SECURITIES AND EXCHANGE COMMISSION
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Washington, D.C. 20549
FORM 10-Q
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(MARK ONE)
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
_X_ OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED JANUARY 31, 2000
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
____ OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM ___ TO ___
COMMISSION FILE NUMBER 1-9299
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HARNISCHFEGER INDUSTRIES, INC.
(Exact Name of Registrant as Specified in Its Charter)
Delaware 39-1566457
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(State of Incorporation) (I.R.S. Employer
Identification No.)
3600 South Lake Drive, St. Francis, Wisconsin 53235-3716
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(Address of principal executive offices) (Zip Code)
(414) 486-6400
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(Registrant's Telephone Number, Including Area Code)
Indicate by checkmark whether the registrant: (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months, and (2) has been subject to such filing requirements
for the past 90 days.
Yes X No
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Class Outstanding at March 16, 2000
- -------------------------- --------------------------------
Common Stock, $1 par value 48,249,089 shares
HARNISCHFEGER INDUSTRIES, INC.
(Debtor-in-Possession as of June 7, 1999)
FORM 10-Q -- INDEX
January 31, 2000
PART I. - FINANCIAL INFORMATION Page No.
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Item 1 - Financial Statements:
Consolidated Statement of Operations -
Three Months Ended January 31, 2000 and 1999 4
Consolidated Balance Sheet -
January 31, 2000 and October 31, 1999 5
Consolidated Statement of Cash Flow -
Three Months Ended January 31, 2000 and 1999 7
Consolidated Statement of Shareholders' Equity (Deficit) -
Three Months Ended January 31, 2000 and 1999 8
Notes to Consolidated Financial Statements 9
Item 2 - Management's Discussion and Analysis
of Financial Condition and Results of Operations 23
Item 3 - Quantitative and Qualitative Disclosures About
Market Risk 29
PART II. - OTHER INFORMATION
Item 1 - Legal Proceedings 30
Item 2 - Changes in Securities 31
Item 3 - Defaults Upon Senior Securities 31
Item 4 - Submission of Matters to a Vote of Security Holders 32
Item 5 - Other Information 32
Item 6 - Exhibits and Reports on Form 8-K 32
Signatures 34
PART I. FINANCIAL INFORMATION
Item 1 - Financial Statements
HARNISCHFEGER INDUSTRIES, INC.
(Debtor-in-Possession as of June 7, 1999)
CONSOLIDATED STATEMENT OF OPERATIONS
(Unaudited)
Three Months Ended
January 31,
--------------------------
In thousands except per share amounts 2000 1999
- -------------------------------------- ------------ ------------
Revenues
Net sales $ 285,287 $ 264,437
Other income 1,077 2,162
--------- ---------
286,364 266,599
Cost of sales 221,843 201,410
Product development, selling
and administrative expenses 52,416 54,405
Reorganization items 11,573 --
Restructuring charge 6,311 --
---------- ---------
Operating income (loss) (5,779) 10,784
Interest expense - net (excludes
contractual interest expense of
$19,167 in 2000) (8,593) (12,157)
---------- ----------
Loss before benefit (provision) for income
taxes and minority interest (14,372) (1,373)
Benefit (provision) for income taxes (3,000) 1,106
Minority interest (174) (119)
--------- ----------
Loss from continuing operations (17,546) (386)
Loss from discontinued operation,
net of applicable income taxes -- (16,013)
---------- ----------
Net loss $ (17,546) $ (16,399)
========== ==========
Basic Earnings (Loss) Per Share:
Loss from continuing operations $ (0.38) $ (0.01)
Loss from discontinued operation -- (0.35)
---------- -----------
Net loss per share $ (0.38) $ (0.36)
=========== ==========
Diluted Earnings (Loss) Per Share:
Loss from continuing operations $ (0.38) $ (0.01)
Loss from discontinued operation -- (0.35)
----------- -----------
Net loss per share $ (0.38) $ (0.36)
=========== ===========
See accompanying notes to consolidated financial statements.
HARNISCHFEGER INDUSTRIES, INC.
(Debtor-in-Possession as of June 7, 1999)
CONSOLIDATED BALANCE SHEET
January 31, October 31,
In thousands 2000 1999
- ----------------------------------------- -------------- -------------
(Unaudited)
Assets
Current Assets:
Cash and cash equivalents $ 56,077 $ 57,453
Accounts receivable-net 208,163 202,830
Inventories 429,997 447,655
Other 52,502 50,447
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746,739 758,385
----------- -----------
Assets of discontinued Beloit operations 278,000 278,000
Property, Plant and Equipment:
Land and improvements 38,114 38,379
Buildings 134,368 131,961
Machinery and equipment 272,573 274,485
----------- -----------
445,055 444,825
Accumulated depreciation (238,459) (234,078)
----------- -----------
206,596 210,747
----------- -----------
Investments and Other Assets:
Goodwill 352,163 358,191
Intangible assets 37,374 37,693
Other 67,969 68,797
----------- -----------
457,506 464,681
----------- -----------
$ 1,688,841 $ 1,711,813
=========== ===========
See accompanying notes to consolidated financial statements.
HARNISCHFEGER INDUSTRIES, INC.
(Debtor-in-Possession as of June 7, 1999)
CONSOLIDATED BALANCE SHEET
January 31, October 31,
In thousands 2000 1999
- ------------------------------------------------------- ------------- -----------
(Unaudited)
Liabilities and Shareholders' Deficit
Current Liabilities:
Short-term notes payable, including current
portion of long-term obligations $ 139,022 $ 144,568
Trade accounts payable 56,429 70,012
Employee compensation and benefits 46,757 43,879
Advance payments and progress billings 46,907 45,340
Accrued warranties 38,693 39,866
Income taxes payable 103,949 101,832
Accrued restructuring charges and other liabilities 122,825 125,719
----------- -----------
554,582 571,216
Long-term Obligations 219,250 168,097
Other Non-current Liabilities:
Liability for postretirement benefits 31,842 31,990
Accrued pension costs 18,099 15,465
Other 8,145 7,855
----------- -----------
58,086 55,310
Liabilities Subject to Compromise 1,192,422 1,193,554
Liabilities of discontinued Beloit operations,
including liabilities subject to compromise
of $494,806 and $494,806 respectively 704,668 742,265
Minority Interests 6,625 6,522
Commitments and Contingencies (Note (f)) -- --
Shareholders' Deficit:
Common stock, $1 par value (51,668,939 and
51,668,939 shares issued, respectively) 51,669 51,669
Capital in excess of par value 572,215 572,573
Retained deficit (1,486,484) (1,468,938)
Accumulated comprehensive (loss) (84,055) (79,960)
Less:
Stock Employee Compensation Trust (1,433,147 and
1,433,147 shares, respectively) at market (1,254) (1,612)
Treasury stock (3,865,101 and 3,865,101 shares,
respectively) at cost (98,883) (98,883)
----------- -----------
(1,046,792) (1,025,151)
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$ 1,688,841 $ 1,711,813
=========== ===========
See accompanying notes to consolidated financial statements.
HARNISCHFEGER INDUSTRIES, INC.
(Debtor-in-Possession as of June 7, 1999)
CONSOLIDATED STATEMENT OF CASH FLOW
(Unaudited)
Three Months Ended
January 31,
-------------------------
In thousands 2000 1999
- ----------------------------------------------------------- ---------- ---------
Operating Activities:
Net loss $(17,546) $(16,399)
Add (deduct) - Items not affecting cash:
Loss from discontinued operation -- 16,013
Restructuring charges 6,311 --
Reorganization items 9,698 --
Minority interest, net of dividends paid 174 119
Depreciation and amortization 13,646 10,834
Increase (decrease) in income taxes, net of change
in valuation allowance 1,991 (9,250)
Other - net 3,130 (3,997)
Changes in working capital items:
(Increase) in accounts receivable - net (6,518) (6,044)
Decrease (increase) in inventories 14,591 (18,158)
(Increase) in other current assets (2,515) (4,618)
Increase (decrease) in trade accounts payable (12,909) 5,816
Increase in employee compensation and benefits 800 3,230
Increase in advance payments and progress billings 2,098 22,007
(Decrease) in accrued contract losses and other liabilities (15,824) (12,468)
-------- --------
Net cash used by continuing operating activities (2,873) (12,915)
-------- --------
Investment and Other Transactions:
Property, plant and equipment acquired (6,148) (10,033)
Property, plant and equipment retired 2,796 2,544
Deposit related to APP letters of credit and other (5,027) (15,707)
-------- --------
Net cash used by investment and other transactions (8,379) (23,196)
-------- --------
Financing Activities:
Dividends paid -- (4,592)
Borrowings under long-term obligations prior to
bankruptcy filing -- 86,026
Borrowings under DIP facility 50,000 --
Net issuance (payment) of long-term obligations 1,096 (276)
Increase (decrease) in short-term notes payable- net (3,470) 270
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Net cash provided by financing activities 47,626 81,428
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Effect of Exchange Rate Changes on Cash and
Cash Equivalents (153) (24)
Cash Used in Discontinued Operations (37,597) (31,332)
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Increase (Decrease) in Cash and Cash Equivalents (1,376) 13,961
Cash and Cash Equivalents at Beginning of Period 57,453 30,012
-------- --------
Cash and Cash Equivalents at End of Period $ 56,077 $ 43,973
======== ========
See accompanying notes to consolidated financial statements.
HARNISCHFEGER INDUSTRIES, INC.
