UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(MARK ONE)
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
_X_ OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED JANUARY 31, 2001
----------------
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
___ OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM ___ TO ___.
COMMISSION FILE NUMBER 1-9299
HARNISCHFEGER INDUSTRIES, INC.
(Exact Name of Registrant as Specified in Its Charter)
Delaware 39-1566457
- ------------------------------ -----------------------------
(State of Incorporation) (I.R.S. Employer
Identification No.)
3600 South Lake Drive, St. Francis, Wisconsin 53235-3716
- --------------------------------------------- -----------------------------
(Address of principal executive offices) (Zip Code)
(414) 486-6400
- ----------------
(Registrant's Telephone Number, Including Area Code)
Indicate by checkmark whether the registrant: (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months, and (2) has been subject to such filing requirements
for the past 90 days.
Yes X No __
Indicate 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 13, 2001
- ---------------------------------- -----------------------------
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, 2001
PART I. - FINANCIAL INFORMATION Page No.
--------
Item 1 - Financial Statements:
Consolidated Statement of Operations -
Three Months Ended January 31, 2001 and 2000 3
Consolidated Balance Sheet -
January 31, 2001 and October 31, 2000 4 - 5
Consolidated Statement of Cash Flow -
Three Months Ended January 31, 2001 and 2000 6
Consolidated Statement of Shareholders' Equity (Deficit) -
Three Months Ended January 31, 2001 and 2000 7
Notes to Consolidated Financial Statements 8 - 27
Item 2 - Management's Discussion and Analysis
of Financial Condition and Results of Operations 27 - 37
Item 3 - Quantitative and Qualitative Disclosures About
Market Risk 37
PART II. - OTHER INFORMATION
Item 1 - Legal Proceedings 38
Item 2 - Changes in Securities 38
Item 3 - Defaults Upon Senior Securities 38
Item 4 - Submission of Matters to a Vote of Security Holders 39
Item 5 - Other Information 39 - 40
Item 6 - Exhibits and Reports on Form 8-K 40
Signatures 41
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 2001 2000
- ------------------------------------------------- --------- -----------
Revenues
Net sales $ 267,506 $ 286,981
Other income 546 1,047
--------- ---------
268,052 288,028
Cost of sales 204,601 223,507
Product development, selling
and administrative expenses 51,539 52,416
Reorganization items 11,291 11,573
Restructuring charges -- 6,311
--------- ---------
Operating income (loss) 621 (5,779)
Interest expense - net (excludes
contractual interest expense of
$17,900) (3,730) (8,593)
--------- ---------
Loss before provision for income
taxes and minority interest (3,109) (14,372)
Provision for income taxes (3,000) (3,000)
Minority interest (141) (174)
--------- ---------
Loss from continuing operations (6,250) (17,546)
Loss from discontinued operations (9,048) --
--------- ---------
Net loss $ (15,298) $ (17,546)
========= =========
Basic Earnings (Loss) Per Share:
Loss from continuing operations $ (0.13) $ (0.38)
Loss from discontinued operations (0.19) --
--------- ---------
Net loss per share $ (0.32) $ (0.38)
========= =========
Diluted Earnings (Loss) Per Share:
Loss from continuing operations $ (0.13) $ (0.38)
Loss from discontinued operations (0.19) --
--------- ---------
Net loss per share $ (0.32) $ (0.38)
========= =========
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 2001 2000
- ---------------------------------------------- ------------- -----------
(Unaudited)
Assets
Current Assets:
Cash and cash equivalents $ 59,982 $ 72,123
Accounts receivable-net 189,650 177,151
Inventories 418,578 410,331
Other 56,160 49,819
----------- -----------
724,370 709,424
----------- -----------
Assets of Discontinued Beloit Operations 12,092 15,231
Property, Plant and Equipment:
Land and improvements 17,644 17,548
Buildings 127,609 127,724
Machinery and equipment 263,195 258,749
----------- -----------
408,448 404,021
Accumulated depreciation (232,760) (226,608)
----------- -----------
175,688 177,413
----------- -----------
Investments and Other Assets:
Goodwill 319,727 320,947
Intangible assets 27,895 29,831
Other 39,902 40,082
----------- -----------
387,524 390,860
----------- -----------
$ 1,299,674 $ 1,292,928
=========== ===========
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 2001 2000
- ------------------------------------------------------ --------------- -------------
(Unaudited)
Liabilities and Shareholders' Equity (Deficit)
Current Liabilities:
Short-term notes payable, including current
portion of long-term obligations $ 145,882 $ 108,774
Trade accounts payable 61,344 72,491
Employee compensation and benefits 45,908 52,210
Advance payments and progress billings 15,834 11,052
Accrued warranties 36,753 34,941
Income taxes payable 106,622 104,869
Accrued restructuring charges and other liabilities 102,071 106,291
----------- -----------
514,414 490,628
Long-term Obligations 2,841 3,124
Other Non-current Liabilities:
Liability for postretirement benefits 32,500 32,331
Accrued pension costs 14,250 13,738
Other 6,137 5,866
----------- -----------
52,887 51,935
Liabilities Subject to Compromise 1,230,424 1,220,675
Liabilities of Discontinued Beloit Operations,
including liabilities subject to compromise
of $249,298 and $246,154, respectively 304,102 314,725
Minority Interest 6,907 6,533
Commitments and Contingencies (Note (f)) -- --
Shareholders' Equity (Deficit):
Common stock, $1 par value (51,668,939 and
51,668,939 shares issued, respectively) 51,669 51,669
Capital in excess of par value 563,642 563,542
Retained deficit (1,219,612) (1,204,314)
Accumulated comprehensive loss (116,785) (114,874)
Less:
Stock employee compensation trust (1,433,147 and
1,433,147 shares, respectively) at market (200) (100)
Treasury stock (3,881,929 and 3,881,929 shares,
respectively) at cost (90,615) (90,615)
----------- -----------
(811,901) (794,692)
----------- -----------
$ 1,299,674 $ 1,292,928
=========== ===========
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 2001 2000
- ----------------------------------------------------------- --------------- --------------
Operating Activities:
Net loss $(15,298) $(17,546)
Add (deduct) - Items not affecting cash:
Loss from discontinued operations 9,048 --
Restructuring charges -- 6,311
Reorganization items (130) 9,698
Minority interest 141 174
Depreciation and amortization 12,666 13,646
Increase in income taxes, net of change
in valuation allowance 1,815 1,991
Other - net 690 3,130
Changes in Working Capital Items:
Increase in accounts receivable - net (11,934) (6,518)
(Increase) decrease in inventories (7,151) 14,591
Increase in other current assets (5,893) (2,515)
Decrease in trade accounts payable (11,419) (12,909)
(Decrease) increase in employee compensation and benefits (6,421) 800
Increase in advance payments and progress billings 4,683 2,098
Decrease in accrued restructuring charges and other liabilities (1,390) (15,824)
-------- --------
Net cash used by continuing operations (30,593) (2,873)
-------- --------
Investment and Other Transactions:
Property, plant and equipment acquired (5,122) (6,148)
Property, plant and equipment retired 1,080 2,796
Other - net (1,992) (5,027)
-------- --------
Net cash used by investment and other transactions (6,034) (8,379)
-------- --------
Financing Activities:
Borrowings under DIP facility 25,000 50,000
Net issuance of long-term obligations 2,194 1,096
Increase (decrease) in short-term notes payable- net 6,964 (3,470)
-------- --------
Net cash provided by financing activities 34,158 47,626
-------- --------
Effect of Exchange Rate Changes on Cash and
Cash Equivalents 106 (153)
Cash Used in Discontinued Operations (9,778) (37,597)
-------- --------
Decrease in Cash and Cash Equivalents (12,141) (1,376)
Cash and Cash Equivalents at Beginning of Period 72,123 57,453
-------- --------
Cash and Cash Equivalents at End of Period $ 59,982 $ 56,077
======== ========
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)
Capital in Retained Accumulated
Common Excess of Comprehensive Earnings Comprehensive Treasury
In thousands Stock Par Value Loss (Deficit) Loss SECT Stock Total
- ---------------------------------------- -----------------------------------------------------------------------------------------
Three Months Ended January 31, 2001
Balance at October 31, 2000 $ 51,669 $ 563,542 $(1,204,314) $ (114,874) $ (100) $(90,615)$(794,692)
Comprehensive loss:
Net loss $ (15,298) (15,298) (15,298)
Other comprehensive loss:
Fair value adjustment (182) (182) (182)
Currency translation adjustment (1,729) (1,729) (1,729)
------------
Total comprehensive loss $ (17,209)
============
Adjust SECT shares to market value 100 (100) -
------------------------- ------------------------------------------------------
Balance at January 31, 2001 $ 51,669 $ 563,642 $(1,219,612) $ (116,785) $ (200) $(90,615) $(811,901)
========================= ======================================================
Three Months Ended January 31, 2000
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)
========================= ======================================================
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, 2001
(Unaudited)
(a) Reorganization under Chapter 11
On June 7, 1999, Harnischfeger Industries Inc. ("Harnischfeger" or 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, Joy Mining
Machinery ("Joy") and P&H Mining Equipment ("P&H"). The Debtors' Chapter 11
cases are jointly administered for procedural purposes only under case
number 99-2171. The Debtors also include Beloit Corporation ("Beloit"); the
Company's other principal operating subsidiary at the time of the
bankruptcy filing. See Note (c) - Discontinued Operations. The Debtors
filed their draft disclosure statement and proposed plans of reorganization
and, in the case of Beloit and its Debtor subsidiaries, liquidation with
the Bankruptcy Court on October 26, 2000. The Bankruptcy Court approved the
disclosure statement on December 20, 2000. The reorganization and
liquidation plans of the 57 Debtors were approved by a vote of creditors
conducted in January and February 2001. The plans are also subject to
approval of the Bankruptcy Court at a hearing scheduled for April 3, 2001.
