
classified as a current liability in 1999.
As of October 31, 1999, short-term bank credit lines of foreign
subsidiaries amounted to $106.6 million. Outstanding borrowings against
these were $86.5 million at a weighted-average interest rate of 7.35%.
There were no compensating balance requirements under these lines of
credit. Of the amount borrowed, approximately $31.3 million was in default
as of October 31, 1999 either as result of the Company having commenced
bankruptcy proceedings in the US or due to breaches of loan covenants by
the local subsidiary. This has rendered the loans concerned repayable on
demand.
11. Acquisitions
On March 19, 1998, the Company completed the acquisition of Horsburgh &
Scott ("H&S") for a purchase price of $40.2 million. 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 of
$31.7 million is being amortized over 40 years.
12. Income Taxes
The consolidated provision (benefit) for income taxes included in the
consolidated statement of operations for the years ended October 31
consisted of the following:
In thousands
-----------------------------------------------------------------------
1999 1998 1997
---- ---- ----
Current provision (benefit):
Federal $ - $ 2,081 $(5,048)
State 230 4,633 1,618
Foreign 7,836 5,998 24,691
------- -------- -------
Total current 8,066 12,712 21,261
------- -------- -------
Deferred provision (benefit):
Federal 101,824 (108,564) 44,784
State and foreign 112,410 (17,193) (236)
-------- -------- -------
Total deferred 214,234 (125,757) 44,548
-------- -------- -------
Total consolidated income tax
provision (benefit) $222,300 $(113,045) $65,809
======== ========= =======
The income tax provision (benefit) included in the consolidated statement
of operations for the years ended October 31 consisted of the following:
In thousands
-------------------------------------------------------------------------
1999 1998 1997
---- ---- ----
Continuing operations $220,448 $(24,608) $36,519
Income (loss) from and net gain
(loss) on disposal
of discontinued operations 1,852 (88,437) 37,956
Extraordinary loss -
Retirement of debt - - (8,666)
-------- --------- -------
$222,300 $(113,045) $65,809
======== ========= =======
The components of income (loss) for the Company's domestic and foreign
operations for the years ended October 31 were as follows:
In thousands
-----------------------------------------------------------------------
1999 1998 1997
---- ---- ----
Domestic income (loss) $ (83,462) $ (25,284) $ 47,813
Foreign income (loss) (48,221) 16,077 58,716
--------- --------- --------
Pre-tax income (loss) from
continuing operations $(131,683) $ (9,207) $106,529
========= ========= ========
A reconciliation between the income tax provision (benefit) recognized in
the Company's consolidated statement of operations and the income tax
provision (benefit) computed by applying the statutory federal income tax
rate to the income (loss) from continuing operations for the years ended
October 31 were as follows:
In thousands
-----------------------------------------------------------------------
1999 1998 1997
---- ---- ----
Income tax computed at federal
statutory tax rate $(46,089) $ (3,223) $ 37,285
Goodwill amortization not
deductible for tax purposes 968 3,290 3,109
Differences in foreign and U.S.
tax rates 17,726 (1,896) 17,972
Difference in Foreign Sales
Corporation and U.S. tax rate - (2,738) (1,337)
State income taxes, net of federal
tax impact 150 878 1,507
General business and foreign tax
credits utilized (1,500) (1,500) (30,954)
Resolution of various tax audits - (10,600) -
Benefit related to capital
transaction - (15,410) -
Other items - net 1,088 6,591 8,937
Valuation allowance 248,105 - -
-------- -------- -------
$ 220,448 $(24,608) $ 36,519
========= ======== ========
Temporary differences and carryforwards, which gave rise to the net
deferred tax asset at October 31 are as follows:
In thousands
-----------------------------------------------------------------------
1999 1998
---- ----
Inventories $ (1,863) $ (7,021)
Reserves not currently deductible 9,327 62,041
Depreciation and amortization in
excess of book expense (21,716) (31,422)
Employee benefit related items 25,119 30,507
Tax credit carryforwards 43,627 41,718
Tax loss carryforwards 464,792 147,845
Other - net (131,965) (77,663)
Valuation allowance (387,321) (47,038)
-------- ---------
Net deferred tax asset $ - $118,967
========= ========
The net deferred tax asset is included in the Consolidated Balance Sheet at
October 31 in the following captions:
In thousands
-------------------------------------------------------------
1999 1998
---- ----
Prepaid income taxes $ - $ 74,186
Deferred income taxes - 44,781
----- ---------
$ - $ 118,967
----- ---------
At October 31, 1998, the Company had general business tax credits of $10.6
million expiring in 2007 through 2013, foreign tax credit carryforwards of
$22.8 million expiring in 2002 through 2003 and alternative minimum tax
credit carryforwards of $8.7 million which do not expire. In addition, tax
loss carryforwards consisted of federal carryforwards of $308.3 million
expiring in 2018, tax benefits related to foreign carryforwards of $26.2
million with various expiration dates and tax benefits related to state
carryforwards of $60.8 million with various expiration dates. The Company
estimates for the year ended October 31, 1999, it will generate additional
general business credits of $1.5 million expiring in 2014, foreign tax
credits of $1.4 million expiring in 2004 and tax loss carryforwards
consisting of federal carryforwards of $700.0 million expiring in 2019, tax
benefits related to foreign carryforwards of $45.0 million with various
expiration dates and tax benefits related to state carryforwards of $40.0
million with various expiration dates. The carryforwards will be available
for the reduction of future income tax liabilities of the Company and its
subsidiaries. A valuation allowance has been recorded against all of these
carryforwards because utilization is uncertain. If certain substantial
changes in the Company's ownership should occur, there could be an annual
limitation on the amount of the federal carryforwards which the Company may
be able to utilize.
The Company believes that realization of net operating loss and tax credit
benefits in the near term is unlikely. Should the Company's plan of
reorganization result in a significantly modified capital structure, SOP
90-7 would require the Company to apply fresh start accounting. Under fresh
start accounting, realization of net operating loss and tax credit benefits
first reduces any reorganization goodwill until exhausted and thereafter is
reported as additional paid in capital.
U.S. income taxes, net of foreign taxes paid or payable, have been provided
on the undistributed profits of foreign subsidiaries, except in those
instances where such profits are expected to be permanently reinvested.
Such unremitted earnings of subsidiaries which have been or are intended to
be permanently reinvested were $221.4 million at October 31, 1999. If for
some reason not presently contemplated, such profits were to be remitted or
otherwise become subject to U.S. income tax, the Company expects to incur
tax at substantially less than the U.S. income tax rate as a result of net
operating loss carryforwards and foreign tax credits that would be
available.
Income taxes paid were $1.1 million, $45.0 million and $11.8 million for
fiscal 1999, 1998 and 1997, respectively.
13. Accounts Receivable
Accounts receivable at October 31 consisted of the following (1998 amounts
have not been restated for the Beloit discontinued operation):
In thousands
----------------------------------------------------------
1999 1998
--------------- ----------------
Trade receivables $ 181,355 $ 337,003
Unbilled receivables 33,195 365,212
Allowance for doubtful
accounts (11,720) (9,889)
--------------- ----------------
$ 202,830 $ 692,326
=============== ================
14. Inventories
Consolidated inventories at October 31 consisted of the following (1998
amounts have not been restated for the Beloit discontinued operation):
In thousands
- --------------------------------------------------------------------------------
1999 1998
------------- -------------
Finished goods $ 205,959 $ 366,346
Work in process and purchased parts 256,697 198,765
Raw materials 34,271 96,920
------------- -------------
496,927 662,031
Less excess of current cost over stated
LIFO value (49,272) (51,553)
------------- -------------
$ 447,655 $ 610,478
============= =============
Inventories valued using the LIFO method represented approximately 71% and
66% of consolidated inventories at October 31, 1999 and October 31, 1998,
respectively.
15. Interest Expense - Net
Net interest expense for the twelve months ended October 31 consists of the
following:
In thousands
- ---------------------------------------------------------------------------
1999 1998 1997
------------- -------------- -----------
Interest income $ 2,283 $ 3,763 $ 1,554
Interest expense (31,148) (74,363) (71,813)
------------- -------------- ------------
Interest expense - net $(28,865) $(70,600) $(70,259)
============= ============== ===========
Net interest expense does not include contractual interest expense of $31.2
million for fiscal 1999 relative to prepetition obligations. Such interest is
not being accrued since it is not probable that it will be treated as an allowed
claim. The Bankruptcy Code generally disallows the payment of the interest that
accrues post petition with respect to unsecured claims. Cash paid for interest
in 1999, 1998 and 1997 was $22.0 million, $86.3 million and $76.4 million,
respectively.
16. Earnings Per Share
The following table sets forth the reconciliation of the numerators and
denominators used to calculate the basic and diluted earnings per share:
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------
In thousands except per share amounts October 31,
- ---------------------------------------------------------------------------------------------------------
1999 1998(1) 1997(1)
Basic Earnings (Loss): ----------- ------------ -----------
<S> <C> <C> <C>
Income (loss) from continuing operations $ (353,088) $ 14,366 $ 67,881
Income (loss) from discontinued operations (798,180) (184,399) 70,399
Net gain (loss) on disposal of discontinued operations (529,000) 151,500 --
Extraordinary loss on retirement of debt -- -- (12,999)
----------- ----------- -----------
Net income (loss) $(1,680,268) $ (18,533) $ 125,281
=========== =========== ===========
Basic weighted average common shares outstanding 46,329 46,445 47,827
=========== =========== ===========
Basic Earnings (Loss) Per Share:
Income (loss) from continuing operations $ (7.62) $ 0.31 $ 1.42
Income (loss) from and net gain (loss)
on disposal of discontinued operations (28.65) (0.71) 1.47
Extraordinary loss on retirement of debt -- -- (0.27)
----------- ----------- -----------
Net income (loss) $ (36.27) $ (0.40) $ 2.62
=========== =========== ===========
Diluted Earnings (Loss):
Income (loss) from continuing operations $ (353,088) $ 14,366 $ 67,881
Income (loss) from discontinued operations (798,180) (184,399) 70,399
Net gain (loss) on disposal discontinued operations (529,000) 151,500 --
Extraordinary loss on retirement of debt -- -- (12,999)
----------- ----------- -----------
Net income (loss) $(1,680,268) $ (18,533) $ 125,281
=========== =========== ===========
Basic weighted average common shares outstanding 46,329 46,445 47,827
Assumed exercise of stock options -- -- 434
----------- ----------- -----------
Diluted weighted average common shares outstanding 46,329 46,445 48,261
========== =========== ===========
Diluted Earnings (Loss) Per Share:
Income (loss) from continuing operations $ (7.62) $ 0.31 $ 1.41
Income (loss) from and net gain (loss) on disposal of
discontinued operations (28.65) (0.71) 1.45
Extraordinary loss on retirement of debt -- -- (0.27)
----------- ----------- -----------
Net income (loss) $ (36.27) $ (0.40) $ 2.59
=========== =========== ===========
</TABLE>
- -------------
(1) Amounts for 1998 and 1997 have been restated to reflect the Beloit
discontinued operation.