(Debtor-in-Possession as of June 7, 1999)
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY (DEFICIT)
(Unaudited)
Accumulated
Capital in Compre- Retained Compre-
Common Excess of hensive Earnings hensive Treasury
In thousands Stock Par Value (Loss) (Deficit) (Loss) SECT Stock Total
- ------------------------------------ ---------------------------------------------------------------------------------------------
Three Months Ended January 31, 2000
C>
Balance at October 31, 1999 $ 51,669 $572,573 $(1,468,938) $ (79,960) $ (1,612) $(98,883) $(1,025,151)
Comprehensive loss:
Net loss $ (17,546) $ (17,546) (17,546)
Other Comprehensive loss:
Currency translation
adjustment (4,095) (4,095) (4,095)
----------
Total comprehensive loss $ (21,641)
==========
Adjust SECT shares to market value (358) 358 --
----------------------- ---------------------------------------------------------
Balance at January 31, 2000 $ 51,669 $572,215 $(1,486,484) $ (84,055) $(1,254) $(98,883) $(1,046,792)
======================= =========================================================
Three Months Ended January 31, 1999
Balance at October 31, 1998 $ 51,669 $586,509 $ 216,065 $ (60,289)$(13,525) $(113,579) $ 666,850
Comprehensive loss:
Net loss $ (16,399) (16,399) (16,399)
Other Comprehensive loss:
Currency translation adjustment (10,498) (10,498) (10,498)
----------
Total Comprehensive loss $ (26,897)
==========
Dividends paid ($.10 per share) (4,735) (4,735)
Dividends on shares held by SECT 143 143
Adjust SECT shares to market value (1,433) 1,433 --
Amortization of unearned compensation
on restricted stock 175 175
----------------------- ----------------------------------------------------------
Balance at January 31, 1999 $ 51,669 $ 585,394 $ 194,931 $ (70,787) $ (12,092) $(113,579) $635,536
======================= ==========================================================
See accompanying notes to consolidated financial statements.
HARNISCHFEGER INDUSTRIES, INC.
(Debtor-in-Possession as of June 7, 1999)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
January 31, 2000
(Unaudited)
(a) 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, P&H Mining Equipment ("P&H") and Joy
Mining Machinery ("Joy"), as well as Beloit Corporation ("Beloit"). The
Company's Pulp and Paper Machinery segment owned by Beloit and its
subsidiaries (the "Beloit Segment") is presented as a discontinued
operation as is more fully discussed in Note (c) - Discontinued Operations.
The Debtors' Chapter 11 cases are being 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 March 16, 2000, the Debtors had not
completed their review of all their prepetition executory contracts and
leases for assumption or rejection. See Note (f) - 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, a 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 based on 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.
The Company will continue to incur significant costs associated with the
reorganization. The amount of these expenses, which are being expensed as
incurred, is expected to significantly affect results while the Company
operates under Chapter 11. See Note (d) - 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 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.
(b) Basis of Presentation
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 does 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 in the fourth quarter of
fiscal 1999, 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 a confirmed 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 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.
In the opinion of management, all adjustments necessary for the fair
presentation on a going concern basis of the results of operations for the
three months ended January 31, 2000 and 1999, cash flows for the three
months ended January 31, 2000 and 1999, and financial position at January
31, 2000 have been made. All adjustments made are of a normal recurring
nature, except for those more fully discussed in these notes.
These financial statements should be read in conjunction with the financial
statements and the notes thereto included in the Company's Annual Report on
Form 10-K for the fiscal year ended October 31, 1999.
The results of operations for any interim period are not necessarily
indicative of the results to be expected for the full year.
(c) Discontinued Operations
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 made by Beloit. Closings on two of the five approved sales
agreements took place subsequent to January 31, 2000. The Company expects
that closings on the remainder of these sales agreements will occur by the
end of the second quarter of fiscal 2000. Additionally, Beloit has agreed
to sell the stock of its Brazilian subsidiary, subject to the approval of
the Bankruptcy Court.
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 and
statement of cash flow for prior periods. Revenues for this segment were
$81.4 million for the three months ended January 31, 2000 and $191.8
million for the comparable period in 1999. Loss from discontinued
operations was $16.0 million for the three months ended January 31,1999.
During fiscal 1999, the Company recorded an estimated loss of $529.0
million on the disposal of the Beloit Segment including an accrual for
estimated operating losses to be incurred by the Beloit Segment subsequent
to October 31, 1999. The Segment's estimated operating loss of $27.5
million for the three months ended January 31, 2000 has been charged
against this accrual. As of March 16, 2000, the Company believes that the
estimated loss on the disposal of the Beloit Segment does not require
adjustment.
(d) 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 the first
quarter of fiscal 2000, reorganization expenses related to continuing
operations were as follows:
In thousands
---------------------------------------------------------------
Professional fees directly related to the filing $ 7,810
Amortization of DIP financing costs 1,875
Accrued retention plan costs 2,190
Interest earned on DIP proceeds (302)
----------
$ 11,573
==========
(e) Restructuring Charges
During the first quarter of fiscal 2000, restructuring charges of $6.3
million were recorded for rationalization of certain of Joy's original
equipment manufacturing capacity in the United Kingdom. These charges were
made primarily for severance of approximately 195 employees. Charges of
$7.2 million were recorded in the third quarter of fiscal 1999 for the
impairment of certain assets associated with this capacity rationalization.
Additional future cash charges of approximately $1.6 million in connection
with continuing cost reduction initiatives are expected to be incurred in
fiscal 2000.
Details of these restructuring charges are as follows:
In thousands
------------------------------------------------------------------------
Reserve at Additional Reserve Reserve at
10/31/99 Reserve Utilized 1/31/00
------- ----------- -------- -------
Employee severance $ 4,009 $ 5,748 $ 1,317 $ 8,440
Facility closures 7,270 563 -- 7,833
------- ----------- --------- -------
Total $11,279 $ 6,311 $ 1,317 $16,273
======= =========== ========= =======
The accrued severance costs of $8.4 million include expected cash expenditures
of $7.2 million to be paid during the remainder of the fiscal 2000. In addition
to the amounts reserved, Joy expects to incur capital expenditures of
approximately $2.2 million and expenses of approximately $0.7 million for moving
equipment and inventory in connection with the U.K. restructuring.
(f) 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, 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 consisted of the following:
January 31, 2000 October 31, 1999
---------------------------------- -----------------------------------
Continuing Discontinued Continuing Discontinued
In thousands Operations Operations Total Operations Operations Total
- ------------------------------------------------------------------------------------------- -----------------------------------
Trade accounts payable $ 94,806 $ 145,955 $ 240,761 $ 95,950 $ 145,955 $ 241,905
Accrued interest expense, as of June 6, 1999 17,315 15 17,330 17,315 15 17,330
Accrued executive changes expense 8,518 -- 8,518 8,518 -- 8,518
Put obligation to preferred shareholders of subsidiary 5,457 -- 5,457 5,457 -- 5,457
8.9% Debentures, due 2022 75,000 -- 75,000 75,000 -- 75,000
8.7% Debentures, due 2022 75,000 -- 75,000 75,000 -- 75,000
7 1/4% Debentures, due 2025
(net of discount of $1,214 and 1,218) 148,786 -- 148,786 148,782 -- 148,782
6 7/8% Debentures, due 2027
(net of discount of $99 and $100) 149,901 -- 149,901 149,900 -- 149,900
Senior Notes, Series A through D, at interest rates of
between 8.9% and 9.1%, due 1999 to 2006 69,546 -- 69,546 69,546 -- 69,546
Revolving credit facility 500,000 -- 500,000 500,000 -- 500,000
IRC lease (Princeton Paper) -- 54,000 54,000 -- 54,000 54,000
APP claims -- 46,000 46,000 -- 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 18,615 14,128 32,743
Notes payable 20,000 -- 20,000 20,000 -- 20,000
Other 9,478 -- 9,478 9,471 -- 9,471
Advance payments and progress billing -- 125,696 125,696 -- 125,696 125,696
Accrued warranties -- 34,054 34,054 -- 34,054 34,054
Minority interest -- 21,536 21,536 -- 21,536 21,536
Pension and other -- 53,422 53,422 -- 53,422 53,422
---------- ---------- ---------- ---------- ---------- ----------
$1,192,422 $ 494,806 $1,687,228 $1,193,554 $ 494,806 $1,688,360
========== ========== ========== ========== ========== ==========
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 January 31, 1999 was $50.4 million, of
which $19.2 million relates to the first quarter of fiscal 2000. 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 January 31, 2000, the Company was contingently liable to
banks, financial institutions and others for approximately $297.6 million
($311.2 million as of October 31, 1999) for outstanding letters of credit,
bank guarantees, surety bonds and other guarantees securing performance of
sales contracts and other obligations in the ordinary course of business.
Of the $297.6 million: approximately $158.6 million (October 31, 1999
$168.7 million) was issued by the Company on behalf of Beloit matters;
approximately $179.6 million were issued by Debtor entities prior to the
bankruptcy filing; and $71.2 million (October 31, 1999 $48.8 million) were
issued under the DIP Facility. Additionally, there were $46.8 million
(October 31, 1999 $48.5 million) of outstanding letters of credit or other
guarantees issued by non-US banks for non-US subsidiaries. Approximately
$12.5 million of the approximtely $297.6 million was accrued in fiscal 1999
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.
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.
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. Beloit agreed to repurchase the
receivables in the event APP defaulted on the receivables and the Company
guaranteed this repurchase obligation. As of March 16, 2000, the Company
believes APP was not in default with respect to the receivables. 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 the Company had
letters of credit issued to APP in the amount of the down payment. In
addition, Beloit repurchased various notes receivable issued by 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. 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 sought recovery of other damages it alleged were caused
by Beloit's Asian subsidiaries' claimed breaches. As of January 31, 2000,
the $46.0 million was included in liabilities subject to compromise. In
addition, APP sought a declaration in the arbitration that it has no
liability under certain promissory notes. APP subsequently filed an
additional notice of arbitration in Singapore against Beloit seeking the
same relief on the grounds that Beloit was a party to the Beloit Asian
subsidiaries' contracts with APP and was also a guarantor of the Beloit
Asian subsidiaries' performance of those contracts. Also, APP filed for and
received an injunction from the Singapore courts that prohibited Beloit
from acting on the notes receivable from APP except in the Singapore
arbitration. APP 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
prohibited BNL from making payment under the draw notice. The Company
placed funds on deposit with BNL to provide for payment under the letters
of credit.
On March 3, 2000, the Company announced the signing of a definitive
agreement to settle disputes and related pending arbitration and legal
proceedings with APP regarding the second two machines. Under the
settlement, APP will pay $135.0 million to Beloit and the $15.9 million the
Company deposited with BNL with respect to the related letters of credit
will be released to the Company. The $15.9 million has been classified as
other assets in the Company's consolidated financial statements. The $135.0
million is to be paid $25.0 million in cash and $110.0 million in a
three-year note issued by an APP subsidiary and guaranteed by APP. The note
is to be governed by an indenture and bear a fixed interest rate of 15%.