If the plans are approved by the Bankruptcy Court at the hearing, the
Debtors anticipate emerging from bankruptcy as soon as practical
thereafter. In general, the Debtors' proposed plans of reorganization
provides that the existing Harnischfeger common stock will be cancelled and
that the creditors of Harnischfeger will be issued new common stock in
reorganized Harnischfeger. As a result, if the plan is confirmed, current
shareholders of Harnischfeger will receive nothing. Most creditors of Joy
and P&H will receive new five-year, 10.75% senior notes issued by
reorganized Harnischfeger and guaranteed by reorganized Joy and reorganized
P&H. In certain circumstances, such creditors could receive a portion of
the new common stock. Under Debtors' proposed plans, creditors of Beloit
and its subsidiaries will receive the proceeds of the sale of the assets of
Beloit and its subsidiaries.
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 13, 2001, 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.
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.
February 29, 2000 was set by the Bankruptcy Court as the last date
creditors could file proofs of pre-petition claims under the Bankruptcy
Code. February 15, 2001 was the deadline for filing administrative expense
claims that arose prior to December 31, 2000. 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 has adjusted its
consolidated financial accounts to reflect the estimated amounts of such
claims.
The Company has incurred and 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 future
results. See Note (d) - Reorganization Items.
Although the Company currently anticipates that the Bankruptcy Court will
approve its proposed plan of reorganization at hearing scheduled to begin
April 3, 2001 and that the Company will emerge from bankruptcy as soon as
practical thereafter, it is not possible to predict with certainty 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. Numerous circumstances could arise
that could affect the ability of the Company to emerge from bankruptcy.
There can be no assurance that: (a) the Bankruptcy Court will confirm the
Company's plan of reorganization or the Committee Settlement Agreement
described in Note (c) Discontinued Operations, (b) the plan will become
effective, or (c) the occurrence of a material change in circumstances will
not require the Company to submit a new plan and re-solicit votes.
In particular, if APP fails to make the interest or principal payments on
the APP note described in Note (f) Liabilities Subject to Compromise which
becomes due March 31, 2001 and Beloit is otherwise unable to obtain
replacement sources of funds, then Beloit may not have sufficient cash to
pay creditors who are required to be paid upon emergence. Such a
development could in turn affect the ability to confirm the Beloit plan.
Confirmation of the Beloit plan is also a condition of the Committee
Settlement Agreement. On March 12, 2001, APP announced its intention to
immediately cease payment of interest and principal on all its outstanding
debt and on the debt of its subsidiaries.
In addition, there can be no assurance that numerous disputed claims filed
in the bankruptcy cases that remained unresolved as of the date of this
report will be resolved favorably to the Debtors or that the Company will
be able to arrange an exit financing facility to replace its
debtor-in-possession financing facility.
Under the Bankruptcy Code, postpetition liabilities and prepetition
liabilities (i.e., liabilities subject to compromise) must be satisfied
before shareholders can receive any distribution. Under the terms of the
Company's proposed plan of reorganization, the Company's existing common
stock will be cancelled and the holders of the Company's existing common
stock will receive nothing for their stock. The U.S. Trustee for the
District of Delaware has appointed an Official Committee of Equity Holders
to represent the Company's 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 do not reflect adjustments that might result if the
Debtors are unable to continue as going concerns. As a result of the
Debtors' Chapter 11 filings, such matters are subject to significant
uncertainty. Although Debtors' plans of reorganization provide for the
Debtors' emergence from bankruptcy and have been approved by creditors,
there can be no assurance that the Bankruptcy Court will confirm the plans
or that such plans of reorganization will be consummated. Continuing on a
going concern basis is dependent upon, among other things, confirmation of
an appropriate, feasible plan of reorganization, the success of future
business operations, and the generation of sufficient cash from operations
and financing sources to meet the Debtors' obligations. Other than
recording the estimated loss on the disposal of the Beloit discontinued
operations, the Consolidated Financial Statements do not reflect: (a) the
realizable value of assets on a liquidation basis or their availability to
satisfy liabilities; (b) aggregate prepetition liability amounts that may
be allowed for claims or contingencies, or their status or priority; (c)
the effect of any changes to the Debtors' capital structure or in the
Debtors' business operations as the result of an approved plan of
reorganization; or (d) adjustments to the carrying value of assets
(including goodwill and other intangibles) or liability amounts that may be
necessary as the result of actions by the Bankruptcy Court or arising from
a confirmed plan of reorganization. Such adjustments could include
recognition of the forgiveness of debt, the revaluation of assets, and
other "fresh start" related items.
The Company's consolidated 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"). SOP 90-7 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 Debtors. See
Note (d) - Reorganization Items. The Company has filed schedules with the
Bankruptcy Court setting forth the assets and liabilities of the Company as
of June 7, 1999, the bankruptcy filing date, as reflected in the Company's
accounting records. Differences between amounts reflected in such schedules
and claims filed by creditors are currently being investigated and either
resolved by mutual consent or adjudicated. The final amounts of such claims
are not presently determinable.
The Company adopted SFAS No. 133, "Accounting for Derivative Instruments
and Hedging Activities" during the first quarter of fiscal 2001. The
adoption resulted in the Company recognizing a fair value adjustment
related to certain derivative instruments of $0.2 million which is
reflected as an adjustment to other comprehensive income in the Statement
of Stockholders Equity (Deficit).
The Company adopted EITF Issue No. 00-10, "Accounting for Shipping and
Handling Fees and Costs" during the first quarter of fiscal 2001. The
adoption resulted in the Company reclassifying certain shipping and
handling costs that were recovered from customers from net sales to cost of
sales. The financial statement effect was to increase net sales and cost of
sales by approximately $1.6 million and $1.7 million in fiscal 2001 and
2000, respectively.
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, 2001 and 2000, cash flows for the three
months ended January 31, 2001 and 2000, and financial position at January
31, 2001 have been made.