Options to purchase approximately 1,522,891 and 2,111,030 shares of common
stock were outstanding at October 31, 1999 and 1998, respectively, but were
not included in the computation of diluted earnings per share because the
additional shares would reduce the (loss) per share amount, and therefore,
the effect would be anti-dilutive.
17. Pensions and Other Employee Benefits
The Company and its subsidiaries have a number of defined benefit, defined
contribution and government mandated pension plans covering substantially
all employees. Benefits from these plans are based on factors which include
various combinations of years of service, fixed monetary amounts per year
of service, employee compensation during the last years of employment and
the recipient's social security benefit. The Company's funding policy with
respect to its qualified plans is to contribute annually not less than the
minimum required by applicable law and regulation nor more than the amount
which can be deducted for income tax purposes. The Company also has a
nonqualified senior executive supplemental pension plan which is based on
credited years of service and compensation during the last years of
employment.
Certain foreign plans, which supplement or are coordinated with government
plans, many of which require funding through mandatory government
retirement or insurance company plans, have pension funds or balance sheet
accruals which approximate the actuarially computed value of accumulated
plan benefits as of October 31, 1999 and 1998.
The Company recorded additional minimum pension liabilities of $7.1 million
and $42.0 million in 1999 and 1998, respectively, to recognize the unfunded
accumulated benefit obligations of certain plans. Corresponding amounts are
required to be recognized as intangible assets to the extent of the
unrecognized prior service cost and the unrecognized net transition
obligation on an individual plan basis. Any excess of the minimum pension
liability above the intangible asset is recorded as a separate component
and reduction in shareholders' equity. Intangible pension assets of $0.7
million and $42.0 million were recognized in 1999 and 1998, respectively.
The balance of $6.4 million in 1999 was charged to shareholders' equity.
Total pension expense for all defined contribution and defined benefit
plans was $4.5 million, $13.2 million and $13.4 million in 1999, 1998 and
1997, respectively.
Net periodic pension costs for U.S. plans and plans of subsidiaries outside
the United States included the following components:
<TABLE>
<CAPTION>
In thousands
- ----------------------------------------------------------------------------------------------------------------------
US Defined Non-US Defined U.S. Nonqualified
Benefit Plans Benefit Plans Benefit Plans
------------------------------ ------------------------------ -----------------------------
Components of Net 1999 1998 1997 1999 1998 1997 1999 1998 1997
Periodic Benefit Cost ---- ---- ---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Service cost $ 14,561 $ 14,794 $ 13,780 $ 7,502 $ 9,952 $ 9,416 $ 520 $ 439 $ 406
Interest cost 35,735 34,613 31,991 27,708 29,403 29,653 792 1,022 1,078
Expected return on
assets (42,693) (40,531) (36,290) (42,999) (41,244) (38,007) - - -
Amortization of:
Transition
obligation(asset) 582 580 580 (749) (753) (752) 46 73 73
Prior service cost 4,085 3,048 2,524 219 203 199 60 96 96
Actuarial (gain)
loss 276 331 64 81 133 (1,149) 509 455 500
-------- ------- ------ ------ ------ -------- ------ ----- -----
Periodic benefit
cost before 12,546 12,835 12,649 (8,238) (2,306) (640) 1,927 2,085 2,153
curtailment
and termination
charges (credits)
Curtailment and
termination charges
(credits):
Special termination
benefit charge
(credit) 1,150 793 - - - 42 - - -
Curtailment charge
(credit) (17,922) (311) - - - - - - -
Settlement charge
(credit) - - - - - - (3,214) - -
-------- -------- -------- -------- --------- -------- -------- ------ ------
Total net periodic
benefit cost (4,226) 13,317 12,649 (8,238) (2,306) (598) (1,287) 2,085 2,153
(Charges) credits
allocated to
discontinued
operations 10,856 (7,096) (5,671) 1,791 1,097 1,348 - - -
Total net periodic -------- -------- ------- ------- ------- -------- ------- ------ ------
benefit cost of
continuing
operations $ 6,630 $ 6,221 $ 6,978 $ (6,447) $ (1,209) $ 750 $(1,287) $ 2,085 $ 2,153
======== ======== ======== ======== ========= ======== ======== ======= =======
</TABLE>
ABOVE TABLE CONTINUED:
---------------------------------
In thousands Total
------------------------------------------------------------
Components of Net 1999 1998 1997
Periodic Benefit Cost ----- ---- ----
Service cost $ 22,583 $ 25,185 $ 23,602
Interest cost 64,235 65,038 62,722
Expected return on
assets (85,692) (81,775) (74,297)
Amortization of:
Transition
obligation(asset) (121) (100) (99)
Prior service cost 4,364 3,347 2,819
Actuarial (gain)
loss 866 919 (585)
--------- -------- --------
Periodic benefit
cost before 6,235 12,614 14,162
curtailment and
termination charges (credits)
Curtailment and
termination charges
(credits):
Special termination
benefit charge
(credit) 1,150 793 42
Curtailment charge
(credit) (17,922) (311) -
Settlement charge
(credit) (3,214) - -
---------- -------- --------
Total net periodic
benefit cost (13,751) 13,096 14,204
(Charges) credits
allocated to
discontinued
operations 12,647 (5,999) (4,323)
-------- -------- ---------
Total net periodic
benefit cost of
continuing
operations $ (1,104) $ 7,097 $ 9,881
========= ======== ========
Changes in the projected benefit obligations and pension plan assets
relating to the Company's defined benefit pension plans, together with a
summary of the amounts recognized in the Consolidated Balance Sheet as of
October 31 are set forth in the following table:
<TABLE>
<CAPTION>
US Defined Non-US Defined U.S. Nonqualified
In thousands Benefit Plans Benefit Plans Benefit Plans Total
-----------------------------------------------------------------------------------------------------------------------------
1999 1998 1999 1998 1999 1998 1999 1998
---- ---- ---- ---- ---- ---- ---- ----
Change in Benefit Obligation
Net benefit obligation at
<S> <C> <C> <C> <C> <C> <C> <C> <C>
beginning of year $ 510,659 $ 453,008 $ 430,478 $ 402,049 $ 15,978 $ 15,320 $ 957,115 $ 870,377
Service cost 14,561 14,794 7,502 9,952 520 439 22,583 25,185
Interest cost 35,735 34,613 27,708 29,403 792 1,022 64,235 65,038
Plan participants'
contributions -- -- 2,752 3,084 -- -- 2,752 3,084
Plan amendments -- 4,275 (10,163) -- -- -- (10,163) 4,275
Actuarial (gain)loss (30,278) 27,326 (5,633) 26,581 (948) 11 (36,859) 53,918
Currency Fluctuations -- -- (7,744) 6,755 -- -- (7,744) 6,755
Acquisitions/Divestitures -- -- -- (25,055) (4,804) -- (4,804) (25,055)
Curtailments (33,937) (483) -- -- -- -- (33,937) (483)
Special termination benefits 1,150 -- -- -- -- -- 1,150 --
Gross benefits paid (27,603) (22,874) (24,953) (22,291) (567) (815) (53,123) (45,980)
--------- ---------- --------- --------- ---------- -------- ---------- ---------
Net benefit obligation at
end of year $ 470,287 $ 510,659 $ 419,947 $ 430,478 $ 10,971 $ 15,977 $ 901,205 $ 957,114
========= ========= ========= ========= ========= ========= ========= =========
Change in Plan Assets
Fair value of plan assets at
beginning of year $ 458,990 $ 445,285 $ 426,725 $ 428,832 $ -- $ -- $ 885,715 $ 874,117
Actual return on plan assets 57,394 35,329 67,736 41,783 -- -- 125,130 77,112
Currency Fluctuations -- -- (7,910) 84 -- -- (7,910) 84
Employer contributions 2,273 45 7,694 1,236 567 815 10,534 2,096
Plan participants'
contributions -- -- 2,752 3,084 -- -- 2,752 3,084
Acquisitions/Divestitures -- 1,206 -- (26,002) -- -- -- (24,796)
Gross benefits paid (27,603) (22,874) (24,953) (22,291) (567) (815) (53,123) (45,980)
--------- --------- --------- --------- ---------- --------- --------- ---------
Fair value of plan assets at
end of year $ 491,054 $ 458,991 $ 472,044 $ 426,726 $ -- $ -- $ 963,098 $ 885,717
========= ========= ========= ========= ========== ========== ========= =========
Funding Status, Realized and
Unrealized Amounts
Funded status at end of year $ 20,767 $ (51,668) $ 52,096 $ (3,753) $ (10,971) $ (15,977) $ 61,892 $ (71,398)
Unrecognized net actuarial
(gain)loss (28,140) 13,680 (4,632) 29,562 5,715 8,356 (27,057) 51,598
Unrecognized prior service
cost 22,124 44,764 3,831 2,327 478 861 26,433 47,952
Unrecognized net transition
obligation(asset) 501 1,442 (5,451) (6,220) 92 220 (4,858) (4,558)
--------- -------- ---------- --------- --------- --------- --------- ---------
Net amount recognized at end
of year $ 15,252 $ 8,218 $ 45,844 $ 21,916 $ (4,686) $ (6,540) $ 56,410 $ 23,594
========= ========= ========= ========= ========= ========== ========= =========
Amounts recognized in the
Consolidated
Balance Sheet consist of:
Prepaid benefit cost $ 4,971 $ 19,305 $ 37,084 $ 28,037 $ 155 $ 260 $ 42,210 $ 47,602
Accrued benefit
liability -- (11,087) (5,821) (6,121) (4,841) (6,800) (10,662) (24,008)
Additional minimum
liability (2,211) (37,679) (943) (529) (3,932) (3,781) (7,086) (41,989)
Intangible asset -- 37,679 150 529 570 3,781 720 41,989
Accumulated other
comprehensive income 2,211 - 793 - 3,362 - 6,366 -
--------- --------- --------- -------- --------- -------- -------- ---------
4,971 8,218 31,263 21,916 (4,686) (6,540) 31,548 23,594
Discontinued Operations 10,281 -- 14,581 -- -- -- 24,862 --
--------- --------- --------- -------- --------- -------- -------- ---------
Net amount recognized at end
of year $ 15,252 $ 8,218 $ 45,844 $ 21,916 $ (4,686) $ (6,540) $ 56,410 $ 23,594
========= ========= ========= ========= ========= ========= ========= =========
</TABLE>
Pension plan assets consist primarily of trust funds with diversified
portfolios of primarily equity and fixed income investments.