Beloit intends to sell the note to a third party for fair market value. The
settlement is subject to the satisfaction of certain conditions, including
Bankruptcy Court approval. As part of the settlement, Beloit will retain
the $46.0 million down payment it received from APP for the second two
papermaking machines and APP will release all rights with respect to
letters of credit issued for the aggregate amount of the down payment for
the second two papermaking machines. APP will acquire certain components
and spare parts produced or acquired by Beloit in connection with the two
papermaking machines on an "as is, where is" basis. In addition, Beloit
will return to APP certain promissory notes given to Beloit by APP. The
notes were initially issued in the amount of $59.0 million and have a
current aggregate principal balance of $19.0 million. The cash and note are
to be delivered within three days of Bankruptcy Court approval but not
before March 31, 2000. The value of the settlement will be reflected in the
Company's consolidated financial statements during the period Beloit and
the Company receive the cash and note.
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
above violated the federal securities laws. As regards the Company, this
matter is stayed by the automatic stay imposed by the Bankruptcy Code. The
Company is seeking to extend the stay to include the other defendants in
the 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.
(g) Borrowings and Credit Facilities
Borrowings consisted of the following:
January 31, October 31,
In thousands 2000 1999
------------------------------------------- ----------- ------------
Domestic:
DIP Facility $ 217,000 $ 167,000
Other 232 227
Foreign:
Australian Term Loan, due 2000 56,960 57,734
Short term notes payable and bank overdrafts 81,723 86,539
Other 2,357 1,165
--------- ---------
358,272 312,665
Less: Amounts due within one year (139,022) (144,568)
--------- ---------
Long-term Obligations $ 219,250 $ 168,097
========= =========
Debtor-in-Possession Financing
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 January 31, 2000, $217 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 $52.6 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:
o 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 the Creditors Committee regarding the Beloit divestiture and
liquidation process.
o 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.
o 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. During fiscal
1999, MFS Funds became entitled to receive periodic financial statements
for Joy.
The plan to dispose of the Beloit Segment necessitated obtaining a waiver from
the Chase Manhattan Bank. 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$57.0 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 January 31, 2000, 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.
As of January 31, 2000, short-term bank credit lines of foreign subsidiaries
amounted to $106.7 million. Outstanding borrowings against these were $81.7
million as of January 31, 2000 compared with $86.5 million as at October 31,
1999. There were no compensating balance requirements under these lines of
credit. Of the amount borrowed, approximately $30.1 million was in default as of
January 31, 2000 either as result of the Company having commenced bankruptcy
proceedings in the U.S. or due to breaches of loan covenants by the local
subsidiary. This has rendered the loans concerned repayable on demand.
Discussions are in process with the banks concerned, with the objective of
re-negotiating the terms of the borrowings and curing the defaults. However, no
agreements were in place as of the date of this report and there can be no
assurances that the negotiations will result in modifications to these
facilities.
(h) Income Taxes
The income tax provision (benefit) recognized in the Company's consolidated
statement of operations differs from the income tax provision (benefit) computed
by applying the statutory federal income tax rate to the income or loss from
continuing operations for the three months ended January 31, 2000 due to an
additional valuation allowance on deferred tax benefits, state taxes and
differences in foreign and U.S. tax rates.
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, the Company
would be required to apply fresh start accounting pursuant to the requirements
of SOP 90-7. Under fresh start accounting, realization of net operating loss and
tax credit benefits will first reduce any reorganization goodwill until
exhausted and thereafter be reported as additional paid in capital.
(i) Inventories
Consolidated inventories consisted of the following:
January 31, October 31,
In thousands 2000 1999
- ------------------------------------ ----------- -----------
Finished goods $ 248,374 $ 205,959
Work in process and purchased parts 195,543 256,697
Raw materials 35,352 34,271
--------- ---------
479,269 496,927
Less excess of current cost over stated
LIFO value (49,272) (49,272)
--------- ---------
$ 429,997 $ 447,655
========= =========
Inventories valued using the LIFO method represented approximately 66% and
71% of consolidated inventories at January 31, 2000 and October 31, 1999,
respectively.
(j) 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:
Three Months Ended
January 31,
-----------------------------
In thousands except per share amounts 2000 1999 (1)
- ------------------------------------------- --------------- ------------
Basic Earnings (Loss):
- -------------------------------------------
Loss from continuing operations $(17,546) $ (386)
Loss from discontinued operation -- (16,013)
-------- --------
Net loss $(17,546) $(16,399)
======== ========
Basic weighted average common shares outstanding 46,516 45,916
======== ========
Basic Earnings (Loss) Per Share:
- --------------------------------------------
Loss from continuing operations $ (0.38) $ (0.01)
Loss from discontinued operation -- (0.35)
-------- --------
Net loss $ (0.38) $ (0.36)
======== ========
Diluted Earnings (Loss):
- ---------------------------------------------
Loss from continuing operations $(17,546) $ (386)
Loss from discontinued operation -- (16,013)
Net loss $(17,546) $(16,399)
======== ========
Basic weighted average common shares outstanding 46,516 45,916
Assumed exercise of stock options -- --
-------- --------
Diluted weighted average common shares outstanding 46,516 45,916
======== ========
Diluted Earnings (Loss) Per Share:
- ----------------------------------------------
Loss from continuing operations $ (0.38) $ (0.01)
Loss from discontinued operation -- (0.35)
-------- -------
Net loss $ (0.38) $ (0.36)
======== ========
- ----------
(1) Amounts for the three months ended January 31, 1999 have been restated to
reflect the discontinued Beloit operation.
Options to purchase common stock 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.
(k) Segment Information
Business Segment Information
At January 31, 2000, the Company had two reportable segments, Surface
Mining Equipment and Underground Mining Machinery. Operating income (loss)
of segments does not include interest income or expense and provision
(benefit) for income taxes. There are no significant 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.
In thousands
- ----------------------------------- ---------------------------------------------------------------------------
Net Operating Depreciation and Capital Identifiable
Sales Income (Loss) Amortization Expenditures Assets
---------- ------------- ------------- -------------- ------------
Three months ended January 31, 2000
Surface Mining $ 121,133 $ 9,457 $ 4,030 $ 4,704 $ 416,509
Underground Mining 164,154 641(1) 7,430 1,444 908,805
---------- ---------- ---------- ---------- ---------
Total continuing operations 285,287 10,098 11,460 6,148 1,325,314
Discontinued operations -- -- -- -- 278,000
Reorganization item -- (11,573) -- -- --
Corporate -- (4,304) 2,186 -- 85,527
---------- ---------- ---------- ---------- ----------
Consolidated Total $ 285,287 $ (5,779) $ 13,646 $ 6,148 $1,688,841
========== ========== ========== ========== ==========
Three months ended January 31, 1999
Surface Mining $ 110,562 $ 11,007 $ 4,295 $ 1,376 $ 432,342
Underground Mining 153,875 4,090 6,180 8,657 1,026,956
---------- ---------- ---------- ---------- ----------
Total continuing operations 264,437 15,097 10,475 10,033 1,459,298
Discontinued operations -- -- -- -- 1,319,897
Corporate -- (4,313) 359 -- 87,978
---------- ---------- ---------- ---------- ----------
Consolidated Total $ 264,437 $ 10,784 $ 10,834 $ 10,033 $2,867,173
========== ========== ========== ========== ==========
- -------------------------
(1) After restructuring charge of $6,311 - see Note (e) -- Restructuring
Charges.
Geographical Segment Information
In thousands
- ---------------------------------- --------------------------------------------------------------------------------------
Sales to
Total Interarea Unaffiliated Operating Identifiable
Sales Sales Customers Income (Loss) Assets
--------------- --------------- --------------- --------------- ----------------
Three months ended January 31, 2000
United States $ 198,194 $ (24,192) $ 174,002 $ 10,508 $ 1,309,296
Europe 49,722 (19,387) 30,335 (2,062) 343,845
Other Foreign 87,803 (6,853) 80,950 7,496 298,174
Interarea Eliminations (50,432) 50,432 -- (5,844) (626,001)
----------- ----------- ----------- ----------- -----------
$ 285,287 $ -- $ 285,287 $ 10,098 $ 1,325,314
=========== =========== =========== =========== ===========
Three months ended January 31, 1999
United States $ 177,169 $ (30,618) $ 146,551 $ 14,224 $ 1,332,242
Europe 53,447 (15,704) 37,743 4,204 365,385
Other Foreign 83,501 (3,358) 80,143 2,997 341,492
Interarea Eliminations (49,680) 49,680 -- (6,328) (579,821)
----------- ----------- ----------- ----------- -----------
$ 264,437 $ -- $ 264,437 $ 15,097 $ 1,459,298
=========== =========== =========== =========== ===========
(l) Condensed Combined Financial Statements
The following condensed combined financial statements are presented in
accordance with SOP 90-7, Financial Reporting by Entities in Reorganization
Under the Bankruptcy Code:
HARNISCHFEGER INDUSTRIES, INC.
(Debtor-in-Possession as of June 7, 1999)
CONDENSED COMBINED CONSOLIDATING
--------------------------------
STATEMENT OF OPERATIONS
-----------------------
FOR THE THREE MONTHS ENDED
JANUARY 31, 2000
Entities in Entities not in
Reorganization Reorganization Combined
In thousands Proceedings Proceedings Eliminations Consolidated
- ------------------------------------ ---------------- ----------------- ----------------- --------------------
Revenues
Net sales $ 198,194 $ 137,525 $ (50,432) $ 285,287
Other income (5,097) (6,648) 12,822 1,077
--------- --------- --------- ---------
193,097 130,877 (37,610) 286,364
Cost of sales, including anticipated
losses on contracts 155,428 111,003 (44,588) 221,843
Product development, selling
and administrative expenses 37,749 14,667 -- 52,416
Reorganization items 11,573 -- -- 11,573
Restructuring charge -- 6,311 -- 6,311
--------- --------- --------- ---------
Operating loss (11,653) (1,104) 6,978 (5,779)
Interest expense - net (5,615) (2,978) -- (8,593)
--------- --------- --------- ---------
Loss before benefit (provision) for income
taxes and minority interest (17,268) (4,082) 6,978 (14,372)
Benefit (provision) for income taxes (2,666) (334) -- (3,000)
Minority interest -- -- (174) (174)
Equity in income of subsidiaries 2,800 78 (2,878) --
--------- --------- --------- ---------
Net loss (17,134) (4,338) 3,926 (17,546)
========= ========= ========= =========
HARNISCHFEGER INDUSTRIES, INC.