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, 2000.
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 owned by
Beloit and its subsidiaries (the "Beloit Segment"), on October 8, 1999 the
Company announced its plan to dispose of the Beloit 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 filed for or were
placed into receivership or other applicable forms of judicial supervision
in their respective countries. On May 12, 2000 the U.S. Trustee for the
District of Delaware appointed an Official Committee of Unsecured Creditors
of Beloit Corporation to represent the creditors of Beloit in proceedings
before the Bankruptcy Court.
On November 7, 1999, the Bankruptcy Court approved procedures and an
implementation schedule for the divestiture plan (the "Court Sales
Procedures") for the Beloit Segment. Between February and August 2000,
sales agreements were approved under the Court Sales Procedures with
respect to the sale of substantially all of the segment's domestic
operating assets. In addition, approval was received for the sale of all of
Beloit's significant foreign subsidiaries (apart from those that had
previously filed for or been placed into receivership or other applicable
forms of judicial supervision in their respective countries). As of March
13, 2001, all approved sales of domestic assets had taken place, as had
sales of the majority of Beloit's foreign subsidiaries. Beloit expects that
closings on the remaining approved sales of foreign subsidiaries will occur
by the middle of fiscal 2001.
On September 21, 2000, the committees appointed by the Bankruptcy Court to
represent the interests of the creditors of the Company, Joy and P&H and
their subsidiaries, on the one hand, and Beloit and its subsidiaries, on
the other hand, reached agreement on the Committee Settlement Agreement
that provides for the settlement of many intercompany and intercreditor
issues. The Bankruptcy Court will be asked to approve Committee Settlement
Agreement at the confirmation hearing scheduled for April 3, 2001. The
Committee Settlement Agreement is an integral part of the Company's plan of
reorganization.
The Company classified this segment as a discontinued operation in its
Consolidated Financial Statements as of October 31, 2000 and 1999 and has,
accordingly, restated its consolidated statements of operations for all
periods presented. The Company has not restated its consolidated balance
sheets or consolidated statements of cash flows for periods prior to fiscal
1999. Revenues for this segment were $0.5 million for the three months
ended January 31, 2001 and $81.4 million for the comparable period in 2000.
If the Company's proposed plan of reorganization is confirmed by the
Bankruptcy Court, the Company's equity interest in Beloit will be cancelled
and Beloit and its remaining subsidiaries will be liquidated under the
control of a liquidating trustee.
On March 30, 1998, the Company completed the sale of the Company's P&H
Material Handling ("Material Handling") segment to Chartwell Investments,
Inc. Material Handling filed for Chapter 11 bankruptcy protection on May
17, 2000. Material Handling and its affiliates asserted more than 200
claims against the Debtors in their bankruptcy cases and Debtors filed a
similar number of claims against Material Handling in Material Handling's
bankruptcy cases. In addition, Material Handling advised Debtors that it
might assert additional claims for approximately $340 million based on
theories that the transaction in which Material Handling was sold to
Chartwell Investments, Inc. was voidable. Following extensive negotiations,
the parties agreed on terms of a settlement, subject to definitive
documentation and the approval of the respective bankruptcy courts,
releasing certain claims made by each party and its affiliates against the
bankruptcy estates of the other party and its affiliates, resolving certain
trademark licensing issues, agreeing to assume their existing agreements in
their respective bankruptcy cases, and providing that the Company will
allow Material Handling a $10 million unsecured pre-petition claim in
exchange for a release of any liabilities arising out of the sale of
Material Handling to Chartwell Investments, Inc.
The loss from discontinued operations of $9.0 million for the three months
ended January 31, 2001, was primarily due to the $10.0 million settlement
with Material Handling. See Note (f) - Liabilities Subject to Compromise.
(d) Reorganization Items
Reorganization expenses are items of income, expense and loss 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 2001,
reorganization expenses related to continuing operations were as follows:
In thousands
-------------------------------------------------------------------------
Professional fees directly related to the filing $ 7,768
Amortization of DIP financing costs 1,644
Accrued retention plan costs 2,190
Interest earned on DIP proceeds (311)
---------
$ 11,291
=========
(e) Restructuring Charges
During fiscal 1999, restructuring charges of $12.0 million were recorded
for rationalization of certain of Joy's original equipment manufacturing
facilities and the reorganization and reduction of its operating structure
on a global basis. Costs of $7.3 million were charged in the third quarter
of fiscal 1999, primarily for the impairment of certain assets related to a
facility rationalization. In addition, charges amounting to $4.7 million
(third quarter $0.9 million; fourth quarter $3.8 million) were made for
severance of approximately 240 employees. Reserves of $0.7 million were
utilized during fiscal 1999.
During fiscal 2000, additional charges amounting to $6.1 million were
recorded, primarily for severance associated with facilities
rationalization and to a lesser extent for severance associated with global
operating structure reorganization and reduction. Prior reserves amounting
to $1.6 million were reversed, as they were no longer needed for facility
rationalization. Reserves of $14.1 million were utilized during fiscal
2000.
The Company anticipates that the restructuring reserves will be
substantially utilized within the current year.
Details of these restructuring charges are as follows:
In thousands
-------------------------------------------------------------------
10/31/00 Reserve 01/31/01
Reserve Utilized Reserve
--------- ---------- ----------
Employee severance $ 1,536 $ 188 $ 1,348
Facility closures 161 - 161
--------- ---------- ----------
Total $ 1,697 $ 188 $ 1,509
========= ========== ==========
(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. Under
Debtors' proposed plan of reorganization, payment of prepetition claims of
some Debtors will 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, 2001 October 31, 2000
---------------------------------- --------------------------------------------
Continuing Discontinued Continuing Discontinued
In thousands Operations Operations Total Operations Operations Total
- ------------------------------------------ ------------ ------------ -------- ------------ ------------- ------------
Trade accounts payable $93,375 136,198 $229,573 $93,638 (2) $133,054 (1) $226,692
Accrued interest expense,
as of June 6, 1999 17,297 - 17,297 17,285 - 17,285
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
7.25% Debentures, due 2025
(net of discount of $1,224 and $1,218) 148,776 - 148,776 148,776 - 148,776
6.875% Debentures, due 2027
(net of discount of $102 and $100) 149,898 - 149,898 149,898 - 149,898
Senior Notes, Series A through D,
at interest rates of
between 8.9% and 9.1%,
due 1999 to 2006 69,546 - 69,546 69,546 - 69,546
Revolving credit facility 500,000 - 500,000 500,000 - 500,000
IRC lease (Princeton Paper) - 39,000 39,000 - 39,000 39,000
Industrial Revenue Bonds,
at interest rates of between
5.9% and 8.8%, due 1999 to 2017 18,615 2,471 21,086 18,615 2,471 21,086
Notes payable 20,000 - 20,000 20,000 - 20,000
Other 21,942 3,723 25,665 21,942 (2) 3,723 (1) 25,665
Advance payments and progress billing - 24,883 24,883 - 24,883 24,883
Accrued warranties - 25,000 25,000 - 25,000 25,000
Minority interest - 18,023 18,023 - 18,023 18,023
Pension and other - - - - - -
Material Handling settlement 10,000 - 10,000 - - -
APP letter of credit 17,000 - 17,000 17,000 - 17,000
---------- -------- ---------- ---------- -------- ----------
$1,230,424 $249,298 $1,479,722 $1,220,675 $246,154 $1,466,829
========== ======== =========== ========== ======== ==========
(1) - Reclassed October 31, 2000 balance from Pension and other to Other and
Trade accounts payable to properly reflect descriptions.
(2) - Reclassed October 31, 2000 balance from Trade accounts payable to Other to
properly reflect descriptions.