The projected benefit obligations, accumulated benefits obligations and
fair value of plan assets for underfunded and overfunded plans have been
combined for disclosure purposes. The projected benefit obligation,
accumulated benefit obligation, and fair value of assets for pension plans
with the accumulated benefit obligations in excess of plan assets are $25.2
million, $22.7 million and $6.5 million, respectively, as of October 31,
1999, and $265.8 million, $257.9 million and $223.6 million, respectively,
as of October 31, 1998.
The principal assumptions used in determining the funding status and net
periodic benefit cost of the Company's pension plans are set forth in the
following table. The assumptions for non-U.S. plans were developed on a
basis consistent with that for U.S. plans, adjusted to reflect prevailing
economic conditions and interest rate environments.
<TABLE>
<CAPTION>
--------------------------------------------------------------------------
US Qualified Non-U.S. Defined Benefit Plans
Defined Benefit Plans
1999 1998 1997 1999 1998 1997
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Discount rate 7.00 7.50 8.00 6.0% - 15.0% 6.0% - 15.0% 8.0% - 14.0%
Expected return on plan assets 10.00 10.00 10.00 10.25% - 16.0% 10.25% - 16.0% 10.0% - 15.0%
Rate of compensation increase 4.00 4.50 5.00 3.5% - 12.0% 3.5% - 12.0% 5.0% - 11.0%
</TABLE>
ABOVE TABLE CONTINUED
--------------------------------------------------
U.S. Nonqualified
Defined Benefit Plans
1999 1998 1997
---- ---- ----
Discount rate 7.00% 7.50% 8.00%
Expected return on plan assets 10.00% 10.00% 10.00%
Rate of compensation increase 4.00% 4.50% 5.00%
The discontinuance of Beloit's operations will result in a curtailment of
several of the Company's Defined Benefit Pension Plans due to the
termination of employees' services earlier than originally expected. In
accordance with SFAS No. 88, "Employers' Accounting for Settlements and
Curtailments of Defined Benefit Pension Plans and for Termination
Benefits", the Company has recognized a gain of $17.9 million representing
the decrease in the projected benefit obligations of the plans affected by
the curtailment. The gain has been included in the loss from discontinued
operations in the 1999 Consolidated Statement of Operations.
The Company has a profit sharing plan which covers substantially all
domestic employees except certain employees covered by collective
bargaining agreements and employees of subsidiaries with separate defined
contribution plans. Payments to the plan are based on the Company's EVA
performance. Profit sharing expense was $5.0 million in 1999, $0 in 1998
and $6.0 million in 1997.
18. Postretirement Benefits Other Than Pensions
In 1993, the Board of Directors of the Company approved a general approach
that culminated in the elimination of all Company contributions towards
postretirement health care benefits. Increases in costs paid by the Company
were capped for certain plans beginning in 1994 extending through 1998 and
Company contributions were eliminated as of January 1, 1999 for most
employee groups, excluding Joy and specific discontinued operation groups.
For Joy, based upon existing plan terms, future eligible retirees will
participate in a premium cost-sharing arrangement which is based upon age
as of March 1, 1993 and position at the time of retirement. Active
employees under age 45 as of March 1, 1993 and any new hires after April 1,
1993 will be required to pay 100% of the applicable premium.
The components of the net periodic benefit cost associated with the
Company's post-retirement benefit plans (other than pensions), all of which
relate to operations in the US, are as follows:
In thousands October 31,
---------------------------------------------------------------------------
1999 1998 1997
---- ---- ----
Components of
net periodic benefit cost
Service cost $ 192 $ 173 $ 163
Interest cost 3,112 3,849 4,743
Amortization of:
Prior service cost - (11,903) (12,810)
Actuarial (gain)loss 3,217 (6,736) (2,943)
------- -------- ---------
6,521 (14,617) (10,847)
Costs allocated to discontinued operations 1,180 - -
------- --------- ---------
Total net periodic benefit cost (credit)
of continuing operations $ 5,341 $(14,617) $ (10,847)
------- --------- ---------
------- --------- ---------
The following table sets forth the benefit obligations, plan assets, funded
status and amounts recognized in the Company's Consolidated Balance Sheet
as of October 31:
In thousands
----------------------------------------------------------------- --------
1999 1998
-----------------------
Change in Benefit Obligation
Net benefit obligation at beginning of year $ 50,730 $ 58,765
Service cost 192 173
Interest cost 3,112 3,849
Actuarial (gain)loss (2,404) 6,176
Gross benefits paid (8,922) (18,233)
-------- --------
Net benefit obligation at end of year $ 42,708 $ 50,730
======== ========
Change in Plan Assets
Fair value of plan assets at beginning of year $ - $ -
Actual return on plan assets 8,922 18,233
Gross benefits paid (8,922) (18,233)
-------- --------
Fair value of plan assets at end of year $ - $ -
======== ========
Funding Status, Recognized and Unrecognized Amounts
Funded status at end of year (42,708) (50,730)
Unrecognized net actuarial (gain)loss 5,419 11,040
------- --------
Net amount recognized at end of year $(37,289) $(39,690)
========= =========
Amounts recognized in the Consolidated
Balance Sheet consist of:
Accrued benefit liability
- short term portion $ (5,299) $ (5,503)
- long term portion (31,990) (34,187)
--------- ---------
Net amount recognized at end of year $(37,289) $(39,690)
========= =========
For measurement purposes, an assumed annual rate of increase in the per
capita cost of covered health care benefits ranged from 5.2 % to 7.0% (1998
5.3% to 8.0%). These rates were assumed to decrease gradually to 5.0% for
most participants by 2001 and remain at that level thereafter. The health
care cost trend rate assumption has an effect on the amounts reported. A
one percentage point increase in the assumed health care cost trend rates
each year would increase the accumulated postretirement benefit obligation
as of October 31, 1999 by $3.7 million and the aggregate service cost and
interest cost components of the net periodic postretirement benefit cost
for the year by $0.2 million. Postretirement life insurance benefits have a
minimal effect on the total benefit obligation.
19. Shareholders' Equity and Stock Options
The Company's authorized common stock amounts to 150,000,000 shares. A
Preferred Stock Purchase Right is attached to each share of common stock
which entitles a shareholder to exercise certain rights in the event a
person or group acquires or seeks to acquire 15% or more of the outstanding
common stock of the Company.
In September 1997 the Company announced that the board of directors had
authorized the purchase of up to ten million shares of the Company's common
stock. No shares were purchased under this program since October 31, 1998.
In May, 1998, the Emerging Issues Task Force ("EITF") issued EITF 97-14
which addresses the accounting for deferred compensation arrangements where
amounts earned by an employee are invested in the employers' stock and
placed in a "rabbi trust". The Company adopted the provisions of EITF 97-14
in September 1998. In September 1998, 621,149 shares in the Company's
Deferred Compensation Trust were distributed, including 479,302 shares
distributed to the Company to fund withholding tax liabilities. Shares not
distributed and remaining in the Company's Deferred Compensation Trust
relate primarily to the Directors Stock Compensation Plan and are
classified as treasury stock at cost and recorded as a contra equity
account. Consistent with the EITF, since the Directors Stock Compensation
Plan permits diversification of the trust assets, the Company marks to
market the value of the trust assets and records a corresponding charge
(credit) to compensation costs to reflect the change in the fair value of
the amount owed to the participants in the plan.
In 1997, the Company established a new long-term incentive compensation
plan which covered a limited number of key senior executives of the
Company. The plan, which replaced traditional stock options for those
participants, consisted of awards up to an aggregate of 1,200,000 shares
based upon achievement of pre-established stock price improvement factors.
The Company has a Stock Incentive Plan that was approved by shareholders in
1996 and which superceded the Incentive Stock Plans of 1978 and 1988. The
1996 plan provides for the granting, up to April 9, 2006, of qualified and
non-qualified options, stock appreciation rights, restricted stock and
performance units to key employees for not more than 2,000,000 shares of
common stock. Non-qualified options covering 3,000 shares were granted
under the 1996 plan in 1999.
Certain information regarding stock options is as follows:
Weighted Average
Number Option Exercise
of Shares Price Per Share
-------------- ------------------
Outstanding at October 31, 1996 1,498,334 $29.11
Granted 30,000 43.29
Exercised (301,072) 23.80
Cancelled or expired (67,491) 30.37
Outstanding at October 31, 1997 1,159,771 30.78
Granted 1,133,302 17.73
Exercised (61,767) 21.33
Cancelled or expired (120,276) 34.52
Outstanding at October 31, 1998 2,111,030 23.84
Granted 3,000 9.41
Exercised - -
Cancelled or expired (591,139) 30.14
Outstanding at October 31, 1999 1,522,891 21.36
Exercisable at October 31, 1999 1,174,141 20.05
Since the inception of the 1978 and 1988 Incentive Stock Plans and the 1996
Stock Incentive Plan, options for the purchase of 5,296,707 shares have
been granted at option exercise prices ranging from $6.75 to $47.00 per
share. At October 31, 1999, 1,522,891 of the options were outstanding,
1,962,842 had been exercised and 1,810,974 had expired. Generally the
options become exercisable in cumulative installments of one fourth of the
shares in each year beginning six months from the date of the grant.
The weighted average contractual life of options outstanding at October 31,
1999 is 7.61 years with exercise prices ranging from $6.85 to $44.50 per
share.
Following a "Dutch auction" self-tender offer in 1993, the Company
purchased for cash 2,500,000 shares of common stock, or approximately 9% of
shares of common stock outstanding at that time, at $19 5/8 per share, in
conjunction with the establishment of the Harnischfeger Industries, Inc.
Stock Employee Compensation Trust ("SECT"). Concurrent with the purchase,
the Company sold 2,547,771 shares of common stock held in treasury to the
SECT, amounting to $50.0 million at $19 5/8 per share. The purchase of the
treasury shares reduced shareholders' equity. The sale of the treasury
shares to the SECT had no impact on such equity. Subject to certain
limitations, shares in the SECT may be used to fund future employee benefit
obligations under plans that currently require shares of Company common
stock.
Shares owned by the SECT are accounted for as treasury stock until issued
to existing benefit plans; they are reflected as a reduction to
shareholders' equity. Shares owned by the SECT are valued at the closing
market price each period, with corresponding changes in the SECT balance
reflected in capital in excess of par value. Shares in the SECT are not
considered outstanding for computing earnings per share.