(Debtor-in-Possession as of June 7, 1999)
CONDENSED COMBINED CONSOLIDATING
BALANCE SHEET
AS OF JANUARY 31, 2000
Entities in Entities not in
Reorganization Reorganization Combined
In thousands Proceedings Proceedings Eliminations Consolidated
- -------------------------------- ----------------- ----------------- ------------------ -----------------
ASSETS
Current Assets:
Cash and cash equivalents $ 35,295 $ 20,782 $ -- $ 56,077
Accounts receivable-net 112,851 97,034 (1,722) 208,163
Intercompany receivables 1,718,109 253,447 (1,971,556) --
Inventories 271,659 183,559 (25,221) 429,997
Prepaid income taxes (3,916) 3,916 -- --
Other current assets 11,157 41,915 (570) 52,502
----------- ----------- ----------- -----------
2,145,155 600,653 (1,999,069) 746,739
Assets of discontinued Beloit operations 278,000 -- -- 278,000
Property, Plant and Equipment-Net 141,785 64,811 -- 206,596
Intangible assets 160,907 236,843 (8,213) 389,537
Deferred income taxes (572) -- 572 --
Investment in subsidiaries 1,244,560 890,358 (2,134,918) --
Other assets 64,435 2,655 879 67,969
----------- ----------- ----------- -----------
$ 4,034,270 $ 1,795,320 $(4,140,749) $ 1,688,841
=========== =========== =========== ===========
HARNISCHFEGER INDUSTRIES, INC.
(Debtor-in-Possession as of June 7, 1999)
CONDENSED COMBINED CONSOLIDATING
BALANCE SHEET
AS OF JANUARY 31, 2000
Entities in Entities not in
Reorganization Reorganization Combined
In thousands Proceedings Proceedings Eliminations Consolidated
- ---------------------------------------------- ----------------- --------------- ------------------ ------------------
Liabilities and Shareholders' Deficit
Current Liabilities:
Short-term notes payable, including current
portion of long-term obligations $ 7 $ 139,015 $ -- $ 139,022
Trade accounts payable 26,700 29,729 -- 56,429
Intercompany accounts payable 1,566,127 405,429 (1,971,556) --
Employee compensation and benefits 38,609 8,148 -- 46,757
Advance payments and progress billings 17,321 29,586 -- 46,907
Accrued warranties 25,388 13,305 -- 38,693
Other current liabilities 171,581 66,088 (10,895) 226,774
----------- ----------- ----------- -----------
1,845,733 691,300 (1,982,451) 554,582
Long-term Obligations 217,225 2,025 -- 219,250
Other non-current liabilities
Liability for post-retirement benefits and
accrued pension costs 53,978 3,042 (7,079) 49,941
Deferred income taxes (2,145) 2,145 -- --
Other liabilities 8,093 52 -- 8,145
---------- ----------- ---------- ----------
59,926 5,239 (7,079) 58,086
Liabilities Subject to Compromise 1,192,422 -- -- 1,192,422
Liabilities of discontinued Beloit operations 519,897 184,771 -- 704,668
Minority Interest -- -- 6,625 6,625
Shareholders' Deficit:
Common stock 55,482 693,993 (697,806) 51,669
Capital in excess of par value 2,027,022 77,854 (1,532,661) 572,215
Retained earnings (1,682,179) 191,232 4,463 (1,486,484)
Accumulated comprehensive loss (101,121) (51,094) 68,160 (84,055)
Less:
Stock Employee Compensation Trust (1,254) -- -- (1,254)
Treasury stock (98,883) -- -- (98,883)
----------- ----------- ----------- -----------
199,067 911,985 (2,157,844) (1,046,792)
----------- ----------- ----------- -----------
$ 4,034,270 $ 1,795,320 $(4,140,749) $ 1,688,841
=========== =========== =========== ===========
HARNISCHFEGER INDUSTRIES, INC.
(Debtor-in-Possession as of June 7, 1999)
CONDENSED COMBINED CONSOLIDATING CASH FLOW
FOR THE THREE MONTHS ENDED
JANUARY 31, 2000
Entities in Entities not in
Reorganization Reorganization Combined
In thousands Proceedings Proceedings Consolidated
- ---------------------------------------------- ----------------- --------------- ----------------
Net cash provided (used) by continuing
operating activities $(15,168) $ 12,295 $ (2,873)
Investment and Other Transactions:
Property, plant and equipment acquired (5,585) (563) (6,148)
Property, plant and equipment retired 2,724 72 2,796
Other - net (3,254) (1,773) (5,027)
-------- -------- -----------
Net cash used by investment and other
transactions (6,115) (2,264) (8,379)
Financing Activities:
Borrowings under DIP facility 50,000 -- 50,000
Net issuance of long-term obligations -- 1,096 1,096
Decrease in short-term notes payable - net -- (3,470) (3,470)
------- -------- ----------
Net cash provided by financing activities 50,000 (2,374) 47,626
Effect of exchange rate changes on cash and
cash equivalents -- (153) (153)
Cash used in discontinued operations (23,597) (14,000) (37,597)
------- -------- --------
Increase (decrease) in cash and cash equivalents 5,120 (6,496) (1,376)
Cash and cash equivalents at beginning of period 30,175 27,278 57,453
------- -------- -------
Cash and cash equivalents at end of period $35,295 $ 20,782 $56,077
======= ======== =======
Item 2 - Management's Discussion and Analysis of Financial Condition and Results
of Operations
Three Months Ended January 31, 2000 and 1999
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, P&H Mining Equipment ("P&H") and Joy Mining Machinery
("Joy"), as well as Beloit Corporation ("Beloit"). Beloit is presented as a
discontinued operation as is more fully discussed in Note (c) - Discontinued
Operations included in Item 1 - Financial Statements. 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 March 16, 2000, the
Debtors had not completed their review of all their prepetition executory
contracts and leases for assumption or rejection. See also Note (f) -
Liabilities Subject to Compromise included in Item 1 - Financial Statements.
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, a 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 based on 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 will continue to incur significant costs associated with the
reorganization. The amount of these expenses, which are being expensed as
incurred, is expected to significantly affect results while the Company operates
under Chapter 11. See Note (d) - Reorganization Items included in Item 1 -
Financial Statements.
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 effects 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
does 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 in the fourth quarter of fiscal
1999, 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 a confirmed 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 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.
The commentary in Management's Discussion and Analysis contains forward-looking
statements. When used in this document, terms such as "anticipate", "believe",
"estimate", "expect", "indicate", "may be", "objective", "plan", "predict", and
"will be" are intended to identify such statements. Forward-looking statements
are subject to certain risks, uncertainties and assumptions which could cause
actual results to differ materially from those projected, including those,
without limitation, described in Item 5. Other Information - "Cautionary
Factors" in Part II of this report.
Surface Mining Equipment
Three Months Ended January 31, 2000 as compared to 1999
The following table sets forth certain data with respect to the Surface Mining
Equipment segment from the Consolidated Statement of Operations of the Company
for the three months ended January 31:
In thousands 2000 1999
--------------------------------------------------------------------
Net sales $ 121,133 $ 110,562
Operating Profit $ 9,457 $ 11,007
Bookings $ 126,981 $ 102,826
Sales of the Surface Mining Equipment segment were $121.1 million in the first
quarter of fiscal 2000, a 10% increase from sales of $110.6 million during the
same period of fiscal 1999. Capital sales increased 39%, driven by a 93%
increase in sales of electric mining shovels. The increase in electric mining
shovel sales resulted from strong sales of a new model mining shovel, expanded
product support and other product innovations. This was partially offset by a
decrease in sales related to draglines 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 decreased 5% in the
first quarter of 2000 as the first quarter of 1999 benefited from carryover
parts shipments that were deferred due to the United Steelworkers' strike in
Milwaukee during the fourth fiscal quarter of 1998.
Operating profit was $9.5 million or 7.8% of sales in the three months ended
January 31, 2000, compared to operating profit of $11.0 million and 10.0% for
the corresponding period in 1999. The lower operating profit in the first
quarter of 2000 as compared to the first quarter of 1999 was due to decreased
aftermarket sales and a lower gross margin mix of parts and services in the
first quarter of 2000 versus the first quarter of 1999.
Bookings amounted to $127.0 million in the first quarter of fiscal 2000 compared
to $102.8 million during the equivalent period in 1999. The increase is
primarily due to increases in demand for P&H's original equipment resulting from
product innovation and expanded product support for customers. The P&H order
backlog was $99.6 million as of January 31, 2000 compared with $93.8 million at
October 31, 1999. These booking and backlog figures exclude customer
arrangements under long-term repair and maintenance contracts. In previous
financial reports it was the policy of the Company to include two years of
estimated value of such arrangements as part of its reported backlog. The total
estimated value of long-term repair and maintenance arrangements with P&H
customers, which extend for periods of up to thirteen years, amounted to
approximately $200 million as of January 31, 2000.
Underground Mining Machinery
Three Months Ended January 31, 2000 as compared to 1999
The following table sets forth certain data with respect to the Underground
Mining Machinery segment from the Consolidated Statement of Operations of the
Company for the three months ended January 31:
In thousands 2000 1999
--------------------------------------------------------------------
Net sales $ 164,154 $ 153,875
Operating Profit $ 641* $ 4,090
Bookings $ 117,461 $ 198,161
*after restructuring charge of $6.3 million.
Net sales for Joy for the first quarter of 2000 were $10.3 million (7%) higher
than sales in the first quarter last year as an increase in new machine
shipments in the United States and Australia more than offset a decrease in
parts sales in the United States and component repairs and machine rebuilds in
the United Kingdom. In the United States, the increase in new machine sales was
largely due to the shipment of a $25 million roof support and face conveyor
order in the first quarter of fiscal 2000 while in Australia the sale of a
longwall shearer and a face conveyor accounted for the increase in new machine
sales. Other than these specific transactions, sales of new machines remained
soft in the markets served by Joy. The decrease in aftermarket sales mentioned
above reflects the decrease in underground coal production caused by an excess
supply of coal available in Joy's mature markets.