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 confirmed. The
total interest on prepetition debt that was not paid or charged to earnings
for the period from June 7, 1999 to January 31, 2001 was $119.6 million, of
which $17.9 million relates to fiscal 2001. 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 subject to
compromise. At January 31, 2001, the Company was contingently liable to
banks, financial institutions and others for approximately $151.1 million
for outstanding letters of credit, bank guarantees and surety bonds
securing performance of sales contracts and other guarantees in the
ordinary course of business. Of the $151.1 million, approximately $28.4
million was issued at the request of the Company on behalf of Beloit and
approximately $53.9 million was issued at the request of Joy and P&H Debtor
entities prior to the bankruptcy filing. Included in the $151.1 million
outstanding as of January 31, 2001 were $54.3 million issued under the DIP
Facility (See Note (g) - Borrowings and Credit Facilities) and $21.1
million of outstanding letters of credit or other guarantees issued by
non-U.S. banks for non-U.S. subsidiaries.
As of March 13, 2001, the Debtors had not completed their review of
prepetition executory contracts to determine whether to assume or reject
such contracts. Rejection of executory contracts could result in additional
prepetition claims against Debtors. Accordingly, it is not possible to
estimate the amount of additional prepetition claims that could arise out
of the rejection of executory contracts. In the case of Beloit, the
Debtors' proposed plan of reorganization provides for the rejection of
virtually all of Beloit's prepetition executory contracts. Conversely,
assumption of executory contracts could result in additional administrative
claims and a reduction in pre-petition claims.
The Company and its subsidiaries are also party to litigation matters and
claims that are normal in the course of their operations. Also, as a normal
part of their operations, the Company's subsidiaries undertake certain
contractual obligations, warranties and guarantees in connection with the
sale of products or services. Although the outcome of these matters cannot
be predicted with certainty and favorable or unfavorable resolution may
affect the results of operations on a quarter-to-quarter basis, management
believes that such matters will not have a material adverse effect on the
Company's consolidated financial position. Generally, litigation against
Debtors related to "claims", as defined by the Bankruptcy Code, is stayed.
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. This suit pertains only to
Beloit.
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 13, 2001, the Company
believes APP is not in default with respect to the receivables. On October
25, 2000, the Bankruptcy Court approved a settlement with APP which
resolved disputes that had arisen between Beloit's Asian subsidiaries and
APP in connection with its contracts for the first two paper making
machines. Under this settlement, APP and certain of its affiliates drew $17
million from two letters of credit issued on behalf of the Company and APP
and certain of its affiliates agreed to pay Beloit $0.8 million. As of
March 13, 2001, APP has not paid Beloit the $0.8 million.
Disputes arose between Beloit and APP regarding the second two papermaking
machines. On March 3, 2000, the Company announced the signing of a
definitive agreement to settle the disputes and related arbitration and
legal proceedings. Under the settlement, APP agreed to pay $135.0 million
to Beloit on April 6, 2000 and $15.9 million the Company had deposited with
a bank with respect to related letters of credit was released to the
Company. The $15.9 million was classified as other assets in the Company's
consolidated financial statements as of October 31, 1999. The $135.0
million was paid in the form of $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 governed by an indenture and bears a fixed interest rate of 15%. On
October 2, 2000, Beloit received the first interest payment of $8.3
million. The second interest payment of $8.3 million and the first
principal payment of $13.7 million are due on March 31, 2001. Beloit
retained Merrill Lynch to assist in a possible sale of the note. In view of
the possible sale of the note, volatility in the applicable capital markets
for the note, and public reports of liquidity concerns at APP, no value for
the note has been recognized in the financial statements as of January 31,
2001. On March 12, 2001, APP announced its intention to immediately cease
payment of interest and principal on all its outstanding debt and on the
debt of its subsidiaries. The value of the note and its effect on the
financial statements will be recognized in the period that the note is sold
or as amortization payments are made. As part of the settlement, Beloit
retained a $46.0 million down payment it received from APP for the second
two papermaking machines and APP released all rights with respect to
letters of credit issued for the aggregate amount of the down payment for
the second two papermaking machines. Also as part of the settlement, APP
acquired certain rights for a limited period of time to take possession of
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 returned to APP certain promissory notes given to Beloit by APP. The
notes were initially issued in the amount of $59.0 million and had an
aggregate principal balance of $19.0 million when they were returned to
APP.
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 APP contracts of Beloit discussed above
violated the federal securities laws. As regards the Company, the automatic
stay imposed by the Bankruptcy Code stays this matter.
The Company, Beloit and certain of their officers and employees were named
as defendants in an action in the Bankruptcy Court brought by Omega Papier
Wernhausen GmbH ("Omega"). The action concerned pre-petition and
post-petition commitments allegedly made by the Company, Beloit and the
officers and employees named in the action with respect to a pre-petition
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 and related claims
were settled during the first fiscal quarter of 2001. The settlement
requires Beloit or the Company to make a $2 million cash payment to Omega.
The Company and its subsidiaries are 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 2001 2000
- ------------------------------------------- ------------ ---------------
Domestic:
DIP Facility $ 55,000 $ 30,000
Capital Leases 2,055 2,259
Foreign:
Australian Term Loan, due 2001 49,095 47,106
Short term notes payable and bank overdrafts 41,095 30,965
Other 1,478 1,568
----------- ------------
148,723 111,898
Less: Amounts due within one year (145,882) (108,774)
----------- ------------
Long-term Obligations $ 2,841 $ 3,124
=========== ============
DIP Facility
On July 8, 1999 the Bankruptcy Court approved a two-year, $750 million
Revolving Credit, Term Loan and Guarantee Agreement underwritten by the
Chase Manhattan Bank (the "DIP Facility"). In May, 2000, the Company
voluntarily reduced the size of the DIP Facility to $350 million and on
July 6, 2000, an order was entered by the Court approving the amendment to
the DIP Facility reducing it to $350 million consisting of a Tranche A
sub-facility of $250 million and a Tranche B sub-facility of $100 million.
The Tranche A sub-facility has a final maturity of June 6, 2001 (the
original maturity date), and the Tranche B sub-facility matured on December
31, 2000. Additionally, as permitted by the original order authorizing the
DIP Facility, on August 3, 2000 the DIP Facility was further amended to,
among other things, effect the syndication of the DIP Facility among a
group of nine lenders, with Chase Manhattan Bank retaining the agent role.
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. Under the amended terms of the DIP Facility, the Debtors' are
permitted to make loans and issue letters of credit in favor of or on
behalf of foreign subsidiaries for specified limited purposes, including
individual limits for loans and advances of up to $75 million for working
capital needs and $100 million for loans and letters of credit used for
support or repayment of existing foreign credit facilities, and an
aggregate limit of $150 million for all such loans and letters of credit,
including any stand-by letters of credit issued to support foreign business
opportunities. The DIP Facility contains monthly minimum EBITDA tests and
quarterly limits on capital expenditures.
DIP Facility lenders benefit 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. 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 DIP Facility, payable monthly
in arrears. The DIP Facility matures on the earlier of the substantial
consummation of a plan of reorganization or June 6, 2001.
In proceedings filed with the Bankruptcy Court, the Company agreed with the
Official Committee of Unsecured Creditors appointed by the U.S. Trustee
(the "Creditors' Committee") and with MFS Municipal Income Trust and MFS
Series Trust III (collectively, the "MFS Funds"), holders of certain debt
issued by Joy, to a number of restrictions regarding transactions with
foreign subsidiaries and Beloit:
|X| The Company agreed to give at least five days prior written notice to
the Creditors Committee and to the MFS Funds of the Debtors' intention
to (a) make loans or advances to, or investments in, any foreign
subsidiary for working capital purposes in an aggregate amount in
excess of $90 million; (b) make loans or advances to, or investments
in, any foreign subsidiary to repay the existing indebtedness or cause
letters of credit to be issued in favor of a creditor of a foreign
subsidiary in an aggregate amount, cumulatively, in excess of $30
million; or (c) make postpetition loans or advances to, or investments
in, Beloit or any of Beloit's subsidiaries in excess of $115 million.