20. Operating Leases
The Company leases certain plant, office and warehouse space as well as
machinery, vehicles, data processing and other equipment. Certain of the
leases have renewal options at reduced rates and provisions requiring the
Company to pay maintenance, property taxes and insurance. Generally, all
rental payments are fixed. The Company's assets and obligations under
capital lease arrangements are not significant.
Total rental expense under operating leases, excluding maintenance, taxes
and insurance, was $18.8 million, $15.3 million, and $17.0 million in 1999,
1998 and 1997, respectively.
At October 31, 1999, the future payments for all operating leases with
remaining lease terms in excess of one year, and excluding maintenance,
taxes and insurance were as follows:
In thousands
------------------------------------------
2000 $ 11,703
2001 7,581
2002 5,273
2003 4,203
2004 1,329
2005 and thereafter 1,125
21. Commitments, Contingencies and Off-Balance-Sheet Risks
At October 31, 1999, the Company was contingently liable to banks,
financial institutions and others for approximately $311.2 million (1998 -
$479.0 million) for outstanding letters of credit, bank guarantees and
surety bonds securing performance of sales contracts and other guarantees
in the ordinary course of business. Of the 1999 amount, approximately
$213.9 million were issued by Debtor entities prior to the Bankruptcy
filing and $48.8 million were issued under the DIP Facility. Additionally,
there were $48.5 million of outstanding letters of credit or other
guarantees issued by non-US banks for non-US subsidiaries. Of the $311.2
million, approximately $168.7 million was issued by the Company on behalf
of Beloit matters. Approximately $12.5 million has been accrued as part of
the loss on discontinued Beloit operations.
The Company has entered into various forward foreign exchange contracts
with major international financial institutions for the purpose of hedging
its risk of loss associated with changes in foreign exchange rates. These
contracts involve off balance sheet market and credit risk. As of October
31, 1999 the nominal or face value of forward foreign exchange contracts to
which the Company was a party, in absolute US dollar equivalent terms, was
$210.2 million.
Forward exchange contracts are entered into to protect the value of
committed future foreign currency receipts and disbursements and
consequently any market related loss on the forward contract will be offset
by changes in the value of the hedged item. As a result, the Company is not
exposed to net market risk associated with these instruments.
The Company is exposed to credit-related losses in the event of
non-performance by counterparties to its forward exchange contracts, but it
does not expect any counterparties to fail to meet their obligations. A
contract is generally subject to credit risk only when it has a positive
fair value and the maximum exposure is the amount of the positive fair
value. There is a concentration of these contracts held with The Chase
Manhattan Bank which is currently the only US institution willing to
transact new forward foreign exchange contracts with the Company.
22. Disclosure About Fair Value of Financial Instruments
The following methods and assumptions were used to estimate the fair value
of each class of financial instruments for which it is practicable to
estimate that value:
Cash and Cash Equivalents: The carrying value approximates fair value
because of the short maturity of those instruments.
DIP Facility: The carrying value of the DIP Facility approximates fair
value as the facility bears a floating rate of interest expressed in
relation to LIBOR. Consequently, the cost of this instrument always
approximates the market cost of borrowing for an equivalent maturity and
risk class.
Other Borrowings: The carrying value of the Company's other borrowings
approximates fair value because of the predominantly short-term nature of
these instruments and because predominantly all the instruments bear
interest at floating rates.
Liabilities Subject to Compromise: The liabilities subject to compromise
under Chapter 11 proceedings are not actively traded on any financial
market, nor, given their nature, is there a reliable financial model
available for determining their fair value. Consequently it is considered
impracticable and inappropriate to estimate the fair value of these
financial instruments. (See Note 9 - Liabilities Subject to Compromise.)
Forward Exchange Contracts: The fair value of forward exchange contracts
represents the estimated amounts the Company would receive (pay) to
terminate such contracts at the reporting date based on foreign exchange
market prices at that date.
The estimated fair values of the Company's financial instruments at October
31, 1999 and 1998 are as follows:
In thousands
-----------------------------------------------------------------------
1999 Carrying Value Fair Value
-------------- ----------
Cash and Cash Equivalents $ 57,453 $ 57,453
DIP Facility 167,000 167,000
Other borrowings 145,665 145,665
Forward Exchange Contracts - 819
1998 Carrying Value Fair Value
-------------- ----------
Cash and Cash Equivalents $ 30,012 $ 30,012
Long Term Obligations 1,001,573 1,042,130
Other borrowings 117,607 117,607
Forward Exchange Contracts - (4,818)
The fair value of the Company's forward exchange contracts at October 31,
1999 is analyzed in the following table of dollar equivalent terms:
In thousands
-----------------------------------------------------------------------
Maturing in 2000 Maturing in 2001
Buy Sell Buy Sell
Austrian schilling (81) - - -
Austrialian dollar (55) - - -
Canadian dollar 11 - - -
German mark (112) 11 - -
French franc (17) 11 - -
British pound 806 (438) - -
Japanese Yen 75 (64) - -
US dollar (195) 879 17 (29)
As part of ongoing control procedures, the Company monitors concentrations
of credit risk associated with financial institutions with which it
conducts business. Credit risk is minimal as credit exposure limits are
established to avoid a concentration with any single financial institution.
The Company also monitors the creditworthiness of its customers to which it
grants credit terms in the normal course of business. The Company's
customers are, almost exclusively, in the mining industry but the Company's
concentrations of credit risk associated with its trade receivables are
considered minimal due to the broad customer base and the generally sound
financial standing of its major customers. Bad debts have not been
significant in the Company's mining businesses. The Company often requires
and receives letters of credit or bank guarantees as collateral for its
credit sales, especially when the customer is located outside the United
States and other developed markets. The credit and other risks associated
with long-term contracts (including the APP contract) of the Company's
Beloit discontinued operations are discussed in Note 3 - Discontinued
Operations.
23. Transactions With Affiliated Companies
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. The Company retained approximately 20% of the
outstanding common stock and 11% of the outstanding voting securities.
See Note 3 - Discontinued Operations.
Transactions with related parties for the years ending October 31 were as
follows:
In thousands 1999 1998 1997
------------- ----------- ----------- ----------
Purchases $ 3,601 $ 1,303 $ 32
Receivables - - 139
Payables 905 138 5
The Company believes that its transactions with all related parties were
competitive with alternate sources of supply for each party involved.
24. Segment Information
Business Segment Information
At October 31, 1999, the Company had two reportable segments, Surface
Mining Equipment and Underground Mining Machinery. The accounting policies
of the segments are the same as those described in Note 2 - Significant
Accounting Policies. Operating income (loss) of segments do not include
interest income or expense and provision (benefit) for income taxes. There
are no intersegment sales. Identifiable assets are those used in the
Company's operations in each segment. Corporate assets consist primarily of
property, deferred financing costs, pension assets and cash.
<TABLE>
<CAPTION>
In thousands
- -------------------------------------------------------------------------------------------------------
Net Operating Depreciation and Capital Identifiable
Sales Income (Loss) Amortization Expenditures Assets
---------- ----------- ---------- ---------- ------------
1999
----
<S> <C> <C> <C> <C> <C>
Surface Mining $ 498,343 $ 33,976 (1) $ 17,238 $ 8,971 $ 412,681
Underground Mining 615,803 (65,893)(1) 28,829 17,564 930,588
---------- ---------- ---------- ---------- ----------
Total continuing operations 1,114,146 (31,917) 46,067 26,535 1,343,269
Discontinued operations -- -- -- -- 278,000
Strategic and financing
initiatives -- (7,716) -- -- --
Reorganization item -- (20,304) -- -- --
Charge related to
executive changes -- (19,098) -- -- --
Corporate -- (23,783)(2) 4,473 75 90,544
---------- ---------- ---------- ---------- ----------
Consolidated Total $1,114,146 $ (102,818) $ 50,540 $ 26,610 $1,711,813
========== ========== ========== ========== ==========
1998
----
Surface Mining $ 443,330 $ 31,416 $ 16,717 $ 15,123 $ 396,962
Underground Mining 768,977 50,568 26,298 38,336 1,010,231
---------- ---------- ---------- ---------- ----------
Total continuing operations 1,212,307 81,984 43,015 53,459 1,407,193
Discontinued operations -- -- 42,371 80,289 1,326,722
Corporate -- (20,591) 1,374 177 53,344
---------- ---------- ---------- ---------- ----------
Consolidated total $1,212,307 $ 61,393 $ 86,760 $ 133,925 $2,787,259
========== ========== ========== ========== ==========
1997
----
Surface Mining $ 489,789 $ 60,459 $ 13,880 $ 17,299 $ 344,939
Underground Mining 977,552 141,344 27,351 43,705 1,052,191
---------- ---------- ---------- ---------- ----------
Total continuing operations 1,467,341 201,803 41,231 61,004 1,397,130
Discontinued operations -- -- 45,122 53,616 1,473,323
Corporate -- (25,015) 1,108 11,781 54,082
---------- ---------- ---------- ---------- ----------
Consolidated total $1,467,341 $ 176,788 $ 87,461 $ 126,401 $2,924,535
========== ========== ========== ========== ==========
</TABLE>
- --------------------------------------------------------------------------------
(1) After restructuring charge of $12.0 million for Underground Mining
Machinery (see Note 8) and additional third quarter expenses of $63.5
million for Underground Mining Machinery and $5.0 million for Surface
Mining Machinery (see Note 4).
(2) After a $5.4 million charge related to the Material Handling preferred
stock (see Note 3).