For the three months ended January 31, 2000, Joy reported an operating profit of
$0.6 million compared to an operating profit of $4.1 million for the first
quarter of 1999. The reduced operating profit in the first quarter of fiscal
2000 was the result of a $6.3 million restructuring charge (see below).
Excluding this restructuring charge, Joy generated $6.9 million of operating
profit in the first quarter of fiscal 2000, $2.8 million more than the operating
profit for the first quarter of 1999. This improvement in operating results was
due to reduced spending as a result of cost reduction actions implemented by Joy
over the past eighteen months.
New order bookings in the first quarter of fiscal 2000 were approximately $80
million lower than in the first quarter of the prior year. This decrease
resulted from continued softness in sales of new machines in the markets Joy
serves, combined with three large roof support orders that were received in the
United Kingdom in the first quarter of fiscal 1999 that were not repeated in the
first quarter of fiscal 2000. The Joy order backlog was $150.4 million as of
January 31, 2000 compared with $190.7 million at October 31, 1999. These booking
and backlog figures exclude customer arrangements under long-term repair and
maintenance contracts. In previous financial reports it was the policy of the
Company to include two years of estimated value of such arrangements as part of
its reported backlog. The total estimated value of long-term repair and
maintenance arrangements with Joy customers, which extend for periods of up to
eight years, amounted to approximately $70 million as of January 31, 2000.
During the first quarter of fiscal 2000, restructuring charges of $6.3 million
were recorded for rationalization of certain of Joy's original equipment
manufacturing capacity in the United Kingdom. These charges were made primarily
for severance of approximately 195 employees. Charges of $7.2 million were
recorded in the third quarter of fiscal 1999 for the impairment of certain
assets associated with this capacity rationalization. Additional future cash
charges of approximately $1.6 million in connection with continuing cost
reduction initiatives are expected to be incurred in fiscal 2000.
Details of these restructuring charges are as follows:
In thousands
- --------------------------------------------------------------------------------
Reserve at Additional Reserve Reserve at
10/31/99 Reserve Utilized 1/31/00
------------- ------------- -------------- ------------
Employee severance $ 4,009 $ 5,748 $ 1,317 $ 8,440
Facility closures 7,270 563 -- 7,833
------- ------- ------- -------
Total $11,279 $ 6,311 $ 1,317 $ 16,273
======== ======= ======= ==========
The accrued severance costs of $8.4 million include expected cash expenditures
of $7.2 million to be paid during the remainder of the fiscal 2000. In addition
to the amounts reserved, Joy expects to incur capital expenditures of
approximately $2.2 million and expenses of approximately $0.7 million for moving
equipment and inventory in connection with the U.K. restructuring.
Discontinued Operations
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 made by Beloit. Closings on
two of the five approved sales agreements took place subsequent to January 31,
2000. The Company expects that closings on the remainder of these sales
agreements will occur by the end of the second quarter of fiscal 2000.
Additionally, Beloit sold the stock of its Brazilian subsidiary, subject to the
approval of the Bankruptcy Court.
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 and statement of cash flow
for prior periods. Revenues for this segment were $81.4 million for the three
months ended January 31, 2000 and $191.8 million for the comparable period in
1999. Loss from discontinued operations was $16.0 million for the three months
ended January 31, 1999. During fiscal 1999, the Company recorded an estimated
loss of $529.0 million on the disposal of the Beloit Segment including an
accrual for estimated operating losses to be incurred by the Beloit Segment
subsequent to October 31, 1999. The Segment's operating loss of $27.5 million
for the three months ended January 31, 2000 has been charged against this
accrual. As of March 16, 2000, the Company believes that the estimated loss on
the disposal of the Beloit Segment does not require adjustment.
Income Taxes
The income tax provision (benefit) recognized in the Company's consolidated
statement of operations differs from the income tax provision (benefit) computed
by applying the statutory federal income tax rate to the income or loss from
continuing operations for the three months ended January 31, 2000 due to an
additional valuation allowance on deferred tax benefits, state taxes and
differences in foreign and U.S. tax rates.
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, the Company
would be required to apply fresh start accounting pursuant to the requirements
of SOP 90-7. Under fresh start accounting, realization of net operating loss and
tax credit benefits will first reduce any reorganization goodwill until
exhausted and thereafter be reported as additional paid in capital.
Liquidity and Capital Resources
Chapter 11 Proceedings
The matters described under this caption "Liquidity and Capital Resources", to
the extent that they relate to future events or expectations, may be
significantly affected by the Chapter 11 proceedings. Those proceedings will
involve, or result in, various restrictions on the Company's activities,
limitations on financing, the need to obtain Bankruptcy Court approval for
various matters and uncertainty as to relationships with vendors, suppliers,
customers and others with whom the Company may conduct or seek to conduct
business. 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 January 31, 2000, was $192.2 million including $56.1 million
of cash and cash equivalents, as compared to working capital of $187.2 million
including $57.5 million of cash and cash equivalents as of October 31, 1999. The
ongoing inventory reduction program at Joy resulted in a $19.0 million decline
in Joy's inventory during the quarter. However, this was more than offset by
changes in other categories of working capital. Most significantly there was a
$13.6 million decline in trade accounts payable, mainly resulting from lower
activity levels at P&H compared with the final quarter of fiscal 1999. There was
also a $5.5 million reduction in short-term borrowings by foreign subsidiaries
and a $5.3 million increase in trade accounts receivable, mainly reflecting
increased sales at Joy compared with the fourth quarter of fiscal 1999.
Cash Flow from Continuing Operations
Although the Company recorded a loss from continuing operations of $17.5 million
in the first quarter of fiscal 2000 as compared with a loss from continuing
operations of $0.4 million for the same period in 1999, cash used by continuing
operations was $2.9 million for the three months ended January 31, 2000 compared
to cash used by continuing operations of $12.9 million for the comparable period
in 1999.
The reduced cash usage in 2000 resulted from several factors, primarily: (i) the
inclusion of non-cash Joy restructuring charges of $6.3 million and non-cash
reorganization items of $9.7 million in the first quarter of fiscal 2000; (ii)
an inventory build-up (primarily at Joy) of $18.2 million in the first quarter
of 1999 compared with an inventory reduction of $19.0 million at Joy in 2000, as
discussed above; and (iii) tax payments of approximately $10.3 million during
the three months ended January 31, 1999 compared with tax payments of
approximately $1.0 million during the first quarter of fiscal 2000.
Cash flow used by investment and other transactions was $8.4 million for the
three months ended January 31, 2000 compared to $23.2 million during the
corresponding period in 1999. The difference between periods is primarily due
to: (i) the inclusion in the first quarter of fiscal 1999 of a deposit of $15.9
million placed with Banca Nationale del Lavaro in connection with the APP
Letters of Credit; (ii) a reduction in capital expenditures on property, plant
and equipment of approximately $3.9 million compared with the prior year; and
(iii) acquisition of software by Joy and P&H amounting to approximately $2.1
million in the three months ended January 31, 2000.
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 January 31, 2000, $217 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 $52.6 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:
o 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 the Creditors Committee regarding the Beloit divestiture and
liquidation process.
o 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.
o 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. During fiscal
1999, MFS Funds became entitled to receive periodic financial statements
for Joy.
The plan to dispose of the Beloit Segment necessitated obtaining a waiver from
the Chase Manhattan Bank. 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.
Year 2000 Readiness Disclosure
The Year 2000 issue focuses on the ability of information systems to properly
recognize and process date-sensitive information beyond December 31, 1999. To
address this problem, the Company 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 through March 16, 2000. 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.
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 January 31, 2000 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. There is a concentration of
these contracts at 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 January 31, 2000, the nominal or face value of forward foreign exchange
contracts to which the Company was a party was $116.0 million in absolute U.S.
dollar equivalent terms.
Item 3 - Quantitative and Qualitative Disclosures about Market Risk
See "Market Risk" in Item 2 - Management's Discussion and Analysis of Financial
Condition and Results of Operations.
PART II. OTHER INFORMATION
Item 1- Legal Proceedings
Chapter 11 Bankruptcy Filing
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, P&H Mining Equipment and Joy Mining Machinery, as well as
Beloit Corporation. The Debtors' Chapter 11 cases are being 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.
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 Item 2 -
Management's Discussion and Analysis of Financial Condition and Results of
Operations of Part I 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.
Beloit Matters
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.
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. Beloit agreed to repurchase the
receivables in the event APP defaulted on the receivables, and the Company
guaranteed this repurchase obligation. As of March 16, 2000, the Company
believes APP was not in default with respect to the receivables. 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 the Company had
letters of credit issued to APP in the amount of the down payment. In
addition, Beloit repurchased various notes receivable issued by 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. 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 sought recovery of other damages it alleged were caused
by Beloit's Asian subsidiaries' claimed breaches. As of January 31, 2000,
the $46.0 million was included in liabilities subject to compromise. In
addition, APP sought a declaration in the arbitration that it has no
liability under certain promissory notes. APP subsequently filed an
additional notice of arbitration in Singapore against Beloit seeking the
same relief on the grounds that Beloit was a party to the Beloit Asian
subsidiaries' contracts with APP and was also a guarantor of the Beloit
Asian subsidiaries' performance of those contracts. Also, APP filed for and
received an injunction from the Singapore courts that prohibited Beloit
from acting on the notes receivable from APP except in the Singapore
arbitration. APP 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
prohibited BNL from making payment under the draw notice. The Company
placed funds on deposit with BNL to provide for payment under the letters
of credit.
On March 3, 2000, the Company announced the signing of a definitive
agreement to settle disputes and related pending arbitration and legal
proceedings with APP regarding the second two machines. Under the
settlement, APP will pay $135.0 million to Beloit and the $15.9 million the
Company deposited with BNL with respect to the related letters of credit
will be released to the Company. The $15.9 million has been classified as
other assets in the Company's consolidated financial statements. The $135.0
million is to be paid $25.0 million in cash and $110.0 million in a
three-year note issued by an APP subsidiary and guaranteed by APP. The note
is to be governed by an indenture and bear a fixed interest rate of 15%.