In September 1999, the Company notified the Creditors Committee and
MFS Funds that it intended to exceed the stipulated $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. All such reports and notices have
been provided to the Creditors Committee as agreed.
|X| In addition, the Company agreed to give notice to the Creditors
Committee and to the MFS Funds with respect to any liens created by or
on a foreign subsidiary or on any of its assets to secure any
indebtedness. In accordance with this requirement, the Company has
provided such notice in connection with the refinancing of the credit
facilities of certain foreign subsidiaries.
|X| The Company also agreed to notify the MFS Funds of any reduction in
the net book value of Joy of ten percent or more from $364 million
after which MFS Funds would be entitled to receive periodic financial
statements for Joy. As of October 31, 1999, MFS Funds is entitled to
receive periodic financial statements for Joy.
The principal sources of liquidity for the Company's operating requirements
have been cash flows from operations and the sale of Beloit assets. While
the Company expects that cash flow from operations and the DIP Facility
will provide sufficient working capital to operate its businesses, there
can be no assurances that such sources will prove to be sufficient. The
Debtors are jointly and severally liable under the DIP Facility. At January
31, 2001, $55 million in direct borrowings had been drawn under the DIP
Facility and are classified as a short-term obligation on the Company's
Balance Sheet. Additionally, letters of credit in the face amount of $54.3
million had been issued under the DIP Facility.
Foreign Credit Facilities
As of January 31, 2001, short-term bank credit lines of foreign
subsidiaries amounted to $81.2 million. Outstanding borrowings against
these were $41.1 million. There were no compensating balance requirements
under these lines of credit.
One of the Company's Australian subsidiaries maintains a A$90.0 million (US
$49.1 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, 2001, the loan was fully drawn. The
loan matures in October 2001.
(h) Income Taxes
The income tax provision recognized in the Company's consolidated statement
of operations differs from the income tax provision computed by applying
the statutory federal income tax rate to the loss from continuing
operations for the three months ended January 31, 2000 due to (i) an
additional valuation allowance on deferred tax benefits and (ii) the
effects of state and foreign taxes.
The Company believes that realization of net operating loss and tax credit
benefits for financial statement purposes 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 2001 2000
--------------------------------------- ---------- ----------
Finished goods $ 218,921 $ 208,473
Work in process and purchased parts 222,201 224,554
Raw materials 29,279 29,127
--------- ---------
470,401 462,154
Less excess of current cost over stated
LIFO value (51,823) (51,823)
--------- ---------
$ 418,578 $ 410,331
========= =========
Inventories valued using the LIFO method represented approximately 63% and
64% of consolidated inventories at January 31, 2001 and October 31, 2000,
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 2001 2000
- ---------------------------------------- ------------ ------------
Basic Earnings (Loss):
- ----------------------------------------
Loss from continuing operations $ (6,250) $ (17,546)
Loss from discontinued operation (9,048) --
Net loss $ (15,298) $ (17,546)
========== ==========
Basic weighted average common shares
outstanding 46,816 46,516
---------- ----------
Basic Earnings (Loss) Per Share:
- ----------------------------------------
Loss from continuing operations $ (0.13) $ (0.38)
Loss from discontinued operation (0.19) --
Net loss $ (0.32) $ (0.38)
========== ==========
Diluted Earnings (Loss):
- ----------------------------------------
Loss from continuing operations $ (6,250) $ (17,546)
Loss from discontinued operation (9,048) --
Net loss $ (15,298) $ (17,546)
========== ==========
Basic weighted average common shares
outstanding 46,816 46,516
Assumed exercise of stock options -- --
---------- ---------
Diluted weighted average common shares
outstanding 46,816 46,516
---------- ---------
Diluted Earnings (Loss) Per Share:
- ----------------------------------------
Loss from continuing operations $ (0.13) $ (0.38)
Loss from discontinued operation (0.19) --
Net loss $ (0.32) $ (0.38)
======== ========
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, 2001, 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
- ----------------------------------- -----------------------------------------------------------------------
Depreciation
Net Operating and Capital Identifiable
Sales (1) Income (Loss) Amortization Expenditures Assets
----------- ------------- ------------- ------------ ----------------
Three months ended January 31, 2001
Surface Mining $ 112,427 $ 7,684 $ 3,368 $ 2,308 $ 431,467
Underground Mining 155,079 7,819 7,383 2,814 819,970
---------- ---------- --------- --------- ----------
Total continuing operations 267,506 15,503 10,751 5,122 1,251,437
Discontinued operations -- -- -- -- 12,092
Reorganization item -- (11,291) -- -- --
Corporate -- (3,591) 1,712 -- 36,145
---------- ---------- ---------- --------- ----------
Consolidated Total $ 267,506 $ 621 $ 12,463 $ 5,122 $1,299,674
========== ========== ========== ========= ==========
Three months ended January 31, 2000
Surface Mining $ 121,405 $ 9,457 $ 4,030 $ 4,704 $ 416,509
Underground Mining 165,576 641(2) 7,430 1,444 908,805
---------- ---------- ---------- ---------- ----------
Total continuing operations 286,981 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 $ 286,981 $ (5,779) $ 13,646 $ 6,148 $1,688,841
========== ========== ========== ========== ==========
- ------------------
(1) Certain reclassifications have been made to conform to EITF Issue No.
00-10, "Accounting for Shipping and Handling Fees and Costs."
(2) After restructuring charge of $6,311 - see Note (e) - Restructuring
Charges.
Geographical Segment Information
In thousands
- --------------------------------------------- --------------------------------------------------------------
Sales to
Total Interarea Unaffiliated Operating Identifiable
Sales (1) Sales Customers Income (Loss) Assets
---------- ---------- --------- ------------- ------------
Three months ended January 31, 2001
United States $ 197,380 $ (35,426) $ 161,954 $ 8,508 $ 1,320,621
Europe 52,115 (24,950) 27,165 10,065 316,293
Other Foreign 82,029 (3,642) 78,387 6,210 262,838
Interarea Eliminations (64,018) 64,018 - (9,280) (648,315)
---------- ---------- --------- --------- -----------
$ 267,506 $ - $ 267,506 $ 15,503 $ 1,251,437
========== ========== ========= ========= ===========
Three months ended January 31, 2000
United States $ 198,924 $ (24,192) $ 174,732 $ 10,508 $ 1,309,296
Europe 50,332 (19,387) 30,945 (2,062) 343,845
Other Foreign 88,157 (6,853) 81,304 7,496 298,174
Interarea Eliminations (50,432) 50,432 - (5,844) (626,001)
---------- ---------- --------- --------- -----------
$ 286,981 $ - $ 286,981 $ 10,098 $ 1,325,314
========== ========== ========= ========= ===========
(1) Certain reclassifications have been made to conform to EITF Issue No.
00-10, "Accounting for Shipping and Handling Fees and Costs."