Geographical Segment Information
<TABLE>
<CAPTION>
In thousands
- -------------------------------------------------------------------------------------------------------
Sales to
Total Interarea Unaffiliated Operating Identifiable
Sales Sales Customers Income (Loss) Assets
--------------- -------------- --------------- --------------- ---------------
1999
----
<S> <C> <C> <C> <C> <C>
United States $ 767,843 $(133,597) $ 634,246 $ 3,310 $1,321,514
Europe 85,045 (19,377) 65,668 (129) 342,845
Other Foreign 473,784 (59,552) 414,232 (176) 311,527
Interarea Eliminations (212,526) 212,526 - (34,922) (632,617)
--------------- -------------- --------------- --------------- ---------------
$1,114,146 $ - $1,114,146 $ (31,917) $1,343,269
========== ========= ========== ========= ==========
1998
----
United States $ 847,074 $(208,366) $ 638,708 $ 30,617 $1,230,448
Europe 136,934 (15,364) 121,570 22,752 373,154
Other Foreign 538,885 (86,856) 452,029 27,843 333,400
Interarea Eliminations (310,586) 310,586 - 772 (529,809)
--------------- -------------- --------------- --------------- ---------------
$1,212,307 $ - $1,212,307 $ 81,984 $1,407,193
========== ========= ========== ======== ==========
1997
----
United States $ 890,600 $(204,444) $ 686,156 $ 139,592 $ 758,846
Europe 429,398 (147,680) 281,718 74,517 421,327
Other Foreign 503,010 (3,543) 499,467 51,573 327,621
Interarea Eliminations (355,667) 355,667 - (63,879) (110,664)
--------------- -------------- --------------- --------------- ---------------
$1,467,341 $ - $1,467,341 $ 201,803 $1,397,130
========== ========= ========== ========= ==========
</TABLE>
25. Receivables Facilities
As of October 31, 1999 and 1998, receivables amounting to $78.9 million and
$144.8 million which had been transferred to various financial institutions
with limited recourse remained outstanding. The 1999 amounts all related to
discontinued operations at October 31, 1999. Under the terms of SFAS No.
125 - "Accounting for Transfers and Servicing of Financial Assets and
Extinguishment of Liabilities", these transfers were accounted for as sales
and no portions of these receivables are reflected in the Company's
consolidated balance sheets.
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 the date
of this report, no amounts were outstanding under these facilities.
26. Condensed Combined Financial Statements
The following condensed combined financial statements are presented in
accordance with SOP 90-7:
CONDENSED COMBINED CONSOLIDATING
STATEMENT OF OPERATIONS
Year ended October 31, 1999
<TABLE>
<CAPTION>
Entities in Entities Not in
Reorganization Reorganization Combined
In thousands Proceedings Proceedings Eliminations Consolidated
- --------------------------------------------------------------------------------------------------------------------
Revenues
<S> <C> <C> <C> <C>
Net sales $ 774,221 $ 552,451 $ (212,526) $ 1,114,146
Other income (10,959) (17,649) 32,517 3,909
------------- ------------ ------------- --------------
763,262 534,802 (180,009) 1,118,055
Cost of sales 625,650 474,761 (177,605) 922,806
Product development, selling and
administrative expenses 173,826 65,126 - 238,952
Strategic and financing initiatives 7,716 - - 7,716
Reorganization items 20,304 - - 20,304
Restructuring charges - 11,997 - 11,997
Charge related to executive changes 19,098 - - 19,098
------------- ------------ ------------- --------------
Operating loss (83,332) (17,082) (2,404) (102,818)
Interest expense-net (excludes contractual
interest expense of $31,230 for 1999) (19,092) (9,773) - (28,865)
------------- ------------ ------------- --------------
Income (Loss) before provision for income
taxes and minority interest (102,424) (26,855) (2,404) (131,683)
Provision for income taxes (204,985) (15,463) - (220,448)
Minority interest - - (957) (957)
Equity in income (loss) of subsidiaries (1,397,768) 804 1,396,964 -
------------- ------------ ------------- --------------
Income(Loss) from continuing operations (1,705,177) (41,514) 1,393,603 (353,088)
Income (Loss) from discontinued operations, net of
applicable income taxes (742,307) (55,873) - (798,180)
Loss on disposal of discontinued operations (529,000) - - (529,000)
------------- ------------ ------------- --------------
Net Income(Loss) $ (2,976,484) $ (97,387) $1,393,603 $ (1,680,268)
============= ============ ============= ==============
</TABLE>
CONDENSED COMBINED CONSOLIDATING
BALANCE SHEET
<TABLE>
<CAPTION>
As of October 31, 1999
-------------------------------------------------------------
Entities in Entities Not in
Reorganization Reorganization Combined
In thousands Proceedings Proceedings Eliminations Consolidated
- ---------------------------------- -------------- --------------- ------------- -------------
Assets
Current Assets
<S> <C> <C> <C> <C>
Cash and cash equivalents $ 30,175 $ 27,278 $ - $ 57,453
Accounts receivable-net 127,990 82,005 (7,165) 202,830
Intercompany receivables 1,649,370 306,314 (1,955,684) -
Inventories 274,624 199,730 (26,699) 447,655
Other current assets 13,790 36,660 (3) 50,447
Prepaid income taxes (4,170) 4,170 - -
----------- ---------- ----------- ----------
2,091,779 656,157 (1,989,551) 758,385
Assets of discontinued
Beloit operations 278,000 - - 278,000
Property, Plant and Equipment- Net 143,860 66,887 - 210,747
Intangible Assets 163,348 242,126 (9,590) 395,884
Deferred Income Taxes (572) - 572 -
Investment in Subsidiaries 1,312,782 833,097 (2,145,879) -
Other Assets 65,543 2,914 340 68,797
----------- ----------- ----------- -----------
Total Assets $ 4,054,740 $ 1,801,181 $(4,144,108) $ 1,711,813
=========== =========== =========== ===========
</TABLE>
CONDENSED COMBINED CONSOLIDATING
BALANCE SHEET
<TABLE>
<CAPTION>
As of October 31, 1999
--------------------------------------------------------------------
Entities in Entities Not in
In thousands Reorganization Reorganization Combined
Proceedings Proceedings Eliminations Consolidated
- --------------------------------------------------- --------------------------------------------------------------------
Liabilities and Shareholders' Equity
Current Liabilities:
Short-term notes payable, including current
<S> <C> <C> <C> <C>
portion of long-term obligations $ 6 $ 144,562 $ - $ 144,568
Trade accounts payable 25,822 44,190 - 70,012
Intercompany accounts payable 1,575,756 379,928 (1,955,684) -
Employee compensation and benefits 34,523 9,356 - 43,879
Advance payments and progress billings 17,801 27,539 - 45,340
Accrued warranties 26,336 13,530 - 39,866
Accrued contract losses, restructuring
costs and other 179,632 58,475 (10,556) 227,551
----------- ---------- ----------- -----------
1,859,876 677,580 (1,966,240) 571,216
----------- ---------- ----------- -----------
Long-Term Obligations 167,220 959 (82) 168,097
Liability for Postretirement Benefits
and Accrued Pension Costs 52,613 3,216 (8,374) 47,455
Deferred Income Taxes (2,397) 2,353 44 -
Other Liabilities 7,780 75 - 7,855
Liabilities Subject to Compromise 1,193,554 - - 1,193,554
Liabilities of Discontinued Operations,
including liabilities subject to compromise
of $494,806 543,494 198,771 - 742,265
Minority Interest - - 6,522 6,522
Shareholders' Equity (Deficit)
Common stock 55,482 693,993 (697,806) 51,669
Capital in excess of par value of shares 2,027,380 77,854 (1,532,661) 572,573
Retained earnings (1,656,836) 182,232 5,666 (1,468,938)
Cumulative translation adjustments (92,931) (35,852) 48,823 (79,960)
Less: Stock Employee Compensation Trust (1,612) - - (1,612)
Treasury stock (98,883) - - (98,883)
----------- ---------- ----------- -----------
232,600 918,227 (2,175,978) (1,025,151)
----------- ---------- ----------- -----------
$ 4,054,740 $1,801,181 $(4,144,108) $ 1,711,813
=========== ========== =========== ===========
</TABLE>
COMBINED CONSOLIDATING
STATEMENT OF CASH FLOW
<TABLE>
<CAPTION>
Year ended October 31, 1999
In thousands
------------------------------------------------------------------------------------------------------------------------
Entities in Entities not in
Reorganization Reorganization Combined
Proceedings Proceedings Consolidated
------------------ -------------- ---------------
<S> <C> <C> <C>
Net cash (used by) continuing operations $ 10,857 $ (289) $ 10,568
Investment and Other Transactions:
Property, plant and equipment acquired (17,117) (9,493) (26,610)
Property, plant and equipment retired 2,313 10,005 12,318
Deposit related to APP letters of credit and other (16,434) - (16,434)
------------------ -------------- ---------------
Net cash (used by) provided by investment and other transactions (31,238) 512 (30,726)
------------------ -------------- ---------------
Financing Activities:
Dividends paid (4,592) - (4,592)
Financing fees related to DIP Facility (15,000) - (15,000)
Borrowings under long-term obligations prior to filing 125,000 - 125,000
Borrowings under DIP facility 167,000 - 167,000
Payments on long-term obligations (25) (2,088) (2,113)
Increase (decrease) in short-term notes payable- net (21,610) 40,520 18,910
------------------ -------------- ---------------
Net cash provided by financing activities 250,773 38,432 289,205
------------------ -------------- ---------------
-
Effect of Exchange Rate Changes on Cash and Cash Equivalents - (93) (93)
------------------ -------------- ---------------
Cash used in Discontinued Operations (180,909) (60,604) (241,513)
Increase (Decrease) in Cash and Cash Equivalents 49,483 (22,042) 27,441
Cash and Cash Equivalents at Beginning of Period 4,327 25,685 30,012
------------------ -------------- ---------------
Cash and Cash Equivalents at End of Period $ 53,810 $ 3,643 $ 57,453
================== ============== ===============
</TABLE>
- ------------------------------------------------------------------------------
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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, in the City of St.
Francis, Wisconsin, on the 11th day of February 2000.
HARNISCHFEGER INDUSTRIES, INC.
------------------------------
(Registrant)
/s/ KENNETH A. HILTZ
------------------------------
Kenneth A. Hiltz
Senior Vice President and
Chief Financial Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the registrant and
in the capacities indicated on February 11, 2000.
Signature Title
/s/ ROBERT HOFFMAN Chairman and Director
-----------------------------
Robert Hoffman
/s/ JOHN NILS HANSON Vice Chairman, Director, President
----------------------------- and Chief Executive Officer
John Nils Hanson
/s/ KENNETH A. HILTZ Senior Vice President and
----------------------------- Chief Financial Officer
Kenneth A. Hiltz
/s/ HERBERT S. COHEN Vice President and Controller
-----------------------------
Herbert S. Cohen
(1) Director
-----------------------------
Donna M. Alvarado
(1) Director
-----------------------------
John D. Correnti
(1) Director
-----------------------------
Harry L. Davis
(1) Director
-----------------------------
Robert M. Gerrity
(1) Director
-----------------------------
Jean-Pierre Labruyere
(1) Director
-----------------------------
L. Donald LaTorre
(1) Director
-----------------------------
Stephen M. Peck
(1) Director
-----------------------------
Leonard E. Redon
(1) John Nils Hanson, by signing his name hereto, does hereby sign and execute
this report on behalf of each of the above-named Directors of
Harnischfeger Industries, Inc. pursuant to powers of attorney executed by
each of such Directors and filed with the Securities and Exchange
Commission as an exhibit to this report.