Beloit intends to sell the note to a third party for fair market value. The
settlement is subject to the satisfaction of certain conditions, including
Bankruptcy Court approval. As part of the settlement, Beloit will retain
the $46.0 million down payment it received from APP for the second two
papermaking machines and APP will release all rights with respect to
letters of credit issued for the aggregate amount of the down payment for
the second two papermaking machines. APP will acquire certain components
and spare parts produced or acquired by Beloit in connection with the two
papermaking machines on an "as is, where is" basis. In addition, Beloit
will return to APP certain promissory notes given to Beloit by APP. The
notes were initially issued in the amount of $59.0 million and have a
current aggregate principal balance of $19.0 million. The cash and note are
to be delivered within three days of Bankruptcy Court approval but not
before March 31, 2000. The value of the settlement will be reflected in the
Company's consolidated financial statements during the period Beloit and
the Company receive the cash and note.
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 Beloit Matters above) 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.
The Company, Beloit and certain of their officers and employees have been
named as defendants in an action in the Bankruptcy Court in which Omega
Papier Wernhausen GmbH ("Omega") is the plaintiff. This action concerns
prepetition and postpetition commitments allegedly made by the Company,
Beloit and the officers and employees named in the action with respect to a
prepetition contract between Omega and Beloit's Austrian subsidiary under
which Beloit's Austrian subsidiary agreed to supply a tissue paper making
machine for Omega's factory in Wernshausen, Germany. The action makes
claims of breach of guarantee, tortuous interference with business, breach
of covenant of good faith, fraud in the inducement and negligent
misrepresentation and seeks damages of $12 million for each of nine counts
plus punitive damages of $24 million for four of the nine counts.
Item 2 - Changes in Securities
Not applicable.
Item 3 - Defaults upon Senior Securities
In connection with the Chapter 11 bankruptcy filings described in Item 1 of
Part II, the Debtors discontinued the payment of principal and interest on
all prepetition indebtedness. See Note (f) Liabilities Subject to
Compromise and Note (g) Borrowings and Credit Facilities of Item 1 -
Financial Statements of Part I, which are incorporated herein by reference.
Item 4 - Submission of Matters to a Vote of Security Holders
No matters were submitted to a vote of security holders during the first
quarter of fiscal 2000.
Item 5 - Other Information - "Cautionary Factors"
This report and other documents or oral statements which have been and will
be prepared or made in the future contain or may contain forward-looking
statements by or on behalf of the Company. Such statements are based upon
management's expectations at the time they are made. 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 6 - Exhibits and Reports on Form 8-K
(a) Exhibits:
10(a)Form of Change in Control Agreement entered into as of September
30, 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: Calculation of Earnings Per Share
(b) Reports on Form 8-K
None.
(c) Financial data schedules
FORM 10-Q
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
HARNISCHFEGER INDUSTRIES, INC.
------------------------------
(Registrant)
/s/ Kenneth A. Hiltz
------------------------------
Kenneth A. Hiltz
Senior Vice President and
Date March 16, 2000 Chief Financial Officer
/s/ Herbert S. Cohen
--------------------------------
Herbert S. Cohen
Vice President, Controller and
Date March 16, 2000 Chief Accounting Officer
EXHIBIT 10(a)
CHANGE IN CONTROL AGREEMENT
THIS CHANGE IN CONTROL AGREEMENT made and entered into as of September 30, 1999
by and Harnischfeger Industries, Inc., a Delaware corporation (the "Company"),
and __________________________ (the "Participant").
RECITALS
WHEREAS, the Participant is currently employed by the Company; and
WHEREAS, the Company and the Participant wish to set forth their respective
rights and obligations in the event of a Change in Control in the Company;
NOW THEREFORE, in consideration of the premises hereof and of the mutual
promises and agreements contained herein, the parties hereto, intending to be
legally bound, hereby agree as follows:
1. Certain Definitions.
(a) "Cause". For the purposes of this Agreement, the Company shall have "Cause"
to terminate the Participant's employment upon (i) the willful and
continued failure of the Participant substantially to perform the
Participant's duties of employment (other than as a result of physical or
mental illness or injury) after the Board of Directors of the Company (the
"Board") or the Chief Executive Officer or President of the Company
delivers to the Participant a written demand for substantial performance
that specifically identifies the manner in which the Board, Chief Executive
Officer or President believes that the Participant has not substantially
performed the Participant's duties of employment; or (ii) willful illegal
conduct or gross misconduct by the Participant that results in material and
demonstrable damage to the business or reputation of the Company or its
subsidiaries; or (iii) the Participant's conviction of, or plea of guilty
or nolo contendere to, a felony. No act or failure to act on the part of
the Participant shall be considered "willful" unless it is done, or failed
to be done, by the Participant in bad faith or without reasonable belief
that the Participant's action or omission was in the best interests of the
Company. Any act or failure to act that is based upon the authority given
pursuant to a resolution duly adopted by the Board, the instruction of the
Chief Executive Officer or a senior officer of the Company, or the advice
of counsel for the Company, shall be conclusively presumed to be done, or
failed to be done, by the Participant in good faith and in the best
interests of the Company.
(b) "Change in Control". For purposes of this Agreement, Change in Control
shall mean:
(i) Consummation of a plan of reorganization confirmed pursuant to title
11, United States Code, that (A) provides for the conversion of debt
of the Company into equity interest in the Company such that,
following consummation of such plan of reorganization, holders of debt
of the Company immediately prior to consummation of such plan of
reorganization beneficially own, directly or indirectly, fifty percent
(50%) or more of, respectively, the then outstanding shares of Common
Stock and the combined voting power of the then outstanding voting
securities entitled to vote generally in the election of directors, as
the case may be, of the corporation resulting from such plan of
reorganization (including, without limitation, a corporation which as
a result of such transaction owns the Company or all or substantially
all of the Company's assets either directly or through one or more
subsidiaries) or (B) is a liquidating plan of reorganization of the
Company; or
(ii) The acquisition by an individual, entity or group (within the meaning
of Section 13(d)(3) or 14(d)(2) of the Securities Exchange Act of
1934, as amended (the "Exchange Act)) (a "Person") of beneficial
ownership (within the meaning of Rule 13d-3 promulgated under the
Exchange Act) of fifteen percent (15%) or more of either (A) the then
outstanding shares of Stock (the "Outstanding Company Common Stock")
or (B) the combined voting power of the then outstanding voting
securities of the Company entitled to vote generally in the election
of the directors (the "Outstanding Company Voting Securities");
provided, however, that for purposes of this subsection (i), the
following acquisitions shall not constitute a Change in Control: (A)
any acquisition by the Company, (B) any acquisition by any employee
benefit plan (or related trust) sponsored or maintained by the Company
or any corporation controlled by the Company or (C) any acquisition
pursuant to a transaction which complies with clauses (A), (B) and (C)
of subsection (iv) of this Section 1(b); or
(iii)Individuals who, as of the date hereof, constitute the Board (the
"Incumbent Board") cease for any reason to constitute at least a
majority of the Board; provided, however, that any individual becoming
a director subsequent to the date hereof whose election, or nomination
for election by the Company's shareholders, was approved by a vote of
at least a majority of the directors then comprising the Incumbent
Board shall be considered as though such individual were a member of
the Incumbent Board, but excluding, for this purpose, any such
individual whose initial assumption of office occurs as a result of an
actual or threatened election contest with respect to the election or
removal of directors or other actual or threatened solicitation of
proxies or consents by or on behalf of a Person other that the Board;
or
(iv) Consummation by the Company of a merger, consolidation, sale or other
disposition of all or substantially all of the assets of the Company
or the acquisition of assets of another entity (a "Business
Combination"), in each case, unless, following such Business
Combination, (A) all or substantially all of the individuals and
entities who were the beneficial owners, respectively, of the
Outstanding Company Common Stock and Outstanding Company Voting
Securities immediately prior to such Business Combination beneficially
own, directly or indirectly, more than fifty percent (50%) of,
respectively, the then outstanding shares of Common Stock and the
combined voting power of the then outstanding voting securities
entitled to vote generally in the election of directors, as the case
may be, of the corporation resulting from such Business Combination
(including, without limitation, a corporation which as a result of
such transaction owns the Company or all or substantially all of the
Company's assets either directly or through one or more subsidiaries)
in substantially the same proportions as their ownership immediately
prior to such Business Combination of the Outstanding Company Common
Stock and Outstanding Company Voting Securities, as the case may be,
(B) no Person (excluding any employee benefit plan or related trust of
the Company or such corporation resulting from such Business
Combination) beneficially owns, directly or indirectly, fifteen
percent (15%) or more of, respectively, the then outstanding shares of
Common Stock of the corporation resulting from such Business
Combination or the combined voting power of the then outstanding
voting securities of such corporation except to the extent that such
ownership existed prior to the Business Combination and (C) at least a
majority of the members of the board of directors of the corporation
resulting from such Business Combination were members of the Incumbent
Board at the time of the execution of the initial agreement, or of the
action of the Board, providing for such Business Combination; or
(v) Approval by the shareholders of the Company of a complete liquidation
or dissolution of the Company.
(c) "Disability". Disability with respect to a Participant means that (i) the
Participant has been unable, for a period of 180 consecutive business days,
to perform the Participant's duties of employment, as a result of physical
or mental illness or injury, and (ii) a physician selected by the Company
or its insurers, and acceptable to the Participant or the Participant's
legal representative, has determined that the Participant's incapacity is
total and permanent. A termination of the Participant's employment by the
Company for Disability shall be communicated to the Participant by written
notice, and shall be effective on the 30th day after receipt of such notice
by the Participant (the "Disability Effective Date"), unless the
Participant returns to full-time performance of the Participant's duties
before the Disability Effective Date.
(d) "Good Reason". For purposes of this Agreement, Good Reason shall mean, with
respect to a Participant, without the Participant's prior written consent:
(i) the assignment to the Participant of any duties inconsistent in any
material and adverse respect with the duties assigned to the
Participant by the Company as of the date of this Agreement, or any
action by the Company that results in a material diminution in the
Participant's position, authority, duties or responsibilities from
those held, exercised and/or assigned to the Participant as of the
date of this Agreement, other than an isolated, insubstantial and
inadvertent action that is not taken in bad faith and is remedied by
the Company promptly after receipt of notice thereof from the
Participant, describing in reasonable detail the objectionable duties
or responsibilities; or
(ii) any material reduction in the Participant's base salary or bonus
opportunity or other material employee benefits from the levels in
effect as of the date of this Agreement, other than (A) an isolated,
insubstantial and inadvertent action that is not taken in bad faith
and is remedied by the Company promptly after receipt of notice
thereof from the Participant describing in reasonable detail the
objectionable reduction, or (B) any modification to the Company's
employee benefits in conjunction with the establishment of a
substitute or replacement employee benefit program providing the
Participant with substantially similar employee benefits; or
(iii)any requirement by the Company that the Participant's services be
rendered primarily at a location or locations more than thirty-five
(35) miles from the Participant's employment location as of the date
of this Agreement.