(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:
CONDENSED COMBINED CONSOLIDATING
STATEMENT OF OPERATIONS
In thousands Three months ended January 31, 2001
- -------------------------------------------------------------------------------------------------------------
Entities in Entities not in
Reorganization Reorganization Combined
Proceedings Proceedings Eliminations Consolidated
----------- ----------- ------------ ------------
Revenues
Net sales $ 196,949 $ 134,575 $ (64,018) $ 267,506
Other income 229 317 - 546
197,178 134,892 (64,018) 268,052
Cost of sales 155,510 103,829 (54,738) 204,601
Product, development, selling and
administrative expenses 37,028 14,511 - 51,539
Reorganization items 11,291 - - 11,291
Restructuring charges - - - -
--------- -------- --------- ---------
203,829 118,340 (54,738) 267,431
--------- -------- --------- ---------
Operating income (loss) (6,651) 16,552 (9,280) 621
Interest income (expense)-net (excludes contractual
interest expense of $17,900 (6,766) (6,749) 9,785 (3,730)
--------- -------- -------- --------
Income (loss) before (provision) benefit for income
taxes and minority interest (13,417) 9,803 505 (3,109)
(Provision) benefit for income taxes 49 (3,049) - (3,000)
Minority interest - - (141) (141)
Equity in income (loss) of subsidiaries 7,119 1,049 (8,168) -
--------- -------- -------- -------
Income (loss) from continuing operations (6,249) 7,803 (7,804) (6,250)
Loss from discontined operations (8,754) (294) - (9,048)
--------- -------- -------- ---------
Net income (loss) $ (15,003) $ 7,509 $ (7,804) $ (15,298)
========= ======== ======== =========
In thousands Three months ended January 31, 2000
- ----------------------------------------------------- ------------------------------------------------------------
Entities in Entities not in
Reorganization Reorganization Combined
Proceedings Proceedings Eliminations Consolidated
----------- ----------- ------------ ------------
Revenues
Net sales $ 199,888 $ 137,525 $(50,432) $ 288,028
Other income (5,127) (6,648) 12,822 1,047
194,761 130,877 (37,610) 223,507
Cost of sales 157,092 111,003 (44,588) 221,843
Product, development, selling and
administrative expenses 37,749 14,667 - 52,416
Reorganization items 11,573 - - 11,573
Restructuring charges - 6,311 - 6,311
--------- -------- --------- --------
204,750 131,981 (44,588) 292,143
--------- -------- --------- --------
Operating income (loss) (11,653) (1,104) 6,978 (5,779)
Interest income (expense)-net (excludes contractual
interest expense of $70,531 and $31,230 for
2000 and 1999, respectively) (5,615) (2,978) - (8,593)
-------- ------- --------- -------
Income (loss) before (provision) benefit for income
taxes and minority interest (17,268) (4,082) 6,978 (14,372)
(Provision) benefit for income taxes (2,666) (334) - (3,000)
Minority interest - - (174) (174)
Equity in income (loss) of subsidiaries 2,800 78 (2,878) -
------- ------- --------- -------
Income (loss) from continuing operations (17,134) (4,338) 3,926 (17,546)
Loss from discontined operations - - - -
--------- -------- -------- --------
Net income (loss) $ (17,134) $ (4,338) $ 3,926 $(17,546)
========= ======== ======== ========
CONDENSED COMBINED CONSOLIDATING
BALANCE SHEET
In thousands As of January 31, 2001
- -------------------------------------------- ----------------------------------------------------------------------
Entities in Entities Not in
Reorganization Reorganization Combined
Proceedings Proceedings Eliminations Consolidated
----------- ----------- ------------ ------------
Assets
Current Assets:
Cash and cash equivalents $ 27,155 $ 32,827 $ - $ 59,982
Accounts receivable, net 101,026 100,624 (12,000) 189,650
Intercompany receivables 1,671,599 41,662 (1,713,261) -
Inventories 277,112 154,632 (13,166) 418,578
Other current assets 11,848 44,165 147 56,160
Prepaid income taxes (2,726) 2,726 - -
------------ ----------- ----------- -----------
2,086,014 376,636 (1,738,280) 724,370
Assets of Discontinued Beloit Operations 12,092 - - 12,092
Property, Plant and Equipment - Net 126,950 48,738 - 175,688
Intangible Assets 140,415 207,219 (12) 347,622
Investment in Subsidiaries 891,241 883,394 (1,772,417) 2,218
Other Assets 25,393 12,291 - 37,684
------------ ----------- ----------- -----------
Total Assets $ 3,282,105 $ 1,528,278 $(3,510,709) $ 1,299,674
============ =========== =========== ===========
In thousands As of October 31, 2000
- ---------------------------------------------- -------------------------------------------------------------------
Entities in Entities Not in
Reorganization Reorganization Combined
Proceedings Proceedings Eliminations Consolidated
----------- ----------- ------------ ------------
Assets
Current Assets:
Cash and cash equivalents $ 21,241 $ 50,882 $ - $ 72,123
Accounts receivable, net 106,690 70,461 - 177,151
Intercompany receivables 1,744,829 274,140 (2,018,969) -
Inventories 272,773 163,514 (25,956) 410,331
Other current assets 10,797 39,027 (5) 49,819
Prepaid income taxes (2,543) 2,543 - -
----------- ----------- ----------- -----------
2,153,787 600,567 (2,044,930) 709,424
Assets of Discontinued Beloit Operations 15,231 - - 15,231
Property, Plant and Equipment - Net 128,605 48,808 - 177,413
Intangible Assets 143,365 207,538 (125) 350,778
Investment in Subsidiaries 796,008 970,008 (1,763,769) 2,247
Other Assets 22,644 15,153 38 37,835
----------- ----------- ----------- -----------
Total Assets $ 3,259,640 $ 1,842,074 $(3,808,786) $ 1,292,928
=========== =========== =========== ===========
CONDENSED COMBINED CONSOLIDATING
BALANCE SHEET
In thousands As of January 31, 2001
- ------------------------------------------------------------------------------------------------------------
Entities in Entities Not in
Reorganization Reorganization Combined
Proceedings Proceedings Eliminations Consolidated
----------- ----------- ------------ ------------
Liabilities and Shareholders' Equity (Deficit)
Current Liabilities:
Short-term notes payable, including current
portion of long-term obligations $ 55,688 $ 90,194 $ - $ 145,882
Trade accounts payable 26,387 34,957 - 61,344
Intercompany accounts payable 1,617,647 30,783 (1,648,430) -
Employee compensation and benefits 34,993 5,616 5,299 45,908
Advance payments and progress billings 3,467 12,367 - 15,834
Accrued warranties 23,062 13,691 - 36,753
Restructuring charges and other 157,085 65,976 (14,368) 208,693
---------- ----------- ----------- -----------
1,918,329 253,584 (1,657,499) 514,414
Long-term Obligations 1,366 1,480 (5) 2,841
Liability for Postretirement Benefits
and Accrued Pension Costs 49,298 2,751 (5,299) 46,750
Deferred Income Taxes (1,795) 1,795 - -
Other Liabilities 6,136 1 - 6,137
Liabilities Subject to Compromise 1,230,424 - - 1,230,424
Liabilities of Discontinued Operations,
including liabilities subject to compromise
of $243,202 and $246,154, respectively. 299,254 4,848 - 304,102
Minority Interest - - 6,907 6,907
Shareholders' Equity (Deficit)
Common stock 55,983 688,042 (692,356) 51,669
Capital in excess of par value 2,194,784 355,802 (1,986,944) 563,642
Retained earnings (deficit) (2,206,616) 389,119 597,885 (1,219,612)
Accumulative comprehensive (loss) (174,243) (169,144) 226,602 (116,785)
Less: Stock employee compensation trust (200) - - (200)
Treasury stock (90,615) - - (90,615)
---------- ----------- ----------- -----------
(220,907) 1,263,819 (1,854,813) (811,901)
---------- ----------- ----------- -----------
$ 3,282,105 $ 1,528,278 $(3,510,709) $ 1,299,674
=========== =========== =========== ===========
In thousands As of October 31, 2000
- ---------------------------------------------- ----------------------------------------------------------
Entities in Entities Not in
Reorganization Reorganization Combined
Proceedings Proceedings Eliminations Consolidated
----------- ----------- ------------ ------------
Liabilities and Shareholders' Equity (Deficit)
Current Liabilities:
Short-term notes payable, including current
portion of long-term obligations $ 30,668 $ 78,106 $ - $ 108,774
Trade accounts payable 31,793 40,698 - 72,491
Intercompany accounts payable 1,637,360 372,829 (2,010,189) -
Employee compensation and benefits 38,964 7,947 5,299 52,210
Advance payments and progress billings 1,537 9,515 - 11,052
Accrued warranties 23,230 11,711 - 34,941
Restructuring charges and other 171,482 52,968 (13,290) 211,160