February 11, 2000
By: /s/ JOHN NILS HANSON
----------------------------------------
John Nils Hanson, Attorney-in-fact
REPORT OF INDEPENDENT ACCOUNTANTS ON
FINANCIAL STATEMENT SCHEDULE
To the Board of Directors
of Harnischfeger Industries, Inc.
Our audits of the consolidated financial statements referred to in our
report dated February 11, 2000 appearing in this Annual Report on Form 10-K of
Harnischfeger Industries, Inc. also included an audit of the financial statement
schedule listed in Item 14(a)(2) of this Form 10-K. As noted in our report, the
company filed for Chapter 11 Bankruptcy protection on June 7, 1999, which raises
substantial doubt about its ability to continue as a going concern. In our
opinion, this financial statement schedule presents fairly, in all material
respects, the information set forth therein when read in conjunction with the
related consolidated financial statements.
/S/PRICEWATERHOUSECOOPERS LLP
PricewaterhouseCoopers LLP
Milwaukee, Wisconsin
February 11, 2000
<TABLE>
<CAPTION>
HARNISCHFEGER INDUSTRIES, INC.
SCHEDULE II
VALUATION AND QUALIFYING ACCOUNTS
(In thousands)
Balance at Additions Additions Currency Balance
Beginning by Charged Translation Discontinued at End
Classification of Year Acquisiton to Expense Deductions(1) Effects Operations of Year
- --------------------------------------------------------------------------------------------------------------------------------
Allowance Deducted in
Balance Sheet from
Accounts Receivable:
For the year ended October 31, 1999
<S> <C> <C> <C> <C> <C> <C> <C>
Doubtful accounts $ 9,889 $ -- $ 8,602 $(1,710) $ 12 $(5,073) $11,720
======= ============ ======= ======= ======= ======= =======
For the year ended October 31, 1998
Doubtful accounts $ 8,319 $ 350 $ 4,311 $(1,374) $ (22) $(1,695) $ 9,889
======= ============ ======= ======= ======= ======= =======
For the year ended October 31, 1997
Doubtful accounts $ 8,612 $ 158 $ 2,604 $(3,006) $ (291) $ 242 $ 8,319
- ----------------------------------- ======= ============ ======= ======= ======= ======= =======
</TABLE>
(1) Represents write-off of bad debts, net of recoveries.
<TABLE>
<CAPTION>
Allowance Deducted in Balance Sheet from Deferred Tax Assets:
Balance at Additions Additions Balance
Beginning by Charged at End
of Year Acquisiton to Expense of Year
------------- ------------- ------------ ------------
<S> <C> <C> <C> <C>
For the year ended October 31, 1999 $ 47,038 $ - $ 340,263 $387,321
============= ============= ============ ============
For the year ended October 31, 1998 $ 34,895 $ 12,143 $ - $ 47,038
============= ============= ============ ============
For the year ended October 31, 1997 $ 44,968 $(10,073) $ - $ 34,895
============= ============= ============ ============
</TABLE>
EXHIBIT 3(b)
11-22-99
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 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.
EXHIBIT 10(e)
HARNISCHFEGER INDUSTRIES, INC.
SUPPLEMENTAL RETIREMENT PLAN
(as amended and restated June 3, 1999)
SECTION 1: Introduction
1.1 The Plan and its Effective Date. The Harnischfeger Industries, Inc.
Supplemental Retirement and Stock Funding Plan (the "Supplemental Plan") is the
amendment and restatement effective as of October 1, 1990 of the plan that was
originally established by Harnischfeger Industries, Inc., a Delaware corporation
(the "Company"), effective March 1, 1987 as the Harnischfeger Industries, Inc.
Supplemental Retirement Plan.
1.2 Purpose. The Company maintains a Harnischfeger Salaried Employees'
Retirement Plan (the "Retirement Plan") which is intended to meet the
requirements of a "qualified plan" under the Internal Revenue Code of 1986, as
amended (the "Code"). While the Code and the Employee Retirement Income Security
Act of 1974, as amended (the "Act"), place limitations on the benefits which may
be paid from a qualified plan, the Code and the Act permit the payment under a
non-qualified supplemental retirement plan of the benefits which may not be paid
under the qualified plan because of such limitations. The purpose of this
Supplemental Plan is to provide benefits which may not be provided under the
Retirement Plan because of limitations imposed by the Code or the Act, including
those relating to nondiscrimination and maximum benefit limitations, elections
to defer compensation made by the participants, and the granting of past (or
deemed) service credits.
SECTION 2: Participation and Benefits
2.1 Eligibility for Benefits Related to Retirement Plan. Subject to the
conditions and limitations hereof, if a participant in the Retirement Plan (i)
has been granted credit for prior service or elected to defer compensation which
may not be taken into account under the Retirement Plan because of applicable
nondiscrimination or other rules, (ii) has accrued a vested pension benefit
under the Retirement Plan (or would have accrued a vested benefit if his prior
service were taken into account), and such benefit has been limited as a result
of the maximum benefit limitations imposed by Sections 401(a)(17) and 415 of the
Code, or (iii) has been granted credit for additional years of service (based
upon a multitude of actual years of service) by the Committee, it its sole
discretion, which may not be taken into account under the Retirement Plan, he
shall be a participant ("Participant") in this Supplemental Plan and shall be
entitled to receive under this Supplemental Plan the portion of his benefits
under the Retirement Plan, determined without regard to the limitations on the
inclusions of prior (or deemed) service or deferred compensation or the maximum
benefit limitations therein, which exceeds the benefits payable to him under the
Retirement Plan after applying such limitations. If a Participant was employed
by another "Harnischfeger Company", as defined in the Retirement Plan, and such
other company also maintains a qualified plan covering the Participant, the
benefits hereunder and under such other plan shall be limited so as to not be
duplicative and the Participant's benefits hereunder and under such other plan
shall be paid by the Company and such other Harnischfeger Company in such
proportions as the Company shall determine. The term "Company" as hereinafter
used shall be deemed to include a reference to each such other Harnischfeger
Company.
2.2 Payment of Benefits. Payments of benefits under this Supplemental Plan
shall be paid to a Participant, or in the event of his death to his beneficiary,
at the same time and in the same manner as his pension benefits under the
Retirement Plan.
2.3 Funding. Benefits payable under this Supplemental Plan to a Participant
or his beneficiary shall be paid directly by the Company or at its discretion
through the Harnischfeger Industries Deferred Compensation Trust ("Rabbi
Trust"), a grantor trust established by the Company. Prior to a "Change in
Control" of the Company (as defined below), the Company shall not be required
(but may do so in its discretion) to place assets in the Rabbi Trust that may be
used to provide any benefits under this Supplemental Plan. Notwithstanding the
above, the Company intends for this Supplemental Plan to constitute an unfunded,
unsecured promise to pay future benefits.
2.4 Change in Control. The term "Change in Control" shall mean a Change in
Control of the Company as defined in the Rabbi Trust.
SECTION 3: General Provisions
3.1 Committee. This Supplemental Plan shall be administered by a committee
of two or more directors constituted to comply with the Non-Employee Director
requirements of Rule 16b-3 promulgated pursuant to the Securities Exchange Act
of 1934 as amended and Securities Exchange Commission interpretations thereunder
(the "Committee"), disregarding any changes in the members of the Committee
following a Change in Control. The Company shall pay the cost of administration
of the Supplemental Plan. The Committee shall have the power, right and duty to
interpret the provisions of the Supplemental Plan and may from time to time
adopt rules with respect to the administration of the Supplemental Plan and the
determination and distribution of benefits under the Supplemental Plan, and may
amend any and all rules previously established. Any decision made by the
Committee in good faith in connection with its administration of or
responsibilities under the Supplemental Plan, including the interpretation of
any provision of the Supplemental Plan, the application of any rule established
under the Supplemental Plan, any determination as to the officers eligible to
participate in the Supplemental Plan, the amount allocated to each and the
manner, conditions and terms of payment of such amount, shall be conclusive on
all persons.
3.2 Beneficiary. A Participant's "beneficiary" under this Supplemental
Plan means any person who becomes entitled to benefits under the Retirement Plan
because of the Participant's death; provided that, if a Participant dies while
his benefits under this Supplemental Plan are payable to him in installments,
his beneficiary under this Supplemental Plan shall be either (i) the person or
persons designated by him by signing and filing with the Committee a form
furnished by the Committee, or (ii) if the Participant failed to designate a
beneficiary in (i) above, or if the beneficiary designated in (i) above dies
before the date of the Participant's death, the Participant's estate.
3.3 Discretion. Notwithstanding any provisions in this Supplemental Plan to
the contrary, the Committee shall have the discretion to allow any benefits to
be paid that would otherwise be forfeited.
3.4 Employment Rights. Establishment of the Supplemental Plan shall not be
construed to give any participant the right to be retained in the Company's
service or to any benefits not specifically provided by the Supplemental Plan.
3.5 Interests Not Transferable. Except as to withholding of any tax under
the laws of the United States or any state, the interests of the Participants
and their beneficiaries under the Supplemental Plan are not subject to the
claims of their creditors and may not be voluntarily or involuntarily
transferred, assigned, alienated or encumbered, provided, however, that the
Committee shall have discretion to waive this restriction, in whole or in part.
No Participant shall have any right to any benefit payments hereunder prior to
his termination of employment with the Company.
3.6 Payment with Respect to Incapacitated Participants or Beneficiaries. If
any person entitled to benefits under the Supplemental Plan is under a legal
disability or in the Committee's opinion is incapacitated in any way so as to be
unable to manage his financial affairs, the Committee may direct the payment of
all or a portion of such benefits to such person's legal representative or to a
relative or friend of such person for such person's benefit, or the Committee
may direct the application of such benefits for the benefit of such person in
any manner which the Committee may elect that is consistent with the
Supplemental Plan. Any payments made in accordance with the foregoing provisions
of this section shall be a full and complete discharge of any liability for such
payments.
3.7 Limitation of Liability. To the extent permitted by law, no person
(including the Company, its Board of Directors, the Committee, any present or
former member of the Company's Board of Directors or the Committee, and any
present or former officer of the Company) shall be personally liable for any act
done or omitted to be done in good faith in the administration of the
Supplemental Plan.
3.8 Controlling Law. The laws of Wisconsin shall be controlling in all
matters relating to the Supplemental Plan.
3.9 Gender and Number. Where the context admits, words in the masculine
gender shall include the feminine and neuter genders, the plural shall include
the singular and the singular shall include the plural.