(e) "Substitute Employer". For purposes of this Agreement, Substitute Employer
shall mean a third party with whom the Participant obtains employment and
in connection with which the Participant is entitled to receive
compensation.
2. Effective Date; Protection Period.
(a) "Effective Date" shall mean the first date on which a Change in
Control occurs.
(b) The "Protection Period" shall mean the period beginning on the
Effective Date and ending on the second anniversary thereof.
3. Compensation in Connection with a Change in Control; Health and Welfare
Coverage, Outplacement, and Other Benefits. If the Participant's employment
with the Company is terminated during the Protection Period (including any
such termination occurring within 90 days prior to the Effective Date) by
the Participant for Good Reason or by the Company for any reason other than
Cause, the Company shall:
(a) Pay the Participant an amount equal to three (3) times the sum of (x)
his maximum annual base salary in effect from the date of this
Agreement through the date of the termination of employment and (y)
the greater of (i) his Target Bonus authorized in the Company's Annual
Incentive Plan in effect on the date of the termination of employment
or (ii) the amount authorized in the Company's Annual Incentive Plan
in effect during the year prior to the date of the termination of
employment, payable no later than ten calendar days following the date
of termination of employment in a lump sum by certified check or wire
transfer; and
(b) Continue to maintain for the benefit of the Participant and his
dependents, medical, dental, and other health benefits provided to the
Participant and his dependents as of the date of termination (the
"Continuation Benefits") on terms no less favorable to the Participant
than the Company provides to other employees similarly situated in the
Company. The Company shall provide such benefits for a period up to
three (3) calendar years following the termination of employment
(subject to the mitigation provision set forth hereinafter). The
Participant shall be required to make any contributions and pay any
co-payments, deductibles or similar amounts required to maintain such
Continuation Benefits; provided, however, that such contributions,
co-payments, deductibles or similar amounts are also required to be
made by other employees similarly situated within the Company. If at
any time during the entitlement period the Participant shall obtain
employment with a Substitute Employer in which the Participant is
entitled to receive benefits in connection with such employment on
terms provided by the Substitute Employer to its similarly situated
employees generally, the Company shall no longer be required to
provide such Continuation Benefits to the Participant of the type
provided by the Substitute Employer, regardless of whether such
benefits differ in any respect from the Continuation Benefits.
(c) Provide the Participant with the outplacement services provided to
similarly situated executives of the Company but at a level no less
favorable than provided to similarly situated executives immediately prior
to the Change in Control, with a provider that is reasonably agreed upon by
the Participant and the Company.
4. Section 280G Limitation.
(a) For purposes of this Section 5: (i) a "Payment" shall mean any payment or
distribution in the nature of compensation to or for the benefit of the
Participant, whether paid or payable pursuant to this Agreement or
otherwise; (ii) "Agreement Payment" shall mean a Payment paid or payable
pursuant to this Agreement (disregarding this Section); (iii) "Present
Value" shall mean such value determined in accordance with Sections
280G(b)(2)(A)(ii) and 280G(d)(4) of the Internal Revenue Code of 1986, as
amended (the "Code"); and (iv) "Reduced Amount" shall mean an amount
expressed in Present Value that maximizes the aggregate Present Value of
Agreement Payments without causing any Payment to be nondeductible by the
Company or any successor thereto because of Section 280G of the Code.
(b) Anything in the Agreement to the contrary notwithstanding, in the event
PricewaterhouseCoopers LLP (the "Accounting Firm") shall determine that
receipt of all Payments would subject the Participant to tax under Section
4999 of the Code or result in any portion of any Payments being
nondeductible by the Company (or any successor hereto), the aggregate
Agreement Payments shall be reduced (but not below zero) to meet the
definition of Reduced Amount.
(c) If the Accounting Firm determines that aggregate Agreement Payments should
be reduced to the Reduced Amount, the Company shall promptly give the
Participant notice to that effect and a copy of the detailed calculation
thereof, and the Participant may then elect, in his or her sole discretion,
which and how much of the Agreement Payments shall be eliminated or reduced
(as long as after such election the Present Value of the aggregate
Agreement Payments equals the Reduced Amount), and shall advise the Company
in writing of his or her election within ten days of his or her receipt of
notice. If no such election is made by the Participant within such ten-day
period, the Company may elect which of such Agreement Payments shall be
eliminated or reduced (as long as after such election the Present Value of
the aggregate Agreement Payments equals the Reduced Amount) and shall
notify the Participant promptly of such election. All determinations made
by the Accounting Firm under this Section shall be binding upon the Company
and the Participant and shall be made as soon as practicable following the
election under this Section 4(c). As promptly as practicable following such
determination, the Company shall pay to, provide or distribute for the
benefit of the Participant such Agreement Payments as are then due to the
Participant under this Agreement and shall promptly pay to, provide or
distribute for the benefit of the Participant in the future such Agreement
Payments as become due to the Participant under this Agreement.
(d) As a result of the uncertainty in the application of Section 4999 of the
Code at the time of the initial determination by the Accounting Firm
hereunder, it is possible that amounts will have been paid, provided or
distributed by the Company to or for the benefit of the Participant
pursuant to this Agreement which should not have been so paid, provided or
distributed ("Overpayment") or that additional amounts which will have not
been paid, provided or distributed by the Company to or for the benefit of
the Participant pursuant to this Agreement could have been so paid,
provided or distributed ("Underpayment"), in each case, without resulting
in any Payment being nondeductible by the Company or any successor thereto.
In the event that the Accounting Firm, based upon the assertion of a
deficiency by the Internal Revenue Service against either the Company or
the Participant which the Accounting Firm believes has a high probability
of success determines that an Overpayment has been made, any such
Overpayment paid, provided or distributed by the Company to or for the
benefit of the Participant shall be treated for all purposes as a loan to
the Participant which the Participant shall repay to the Company together
with interest at the applicable federal rate provided for in Section
7872(f)(2) of the Code; provided, however, that no such loan shall be
deemed to have been made and no amount shall be payable by the Participant
to the Company if and to the extent such deemed loan and payment would not
either reduce the amount on which the Participant is subject to tax under
Section1 and Section 4999 of the Code or generate a refund of such taxes.
In the event that the Accounting Firm, based upon controlling precedent or
substantial authority, determines that an Underpayment has occurred, any
such Underpayment shall be promptly paid or provided by the Company to or
for the benefit of the Participant together with interest at the applicable
federal rate provided for in Section 7872(f)(2) of the Code.
(e) All fees and expenses of the Accounting Firm in implementing the provisions
of this Section 5 shall be borne by the Company.
5. Waiver of Other Payments and Benefits. The compensation and benefits
arrangements set forth in this Agreement are in lieu of any rights or
claims that Participant may have with respect to severance or other
benefits resulting from a termination of employment during the Protection
Period, other than (A) the Participant's accrued annual base salary through
the date of termination of employment, any incentive compensation earned
through the date of termination of employment, and the value of the
Participant's accrued, but unused, vacation days, in each case to the
extent not theretofore paid, and (B) benefits under any tax-qualified
employee pension benefit plans subject to the Employee Retirement Income
Security Act of 1974, as amended (including the Company's 401(k) plan and
tax qualified pension plan) and the Company's Supplemental Retirement Plan.
6. Non-exclusivity of Rights. Except as specifically provided in this
Agreement, nothing herein shall prevent or limit the Participant's
continuing or future participation in any plan, program, policy or practice
provided by the Company or any of its affiliated companies for which the
Participant may qualify, nor shall anything in this Agreement limit or
otherwise affect such rights as the Participant may have under any contract
or agreement with the Company; provided, however, that any payments due
under this Agreement shall offset severance payments due to the Participant
under any severance plan applicable to employees of the Company. Vested
benefits and other amounts that the Participant is otherwise entitled to
receive under any plan, policy, practice or program of, or any contract or
agreement with, the Company or any of its affiliated companies on or after
the date of termination of employment shall be payable in accordance with
such plan, policy, practice, program, contract or agreement, as the case
may be, except as explicitly modified by this Agreement.
7. Full Settlement. The Company's obligation to make the payments provided for
in, and otherwise to perform its obligations under, this Agreement shall
not be affected by or subject to any set-off, counterclaim, recoupment,
defense or other claim, right or action that the Company may have against
the Participant or others. In no event shall the Participant be obligated
to seek other employment or take any other action by way of mitigation of
the amounts payable to the Participant under any of the provisions of this
Agreement and, except as specifically provided in Section 3(b), such
amounts shall not be reduced, regardless of whether the Participant obtains
other employment.
8. Confidential Information; Noncompetition; Nonsolicitation.
(a) The Participant shall hold in a fiduciary capacity for the benefit of the
Company all secret or confidential information, knowledge or data relating
to the Company or any of its affiliated companies and their respective
businesses that the Participant obtains during the Participant's employment
by the Company or any of its affiliated companies and that is not public
knowledge (other than as a result of the Participant's violation of this
Section 8(a)) ("Confidential Information"). The Participant shall not
communicate, divulge or disseminate Confidential Information at any time
during or after the Participant's employment with the Company, except with
the prior written consent of the Company or as otherwise required by law or
legal process. All computer software, business cards, telephone lists,
customer lists, price lists, contract forms, catalogs, records, files and
know-how acquired while an employee of the Company are acknowledged to be
the property of the Company and shall not be duplicated, removed from the
Company's possession or premises or made use of other than in pursuit of
the Company's business or as may otherwise be required by law or any legal
process, and, upon termination of employment for any reason, the
Participant shall deliver to the Company, without further demands, all such
items and any copies thereof which are then in his possession or under his
control.