---------- ----------- ----------- -----------
1,935,034 573,774 (2,018,180) 490,628
Long-term Obligations 1,591 1,533 - 3,124
Liability for Postretirement Benefits
and Accrued Pension Costs 48,902 2,466 (5,299) 46,069
Deferred Income Taxes (1,846) 1,846 - -
Other Liabilities 5,841 25 - 5,866
Liabilities Subject to Compromise 1,220,675 - - 1,220,675
Liabilities of Discontinued Operations,
including liabilities subject to compromise
of $243,202 and $246,154, respectively. 301,105 25,963 (12,343) 314,725
Minority Interest - - 6,533 6,533
Shareholders' Equity (Deficit)
Common stock 55,983 689,244 (693,558) 51,669
Capital in excess of par value 2,194,684 355,802 (1,986,944) 563,542
Retained earnings (deficit) (2,237,350) 336,437 696,599 (1,204,314)
Accumulative comprehensive (loss) (174,264) (145,016) 204,406 (114,874)
Less: Stock employee compensation trust (100) - - (100)
Treasury stock (90,615) - - (90,615)
---------- ----------- ----------- -----------
(251,662) 1,236,467 (1,779,497) (794,692)
---------- ----------- ----------- -----------
$ 3,259,640 $ 1,842,074 $(3,808,786) $ 1,292,928
=========== =========== =========== ===========
COMBINED CONSOLIDATING
STATEMENT OF CASH FLOW
In thousands As of January 31, 2001 As of January 31, 2000
- ------------------------------------------ ------------------------------------------ -----------------------------------------
Entities in Entities Not in Entities in Entities Not in Combined
Reorganization Reorganization Combined Reorganization Reorganization Consol-
Proceedings Proceedings Consolidated Proceedings Proceedings idated
----------- ----------- ------------ ----------- ----------- ------
Net Cash Provided (Used) by
Continuing Operations $ (4,197) $ (26,396) $ (30,593) $ (15,168) $ 12,295 $ (2,873)
Investment and Other Transactions:
Property, plant and equipment acquired (4,058) (1,064) (5,122) (5,585) (563) (6,148)
Property, plant and equipment retired 939 141 1,080 2,724 72 2,796
Other - net (1,992) - (1,992) (3,254) (1,773) (5,027)
-------- --------- --------- --------- --------- --------
Net cash provided (used) by investment
and other transactions (5,111) (923) (6,034) (6,115) (2,264) (8,379)
-------- --------- --------- --------- --------- --------
Financing Activities:
Borrowings under DIP Facility 25,000 - 25,000 50,000 - 50,000
Repayment of borrowings under DIP Facility - - - - - -
Net issuance of long-term obligations - 2,194 2,194 - 1,096 1,096
Increase (decrease) in short-term notes
payable - net - 6,964 6,964 - (3,470) (3,470)
-------- --------- --------- --------- -------- --------
Net cash provided (used) by
financing activities 25,000 9,158 34,158 50,000 (2,374) 47,626
-------- --------- --------- -------- -------- --------
Effect of Exchange Rate Changes on Cash
and Cash Equivalents - 106 106 - (153) (153)
-------- --------- --------- ------- -------- --------
Cash Used by Discontinued Operations (9,778) - (9,778) (23,597) (14,000) (37,597)
Increase (Decrease) in Cash and Cash Equivalents 5,914 (18,055) (12,141) 5,120 (6,496) (1,376)
Cash and Cash Equivalents at Beginning
of the Period 21,241 50,882 72,123 30,175 27,278 57,453
-------- --------- --------- --------- -------- -------
Cash and Cash Equivalents at End of the Period $ 27,155 $ 32,827 $ 59,982 $ 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, 2001 and 2000
On June 7, 1999, Harnischfeger Industries Inc. ("Harnischfeger" or 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, Joy Mining Machinery ("Joy") and P&H Mining
Equipment ("P&H"). The Debtors' Chapter 11 cases are jointly administered for
procedural purposes only under case number 99-2171. The Debtors also include
Beloit Corporation ("Beloit"); the Company's other principal operating
subsidiary at the time of the bankruptcy filing. See Note (c) - Discontinued
Operations. The Debtors filed their draft disclosure statement and proposed
plans of reorganization and, in the case of Beloit and its Debtor subsidiaries,
liquidation with the Bankruptcy Court on October 26, 2000. The Bankruptcy Court
approved the disclosure statement on December 20, 2000. The reorganization and
liquidation plans of the 57 Debtors were approved by a vote of creditors
conducted in January 2001. The plans are also subject to approval of the
Bankruptcy Court at a hearing scheduled for April 3, 2001. If the plans are
approved by the Bankruptcy Court at the hearing, the Debtors anticipate emerging
from bankruptcy as soon as practical thereafter. In general, the Debtors'
proposed plans of reorganization provides that the existing Harnischfeger common
stock will be cancelled and that the creditors of Harnischfeger will be issued
new common stock in reorganized Harnischfeger. As a result, if the plan is
confirmed, current shareholders of Harnischfeger will receive nothing. Most
creditors of Joy and P&H will receive new five-year, 10.75% senior notes issued
by reorganized Harnischfeger and guaranteed by reorganized Joy and reorganized
P&H. In certain circumstances, such creditors could receive a portion of the new
common stock. Under Debtors' proposed plans, creditors of Beloit and its
subsidiaries will receive the proceeds of the sale of the assets of Beloit and
its subsidiaries.
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 13, 2001, 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.
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.
February 29, 2000 was set by the Bankruptcy Court as the last date creditors
could file proofs of pre-petition claims under the Bankruptcy Code. February 15,
2001 was the deadline for filing administrative expense claims that arose prior
to December 31, 2000. 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 has adjusted its consolidated financial accounts to reflect the
estimated amounts of such claims.
The Company has incurred and 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 future results. See Note (d) -
Reorganization Items.
Although the Company currently anticipates that the Bankruptcy Court will
approve its proposed plan of reorganization at the hearing scheduled to begin
April 3, 2001 and that the Company will emerge from Bankruptcy as soon as
practical thereafter, it is not possible to predict with certainty 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. Numerous circumstances could arise that could affect the
ability of the Company to emerge from bankruptcy. There can be no assurance
that: (a) the Bankruptcy Court will confirm the Company's plan of reorganization
or the Committee Settlement Agreement described in Note (c) Discontinued
Operations, (b) the plan will become effective, or (c) the occurrence of a
material adverse change will not require the Company to submit a new plan and
re-solicit votes.
In particular, if APP fails to make the interest or principal payments on the
APP note described in Note (f) Liabilities Subject to Compromise which becomes
due March 31, 2001 and Beloit is otherwise unable to obtain replacement sources
of funds, then Beloit may not have sufficient cash to pay creditors who are
required to be paid upon emergence. Such a development could in turn affect the
ability to confirm the Beloit plan. Confirmation of the Beloit plan is also a
condition of the Committee Settlement Agreement. On March 12, 2001, APP
announced its intention to immediately cease payment of interest and principal
on all its outstanding debt and on the debt of its subsidiaries.
In addition, there can be no assurance that numerous disputed claims filed in
the bankruptcy cases that remained unresolved as of the date of this report will
be resolved favorably to the Debtors or that the Company will be able to arrange
an exit financing facility to replace its debtor-in-possession financing
facility.
Under the Bankruptcy Code, postpetition liabilities and prepetition liabilities
(i.e., liabilities subject to compromise) must be satisfied before shareholders
can receive any distribution. Under the terms of the Company's proposed plan of
reorganization, the Company's existing common stock will be cancelled and the
holders of the Company's existing common stock will receive nothing for their
stock. The U.S. Trustee for the District of Delaware has appointed an Official
Committee of Equity Holders to represent the Company's shareholders in the
proceedings before the Bankruptcy Court.