3.10 Successor to the Company. The term "Company" as used in the
Supplemental Plan shall include any successor to the Company by reason of
merger, consolidation, the purchase of all or substantially all of the Company's
assets or otherwise.
3.11 Withholding for Taxes. Notwithstanding any other provision of this
Supplemental Plan, the Committee may on behalf of the Participant withhold or
direct the Trustee to withhold from any payment to be made under this
Supplemental Plan, whether in the form of cash or shares of stock, such amount
or amounts as may be required for purposes of complying with appropriate
federal, state or foreign tax withholding provisions. Subject to the discretion
of the Committee, no distribution will be made to the Participant until all tax
withholding obligations have been satisfied.
SECTION 4: Amendment and Termination
4.1 Amendment and Termination. The Committee reserves the right to amend
the Supplemental Plan from time to time or to terminate the Supplemental Plan at
any time, provided that no amendment of the Supplemental Plan nor the
termination of the Supplemental Plan may cause the reduction, forfeiture or
cessation of any benefits that were accrued as of the date of such amendment or
termination and which would otherwise be payable under this Supplemental Plan,
but for such amendment or termination.
* * * * *
EXHIBIT 10(p)
October 20, 1999
Subject: Key Employee Retention Plan
You are a valued employee whose contributions are key to our emergence from
Chapter 11 and to the continued growth and success of our Company. In
recognition of that fact, you have been included in the Key Employee Retention
Plan. The components of that plan include:
Emergence bonus
You will receive an emergence bonus of an additional 85% of your present base
salary for your continuing contributions to the success of our business, payable
upon emergence from bankruptcy. You must continue to be employed at emergence to
receive the emergence bonus.
Emergence is defined as the earlier of the consummation of a plan of
reorganization or the consummated sale or substantially complete liquidation of
Harnischfeger Industries.
Severance Benefits
In the event you are involuntarily terminated, other than for cause, you will
receive severance pay equal to two year's base salary, payable over 24 months,
with mitigation after 12 months. You will also receive benefit continuation for
24 months, or until you become eligible for coverage through another employer,
whichever occurs first, provided you continue to make the required employee
contributions. Finally, you will receive outplacement assistance for 24 months,
or until you are employed elsewhere, whichever occurs first. You will be
required to sign a customary release in order to receive these benefits. To
receive these benefit you must also, at the time of your termination, waive your
prepetition claim for severance benefits under the Long Term Compensation Plan
for Key Executives.
Change-of-Control
If during the 24 months immediately following a change of control of
Harnischfeger Industries, you are terminated involuntarily "without cause" or
voluntarily terminate for "good reason", you will receive a lump sum payment
equal to three times base salary plus target bonus. This payment is subject to
the Section 289G Safe Harbor limitation. Provided you continue to make the
required employee contributions, you would also receive benefit continuation for
the lesser of three years or until you become eligible for such benefits through
another employer. These agreements will be reviewed with the creditors'
committee prior to issuance. Alternately, you may elect to rely on your
prepetition claim under the change-of-control provisions of the Long Term
Compensation Plan for Key Executives.
Annual Incentive Plan
You will continue to be eligible to participate in the Company's annual
incentive bonus plan. For fiscal 2000, the plan will change from being EVA based
to EBITDA based. Targets will be established shortly after the start of the new
fiscal year.
Thank you for your continued commitment and dedication. Together we can build a
stronger Company and a bright future for all of us.
EXHIBIT 11
<TABLE>
<CAPTION>
HARNISCHFEGER INDUSTRIES, INC.
CALCULATIONS OF EARNINGS (LOSS) PER SHARE
(Amounts in thousands except per share amounts)
October 31,
--------------------------------------------
1999 1998(1) 1997(1)
Basic Earnings (Loss)
- ------------------------------------------------------
<S> <C> <C> <C>
Income (loss) from continuing operations $ (353,088) $ 14,366 $ 67,881
Income (loss) from discontinued operations (798,180) (184,399) 70,399
Net gain (loss) on disposal of discontinued operation (529,000) 151,500 --
Extraordinary loss on retirement of debt -- -- (12,999)
----------- ----------- -----------
Net income (loss) $(1,680,268) $ (18,533) $ 125,281
=========== =========== ===========
Basic weighted average common shares outstanding 46,329 46,445 47,827
Basic Earnings (Loss) Per Share
- ------------------------------------------------------
Income (loss) from continuing operations $ (7.62) $ 0.31 $ 1.42
Income (loss) from and net gain (loss) on
disposal of discontinued operations (28.65) (0.71) 1.47
Extraordinary loss on retirement of debt -- -- (0.27)
----------- ----------- -----------
Net income (loss) $ (36.27) $ (0.40) $ 2.62
=========== =========== ===========
Diluted Earnings (Loss)
- ------------------------------------------------------
Income (loss) from continuing operations $ (353,088) $ 14,366 $ 67,881
Income (loss) from discontinued operations (798,180) (184,399) 70,399
Net gain (loss) on disposal of discontinued operations (529,000) 151,500 --
Extraordinary loss on retirement of debt -- -- (12,999)
----------- ----------- -----------
Net income (loss) $(1,680,268) $ (18,533) $ 125,281
=========== =========== ===========
Basic weighted average common shares outstanding 46,329 46,445 47,827
Assumed exercise of stock options -- -- 434
----------- ----------- -----------
Diluted weighted average common shares outstanding 46,329 46,445 48,261
Diluted Earnings (Loss) Per Share
- ------------------------------------------------------
Income (loss) from continuing operations $ (7.62) $ 0.31 $ 1.41
Income (loss) from and net gain (loss) on
disposal of discontinued operations (28.65) (0.71) 1.45
Extraordinary loss on retirement of debt -- -- (0.27)
----------- ----------- -----------
Net income (loss) $ (36.27) $ (0.40) $ 2.59
=========== =========== ===========
</TABLE>
(1) Amounts for 1998 and 1997 have been restated to reflect the Beloit
discontinued operation.
EXHIBIT 21
HARNISCHFEGER INDUSTRIES, INC.
Subsidiaries as of October 31, 1999
Harnischfeger Industries, Inc. is publicly held and has no parent. The
following subsidiaries are wholly-owned except as noted below. Certain
subsidiaries, which if considered in the aggregate as a single subsidiary would
not constitute a significant subsidiary, are omitted from this list. Where the
name of the subsidiary is indented, it is wholly-owned by the entity above it at
the next outermost margin, unless otherwise indicated.
Jurisdiction
------------
Harnischfeger Corporation (d.b.a. P&H Mining Equipment) Delaware
HCHC, Inc. Delaware
Harnischfeger de Chile Ltda. (1) Chile
Comercial Otero S.A. (2) Chile
Harnischfeger of Australia Pty. Ltd. (3) Australia
Harnischfeger do Brasil Comercio e Industria Ltda. (4) Brazil
The Horsburgh & Scott Company Ohio
American Alloy Company Ohio
3254496 Canada Inc. (5) Canada
Joy Technologies Inc. (d.b.a. Joy Mining Machinery) Delaware
Harnischfeger (South Africa) (Proprietary) Ltd. South Africa
HCHC UK Holdings, Inc. Delaware
Harnischfeger ULC (6) United Kingdom
Harnischfeger Ventures Ltd. United Kingdom
Harnischfeger Industries Ltd. United Kingdom
Joy Mining Machinery Ltd. United Kingdom
Joy Manufacturing Company Pty. Ltd. Australia
Cram Australia Pty. Ltd. Australia
JTI UK Holdings, Inc. Delaware
Beloit Corporation (7) (14) Delaware
Beloit Canada Ltd./Ltee (8) (14) Canada
Joy Technologies Canada Inc. (9) Canada
Harnischfeger Corporation of Canada Ltd. (10) Canada
Beloit Industrial Ltda. (11) (14) Brazil
Beloit Poland S.A. (12) (14) Poland
Beloit Technologies, Inc. (14) Delaware
BWRC, Inc. (14) Delaware
Beloit Italia S.p.A. (13) (14) Italy
Beloit Walmsley Ltd. (14) United Kingdom
- -------------------
(1) HCHC, Inc. owns 90% and Harnischfeger Corporation owns 10% of the voting
securities of Harnischfeger de Chile Ltda.
(2) Harnischfeger de Chile Ltda. owns 99.999% and Harnischfeger Corporation
owns .001% of the voting securities of Comercial Otero S.A.
(3) HCHC, Inc. owns 75% of the voting securities of Harnischfeger of Australia
Pty. Ltd.
(4) HCHC, Inc. owns 99.999% and Harnischfeger Corporation owns .001% of
Harnischfeger do Brasil Comercio e Industria Ltda.
(5) Harnischfeger Corporation owns 98% and Harnischfeger Corporation of Canada
Ltd. owns 2% of the voting securities of 3254496 Canada Inc.
(6) HCHC UK Holdings, Inc. owns 85% and JTI UK Holdings, Inc. owns 15% of the
voting securities of Harnischfeger ULC.
(7) Harnischfeger Industries, Inc. owns 80% of the voting securities of Beloit
Corporation.
(8) Beloit Corporation owns 60% of the voting securities of Beloit Canada
Ltd./Ltee. Harnischfeger Corporation, Joy Technologies Inc., Joy
Technologies Canada Inc. and 3254496 Canada Inc. each own 10% of the voting
securities of Beloit Canada Ltd./Ltee.
(9) Beloit Canada Ltd./Ltee owns 90% and Joy Technologies Inc. owns 10% of the
voting securities of Joy Technologies Canada Inc.
(10) Joy Technologies Canada Inc. owns 90% and Harnischfeger Corporation owns
10% of the voting securities of Harnischfeger Corporation of Canada Ltd.
(11) Beloit Corporation owns 45% of the voting quotas and 100% of the non-voting
quotas of Beloit Industrial Ltda. This gives Beloit Corporation 82.1%
ownership of Beloit Industrial Ltda.
(12) Beloit Corporation owns 99.90% of the voting securities of Beloit Poland
S.A.
(13) BWRC, Inc. owns 99.98% of the voting securities of Beloit Italia S.p.A.
(14) A Beloit discontinued operation.
EXHIBIT 23
HARNISCHFEGER INDUSTRIES, INC.
Consent of Independent Accountants
We hereby consent to the incorporation by reference in the Prospectuses
constituting part of the Registration Statements on Form S-3 and in the
Registration Statements on Form S-8 listed below of Harnischfeger Industries,
Inc. of our report dated February 11, 2000, appearing in this Annual Report on
Form 10-K.