(b) During the Noncompetition Period (as defined below), the Participant shall
not, without the prior written consent of the Board, engage in or become
associated with a Competitive Activity. For purposes of this Section 8(b),
the "Noncompetition Period" means the one year period after Participant's
termination of employment for any reason during the Protection Period; a
"Competitive Activity" means any business or other endeavor that is in
substantial competition with any business conducted by the Company at the
time of such termination; and (iii) the Participant shall be considered to
have become "associated with a Competitive Activity" if he becomes directly
or indirectly involved as an owner, shareholder, employee, officer,
director, independent contractor, agent, partner, advisor, or in any other
capacity calling for the rendition of the Participant's personal services,
with any individual, partnership, corporation or other organization that is
engaged in a Competitive Activity. Notwithstanding the foregoing, the
Participant may make and retain investments during the Noncompetition
Period in not more than three percent of the equity of any entity engaged
in a Competitive Activity, if such equity is listed on a national
securities exchange or regularly traded in an over-the-counter market.
(c) During the Noncompetition Period, the Participant will not, directly or
indirectly, solicit for employment on behalf of any organization other than
the Company or employ any person (other than any personal assistant hired
to work directly for the Participant) employed by the Company, nor will the
Participant, directly or indirectly, solicit for employment on behalf of
any organization other than the Company any person known by the Participant
(after reasonable inquiry) to be employed at the time by the Company.
(d) The Participant shall continue to be subject to the terms of the
Harnischfeger Industries, Inc. Employee Proprietary Rights and
Confidentiality Agreement (the "Confidentiality Agreement") pursuant to the
terms of such agreement. If, during the Protection Period, the
Confidentiality Agreement is no longer applicable, the Participant shall be
subject to the provisions set forth below in this Section 8(d) with respect
to the Company. The Participant shall promptly communicate to the Company
all ideas, discoveries and inventions which are or may be useful to the
Company or its business. The Participant acknowledges that all ideas,
discoveries, inventions, and improvements which heretofore have been or are
hereafter made, conceived, or reduced to practice by him at any time during
his employment with the Company or heretofore or hereafter gained by him at
any time during his employment with the Company are the property of the
Company, and the Participant hereby irrevocably assigns all such ideas,
discoveries, inventions, and improvements to the Company for its sole use
and benefit, without additional compensation. The provisions of this
Section 8(d) shall apply whether such ideas, discoveries, inventions, or
improvements were or are conceived, made or gained by him alone or with
others, whether during or after usual working hours, whether on or off the
job, whether applicable to matters directly or indirectly related to the
Company's business interests (including potential business interests), and
whether or not within the specific realm of his duties. The Participant
shall, upon request of the Company, but at no expense to the Participant,
at any time during or after his employment with the Company, sign all
instruments and documents reasonably requested by the Company and otherwise
cooperate with the Company to protect its right to such ideas, discoveries,
inventions, or improvements including applying for, obtaining, and
enforcing patents and copyrights thereon in such countries as the Company
shall determine.
(e) The provisions of Sections 8 (a), (b), (c) and (d) of this Agreement shall
remain in full force and effect until the expiration of the Noncompetition
Period specified herein notwithstanding the termination of the
Participant's employment hereunder. For purposes of this Section 8, the
"Company" shall include all subsidiaries of the Company.
(f) In the event of a breach of the Participant's covenants under this Section
8, it is understood and agreed that the Company shall be entitled to
injunctive relief, as well as any other legal or equitable remedies. The
Participant acknowledges and agrees that the covenants, obligations and
agreements of the Participant in Section 8(a), (b), (c), (d) and (e) of the
Agreement relate to special, unique and extraordinary matters and that a
violation of any of the terms of such covenants, obligations or agreements
will cause the Company irreparable injury for which adequate remedies are
not available at law. Therefore, the Participant agrees that the Company
shall be entitled to an injunction, restraining order or such other
equitable relief (without the requirement to post bond) as a court of
competent jurisdiction may deem necessary or appropriate to restrain the
Participant from committing any violation of such covenants, obligations or
agreements. These injunctive remedies are cumulative and in addition to any
other rights and remedies that the Company may have. The Company and the
Participant hereby irrevocably submit to the exclusive jurisdiction of the
courts of Wisconsin and the Federal courts of the United States of America,
in each case located in Milwaukee, in respect of the injunctive remedies
set forth in this Section 8(f) and the interpretation and enforcement of
Sections 8(a), (b), (c), (d) and (e) insofar as such interpretation and
enforcement relate to any request or application for injunctive relief in
accordance with the provisions of this Section 8(f), and the parties hereto
hereby irrevocably agree that (i) the sole and exclusive appropriate venue
for any suit or proceeding relating solely to such injunctive relief shall
be in such a court, (ii) all claims with respect to any request or
application for such injunctive relief shall be heard and determined
exclusively in such a court, (iii) any such court shall have exclusive
jurisdiction over the person of such parties and over the subject matter of
any dispute relating to any request or application for such injunctive
relief, and (iv) each hereby waives any and all objections and defenses
based on forum, venue or personal or subject matter jurisdiction as they
may relate to an application for such injunctive relief in a suit or
proceeding brought before such a court in accordance with the provisions of
this Section 8(f).
9. Attorneys' Fees. The Company agrees to reimburse, to the fullest extent
permitted by law, all legal fees and expenses that the Participant may
reasonably incur as a result of any contest by the Company or the
Participant (whether against the Company or any other party) with respect
to the validity or enforceability of or liability under, or otherwise
involving, any provision of this Agreement; provided, however, that no such
reimbursement shall be made unless the Participant substantially prevails
in any such dispute (without taking into account any ability by the Company
or other party to appeal any resolution of a dispute). Such reimbursement
shall be made following resolution of the dispute within 30 days following
the Company's receipt of invoices for such fees.
10. Binding Agreement. This Agreement and all obligations of the Company
hereunder shall be binding upon the successors and assignees of the
Company. This Agreement and all rights of the Participant hereunder shall
inure to the benefit of and be enforceable by the Participant's personal or
legal representatives, executors, administrators, successors, heirs,
distributees, devisees and legatees.
11. Notice. For the purposes of this Agreement, notices and all other
communications provided for in this Agreement shall be in writing and shall
be deemed to have been duly provided when delivered or mailed by United
States registered mail, return receipt requested, postage prepaid,
addressed as follows:
To the Company: To the Participant:
General Counsel _____________________
Harnischfeger Industries, Inc. _____________________
3600 South Lake Drive _____________________
St. Francis, WI 53235-3716 _____________________
12. Withholding of Taxes. The Company may withhold from any amounts payable
under this Agreement all federal, state, city or other taxes as shall be
required pursuant to any law or government regulation or ruling.
13. Governing Law; Validity and Enforceability. This Agreement shall be
construed according to the laws of Wisconsin. The invalidity or
unenforceability of any provision of this Agreement shall not affect the
validity or enforceability of any other provision of this Agreement. If any
provision of this Agreement shall be held invalid or unenforceable in part,
the remaining portion of such provision, together with all other provisions
of this Agreement, shall remain valid and enforceable and continue in full
force and effect to the fullest extent consistent with law.
14. Gender and Number. Where the context of this Agreement admits, words in the
masculine gender shall include feminine and neuter genders, the plural
shall include the singular and the singular shall include the plural.
15. Amendment; Modification; Waiver. This Agreement may not be amended except
by the written agreement of the parties hereto. No provisions of this
Agreement may be modified, waived or discharged unless such waiver,
modification or discharge is agreed to in writing signed by the Participant
and the Company. No waiver by either party hereto at any time of any breach
by the other party hereto or compliance with any condition or provision of
this Agreement to be performed by such other party shall be deemed a waiver
of similar or dissimilar provisions or conditions at the same or at any
prior or subsequent time.
16. Binding Effect. This Agreement is personal in nature and neither of the
parties hereto shall, without the consent of the other, assign, transfer or
delegate this Agreement or any rights or obligations hereunder except as
expressly provided for herein. Without limiting the generality of the
foregoing, Participant's right to receive payments hereunder shall not be
assignable, transferable or delegable, whether by pledge, creation of a
security interest or otherwise, other than by a transfer by his will or by
the laws of descent and distribution and, in the event of any attempted
assignment or transfer contrary to this Section 16, the Company shall have
no liability to pay any amount so attempted to be assigned, transferred or
delegated.
17. Arbitration. Subject to Section 8(f) of this Agreement, any dispute or
controversy between the parties relating to or arising out of this
Agreement or any amendment or modification hereof shall be determined by
arbitration in Milwaukee, Wisconsin by and pursuant to the rules then
prevailing of the American Arbitration Association, other than claims for
injunctive relief under Section 11. The arbitration award shall be final
and binding upon the parties and judgment may be entered thereon by any
court of competent jurisdiction. The service of any notice, process, motion
or other document in connection with any arbitration under this Agreement
or the enforcement of any arbitration award hereunder may be effectuated
either by personal service upon a party or by certified mail duly addressed
to him or to his executors, administrators, personal representatives, next
of kin, successors or assigns, at the last known address or addresses of
such party or parties.
18. Notification of Change in Control. The Company shall notify the Participant
in writing of any Change in Control.
19. Election by Participant. IMPORTANT: You must notify the Company in writing
of your election to waive any and all claims you may have under
pre-petition change-in-control arrangements in order to be eligible for the
benefits provided for in this Agreement. Your election must be made by
signing the attached election form (Exhibit "A") prior to March 9, 2000 and
delivering the signed form pursuant to Section 11 of this Agreement.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the
date first above written.
By: ______________________________________
Participant
By: ______________________________________
The Company
Exhibit 11
HARNISCHFEGER INDUSTRIES, INC.
CALCULATION OF EARNINGS PER SHARE
(In thousands except per share amounts)
Three Months Ended
January 31,
----------------------------------------
2000 1999
----------------- -----------------
Average common shares outstanding
Basic 46,516 45,916
========== ==========
Diluted 46,516 45,916
========== ==========
Loss from continuing operations $ (17,546) $ (386)
Loss from discontinued operation -- (16,013)
---------- ----------
Net Loss $ (17,546) $ (16,399)
========== ==========
Basic Earnings Per Share
Loss from continuing operations $ (0.38) $ (0.01)
Loss from discontinued operation -- (0.35)
---------- ----------
Net Loss $ (0.38) (0.36)
========== ==========
Diluted Earnings Per Share
Loss from continuing operations $ (0.38) $ (0.01)
Loss from discontinued operation -- (0.35)
---------- ----------
Net Loss $ (0.38) (0.36)
========== ==========