1. Registration Statement on Form S-8 (Registration No. 33-42833)
2. Registration Statement on Form S-8 (Registration No. 33-23985)
3. Registration Statement on Form S-8 (Registration No. 33-46738)
4. Registration Statement on Form S-8 (Registration No. 33-46739)
5. Registration Statement on Form S-8 (Registration No. 33-46740)
6. Registration Statement on Form S-8 (Registration No. 33-57209)
7. Registration Statement on Form S-3 (Registration No. 33-57979)
8. Registration Statement on Form S-8 (Registration No. 33-58087)
9. Registration Statement on Form S-8 (Registration No. 333-01703)
10. Registration Statement on Form S-8 (Registration No. 333-01705)
11. Registration Statement on Form S-3 (Registration No. 333-02401)
12. Registration Statement on Form S-8 (Registration No. 333-10327)
13. Registration Statement on Form S-8 (Registration No. 333-10329)
14. Registration Statement on Form S-3 (Registration No. 333-46429)
15. Registration Statement on Form S-8 (Registration No. 333-65577)
/s/PricewaterhouseCoopers LLP
PRICEWATERHOUSECOOPERS LLP
Milwaukee, Wisconsin
February 11, 2000
EXHIBIT 24
POWER OF ATTORNEY
Form 10-K Annual Report
WHEREAS, Harnischfeger Industries, Inc., a Delaware corporation
(hereinafter referred to as the "Corporation"), will file with the Securities
and Exchange Commission, under the provisions of the Securities and Exchange Act
of 1934, a Form 10-K Annual Report for the fiscal year ended October 31, 1999;
and,
WHEREAS, the undersigned is a Director of the Corporation;
NOW, THEREFORE, the undersigned hereby constitutes and appoints Robert
B. Hoffman and John N. Hanson, and each or either of them, her attorney, with
full power to act for her and in her name, place and stead, to sign her name in
the aforesaid capacity to such Form 10-K Annual Report, hereby ratifying and
confirming all that said attorney may or shall lawfully do or cause to be done
by virtue hereof.
IN WITNESS WHEREOF, the undersigned has hereunto set her hand and seal
this 24th day of January, 2000.
/s/ (SEAL)
----------------------------
Donna M. Alvarado
POWER OF ATTORNEY
Form 10-K Annual Report
WHEREAS, Harnischfeger Industries, Inc., a Delaware corporation
(hereinafter referred to as the "Corporation"), will file with the Securities
and Exchange Commission, under the provisions of the Securities and Exchange Act
of 1934, a Form 10-K Annual Report for the fiscal year ended October 31, 1999;
and,
WHEREAS, the undersigned is a Director of the Corporation;
NOW, THEREFORE, the undersigned hereby constitutes and appoints Robert
B. Hoffman his attorney, with full power to act for him and in his name, place
and stead, to sign his name in the aforesaid capacity to such Form 10-K Annual
Report, hereby ratifying and confirming all that said attorney may or shall
lawfully do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has hereunto set his hand and seal
this 24th day of January, 2000.
/s/ (SEAL)
-------------------------------
John N. Hanson
POWER OF ATTORNEY
Form 10-K Annual Report
WHEREAS, Harnischfeger Industries, Inc., a Delaware corporation
(hereinafter referred to as the "Corporation"), will file with the Securities
and Exchange Commission, under the provisions of the Securities and Exchange Act
of 1934, a Form 10-K Annual Report for the fiscal year ended October 31, 1999;
and,
WHEREAS, the undersigned is a Director of the Corporation;
NOW, THEREFORE, the undersigned hereby constitutes and appoints Robert
B. Hoffman and John N. Hanson, and each or either of them, his attorney, with
full power to act for him and in his name, place and stead, to sign his name in
the aforesaid capacity to such Form 10-K Annual Report, hereby ratifying and
confirming all that said attorney may or shall lawfully do or cause to be done
by virtue hereof.
IN WITNESS WHEREOF, the undersigned has hereunto set his hand and seal
this 24th day of January, 2000.
/s/ (SEAL)
----------------------------
Stephen M. Peck
POWER OF ATTORNEY
Form 10-K Annual Report
WHEREAS, Harnischfeger Industries, Inc., a Delaware corporation
(hereinafter referred to as the "Corporation"), will file with the Securities
and Exchange Commission, under the provisions of the Securities and Exchange Act
of 1934, a Form 10-K Annual Report for the fiscal year ended October 31, 1999;
and,
WHEREAS, the undersigned is a Director of the Corporation;
NOW, THEREFORE, the undersigned hereby constitutes and appoints Robert
B. Hoffman and John N. Hanson, and each or either of them, his attorney, with
full power to act for him and in his name, place and stead, to sign his name in
the aforesaid capacity to such Form 10-K Annual Report, hereby ratifying and
confirming all that said attorney may or shall lawfully do or cause to be done
by virtue hereof.
IN WITNESS WHEREOF, the undersigned has hereunto set his hand and seal
this 24th day of January, 2000.
/s/ (SEAL)
----------------------------
John D. Correnti
POWER OF ATTORNEY
Form 10-K Annual Report
WHEREAS, Harnischfeger Industries, Inc., a Delaware corporation
(hereinafter referred to as the "Corporation"), will file with the Securities
and Exchange Commission, under the provisions of the Securities and Exchange Act
of 1934, a Form 10-K Annual Report for the fiscal year ended October 31, 1999;
and,
WHEREAS, the undersigned is a Director of the Corporation;
NOW, THEREFORE, the undersigned hereby constitutes and appoints John N.
Hanson his attorney, with full power to act for him and in his name, place and
stead, to sign his name in the aforesaid capacity to such Form 10-K Annual
Report, hereby ratifying and confirming all that said attorney may or shall
lawfully do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has hereunto set his hand and seal
this 24th day of January, 2000.
/s/ (SEAL)
-------------------------------
Robert B. Hoffman
POWER OF ATTORNEY
Form 10-K Annual Report
WHEREAS, Harnischfeger Industries, Inc., a Delaware corporation
(hereinafter referred to as the "Corporation"), will file with the Securities
and Exchange Commission, under the provisions of the Securities and Exchange Act
of 1934, a Form 10-K Annual Report for the fiscal year ended October 31, 1999;
and,
WHEREAS, the undersigned is a Director of the Corporation;
NOW, THEREFORE, the undersigned hereby constitutes and appoints Robert
B. Hoffman and John N. Hanson, and each or either of them, his attorney, with
full power to act for him and in his name, place and stead, to sign his name in
the aforesaid capacity to such Form 10-K Annual Report, hereby ratifying and
confirming all that said attorney may or shall lawfully do or cause to be done
by virtue hereof.
IN WITNESS WHEREOF, the undersigned has hereunto set his hand and seal
this 24th day of January, 2000.
/s/ (SEAL)
----------------------------
Jean-Pierre Labruyere
POWER OF ATTORNEY
Form 10-K Annual Report
WHEREAS, Harnischfeger Industries, Inc., a Delaware corporation
(hereinafter referred to as the "Corporation"), will file with the Securities
and Exchange Commission, under the provisions of the Securities and Exchange Act
of 1934, a Form 10-K Annual Report for the fiscal year ended October 31, 1999;
and,
WHEREAS, the undersigned is a Director of the Corporation;
NOW, THEREFORE, the undersigned hereby constitutes and appoints Robert
B. Hoffman and John N. Hanson, and each or either of them, his attorney, with
full power to act for him and in his name, place and stead, to sign his name in
the aforesaid capacity to such Form 10-K Annual Report, hereby ratifying and
confirming all that said attorney may or shall lawfully do or cause to be done
by virtue hereof.
IN WITNESS WHEREOF, the undersigned has hereunto set his hand and seal
this 24th day of January, 2000.
/s/ (SEAL)
------------------------------
Harry L. Davis
POWER OF ATTORNEY
Form 10-K Annual Report
WHEREAS, Harnischfeger Industries, Inc., a Delaware corporation
(hereinafter referred to as the "Corporation"), will file with the Securities
and Exchange Commission, under the provisions of the Securities and Exchange Act
of 1934, a Form 10-K Annual Report for the fiscal year ended October 31, 1999;
and,
WHEREAS, the undersigned is a Director of the Corporation;
NOW, THEREFORE, the undersigned hereby constitutes and appoints Robert
B. Hoffman and John N. Hanson, and each or either of them, his attorney, with
full power to act for him and in his name, place and stead, to sign his name in
the aforesaid capacity to such Form 10-K Annual Report, hereby ratifying and
confirming all that said attorney may or shall lawfully do or cause to be done
by virtue hereof.
IN WITNESS WHEREOF, the undersigned has hereunto set his hand and seal
this 24th day of January, 2000.
/s/ (SEAL)
---------------------------
Robert M. Gerrity
POWER OF ATTORNEY
Form 10-K Annual Report
WHEREAS, Harnischfeger Industries, Inc., a Delaware corporation
(hereinafter referred to as the "Corporation"), will file with the Securities
and Exchange Commission, under the provisions of the Securities and Exchange Act
of 1934, a Form 10-K Annual Report for the fiscal year ended October 31, 1999;
and,
WHEREAS, the undersigned is a Director of the Corporation;
NOW, THEREFORE, the undersigned hereby constitutes and appoints Robert
B. Hoffman and John N. Hanson, and each or either of them, his attorney, with
full power to act for him and in his name, place and stead, to sign his name in
the aforesaid capacity to such Form 10-K Annual Report, hereby ratifying and
confirming all that said attorney may or shall lawfully do or cause to be done
by virtue hereof.
IN WITNESS WHEREOF, the undersigned has hereunto set his hand and seal
this 24th day of January, 2000.
/s/ (SEAL)
----------------------------
L. Donald LaTorre
POWER OF ATTORNEY
Form 10-K Annual Report
WHEREAS, Harnischfeger Industries, Inc., a Delaware corporation
(hereinafter referred to as the "Corporation"), will file with the Securities
and Exchange Commission, under the provisions of the Securities and Exchange Act
of 1934, a Form 10-K Annual Report for the fiscal year ended October 31, 1999;
and,
WHEREAS, the undersigned is a Director of the Corporation;
NOW, THEREFORE, the undersigned hereby constitutes and appoints Robert
B. Hoffman and John N. Hanson, and each or either of them, his attorney, with
full power to act for him and in his name, place and stead, to sign his name in
the aforesaid capacity to such Form 10-K Annual Report, hereby ratifying and
confirming all that said attorney may or shall lawfully do or cause to be done
by virtue hereof.
IN WITNESS WHEREOF, the undersigned has hereunto set his hand and seal
this 24th day of January, 2000.
/s/ (SEAL)
------------------------------
Leonard E. Redon
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