The accompanying Consolidated Financial Statements have been prepared on a going
concern basis which contemplates continuity of operations, realization of
assets, and liquidation of liabilities in the ordinary course of business and do
not reflect adjustments that might result if the Debtors are unable to continue
as going concerns. As a result of the Debtors' Chapter 11 filings, such matters
are subject to significant uncertainty. Although Debtors' plans of
reorganization provide for the Company's emergence from bankruptcy and have been
approved by creditors, there can be no assurance that the Bankruptcy Court will
confirm the plans or that such plans of reorganization will be consummated.
Continuing on a going concern basis is dependent upon, among other things,
confirmation of Debtors' proposed plan of reorganization, the success of future
business operations, and the generation of sufficient cash from operations and
financing sources to meet the Debtors' obligations. Other than recording the
estimated loss on the disposal of the Beloit discontinued operations, the
Consolidated Financial Statements do not reflect: (a) the realizable value of
assets on a liquidation basis or their availability to satisfy liabilities; (b)
aggregate prepetition liability amounts that may be allowed for claims or
contingencies, or their status or priority; (c) the effect of any changes to the
Debtors' capital structure or in the Debtors' business operations as the result
of an approved plan of reorganization; or (d) adjustments to the carrying value
of assets (including goodwill and other intangibles) or liability amounts that
may be necessary as the result of actions by the Bankruptcy Court or arising
from a confirmed plan of reorganization. Such adjustments could include
recognition of the forgiveness of debt, the revaluation of assets, and other
"fresh start" related items.
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"). SOP 90-7 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. See Note (d) - Reorganization Items. The Company has filed
schedules with the Bankruptcy Court setting forth the assets and liabilities of
the Company as of June 7, 1999, the bankruptcy filing date, as reflected in the
Company's accounting records. Differences between amounts reflected in such
schedules and claims filed by creditors are currently being investigated and
either resolved by mutual consent or adjudicated. The final amounts of such
claims are not presently determinable.
Surface Mining Equipment
Three Months Ended January 31, 2001 as compared to 2000
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 2001 2000
------------------------------------------------------------------
Net sales $ 112,427 $ 121,405
Operating Profit $ 7,684 $ 9,457
Bookings $ 121,566 $ 127,253
Sales of the Surface Mining Equipment segment were $112.4 million in the first
quarter of fiscal 2001, a $9.0 million decrease from sales of $121.4 million
during the same period of fiscal 2000. Capital sales decreased $11.4 million as
a result of lower capital bookings in the first quarter and a $13.0 million
lower beginning capital backlog at the beginning of fiscal 2001 compared to
fiscal 2000. Aftermarket sales increased $2.6 million in the first quarter of
2001 due to a $5.7 million increase in parts sales.
Operating profit was $7.7 million or 6.8% of sales in the three months ended
January 31, 2001, compared to operating profit of $9.5 million and 7.8% for the
corresponding period in 2000. The lower operating profit in the first quarter of
2001 as compared to the first quarter of 2000 was due to decreased capital
equipment sales, increased product costs and increased selling, general and
administrative expenses.
Bookings amounted to $121.6 million in the first quarter of fiscal 2001 compared
to $127.3 million during the first quarter of fiscal 2000. The decrease is
primarily due to a $6.0 million reduction in capital equipment bookings. The
backlog was $84.9 million as of January 31, 2001 compared to $75.7 million at
October 31, 2000. These booking and backlog figures exclude customer
arrangements under long-term repair and maintenance contracts. 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 $300 million as of January 31, 2001.
Underground Mining Machinery
Three Months Ended January 31, 2001 as compared to 2000
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 2001 2000
-----------------------------------------------------------------------
Net sales $ 155,079 $ 165,576
Operating Profit $ 7,819 $ 641 *
Bookings $ 140,021 $ 118,883
-------------
* After restructuring charge of $6.3 million.
Net sales in the first quarter of the 2001 fiscal year were $10 million lower
than net sales in the first quarter a year ago. A $19 million decrease in new
machine shipments in the quarter compared to the year earlier quarter was
partially offset by an increase in aftermarket sales. The new machine sales
shortfall resulted from a decline in roof support and face conveyor shipments
primarily in the United States and the United Kingdom due to the timing of
shipments of these large sales dollar transactions. In the aftermarket, repair
parts sales were greater in the current quarter than they were in the first
quarter last year in the United States and in China. The improvement in the U.S.
aftermarket reflects somewhat higher levels of coal production, while the
improvement in China is associated with aftermarket demand to support the new
machines that have been shipped into that market over the last several years.
Despite the decline in net sales, operating profit in the first quarter of
fiscal 2001 improved to $7.8 million compared to $6.9 million for the first
quarter of fiscal 2000 before the charge of $6.3 million that was incurred last
year for restructuring activities. This improvement in operating profit resulted
from a favorable sales mix with a larger percentage of aftermarket products and
from the benefits of Joy's cost reduction programs that have been implemented
over the last two and one half years.
New order bookings were $21 million higher in 2001 than the comparable period in
the prior year. This improvement was substantially due to increases for Joy's
aftermarket products. Increased aftermarket bookings were recorded for repair
parts and complete machine rebuilds in the United States and in the markets
served by the Joy's U.K. operations. Aftermarket activity in the United States
is benefiting from somewhat higher levels of coal production while the U.K. is
beginning to see the impact on its aftermarket business associated with the new
machines that have been shipped to customers in China. The order backlog as of
January 31, 2001 was $136 million compared to $151 million at the end of October
2000. The decrease in the order backlog from October is due to the timing of the
placement of roof support orders and their subsequent shipment. The amounts for
bookings and backlog exclude customer arrangements under long-term equipment
life cycle management programs. The total estimated value of these equipment
life cycle management programs, which extend for periods of up to eight years,
was approximately $63 million as of January 31, 2001.
Discontinued Operations
In light of continuing losses at Beloit and following an evaluation of the
prospects of reorganizing the Beloit Segment, on October 8, 1999 the Company
announced its plan to dispose of the Beloit 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 filed for or were placed into receivership
or other applicable forms of judicial supervision in their respective countries.
On May 12, 2000 the U.S. Trustee for the District of Delaware appointed an
Official Committee of Unsecured Creditors of Beloit Corporation to represent the
creditors of Beloit in proceedings before the Bankruptcy Court.
On November 7, 1999, the Bankruptcy Court approved procedures and an
implementation schedule for the divestiture plan (the "Court Sales Procedures")
for the Beloit Segment. Between February and August 2000, sales agreements were
approved under the Court Sales Procedures with respect to the sale of
substantially all of the segment's domestic operating assets. In addition,
approval was received for the sale of all of Beloit's significant foreign
subsidiaries (apart from those that had previously filed for or been placed into
receivership or other applicable forms of judicial supervision in their
respective countries). As of March 13, 2001, all approved sales of domestic
assets had taken place, as had sales of the majority of Beloit's foreign
subsidiaries. Beloit expects that closings on the remaining approved sales of
foreign subsidiaries will occur by the middle of fiscal 2001.
On September 21, 2000, the committees appointed by the Bankruptcy Court to
represent the interests of the creditors of the Company, Joy and P&H and their
subsidiaries, on the one hand, and Beloit and its subsidiaries, on the other
hand, reached agreement on the Committee Settlement Agreement that provides for
the settlement of many intercompany and intercreditor issues. The Bankruptcy
Court will be asked to approve Committee Settlement Agreement at the
confirmation hearing scheduled for April 3, 2001. The Committee Settlement
Agreement is an integral part of the Company's plan of reorganization.
The Company has classified this segment as a discontinued operation in its
Consolidated Financial Statements as of October 31, 2000 and 1999 and has,
accordingly, restated its consolidated statements of operations for all periods
presented. The Company has not restated its consolidated balance sheets or
consolidated statements of cash flows for periods prior to fiscal 1999. Revenues
for this segment were $0.5 million for the three months ended January 31, 2001
and $81.4 million for the comparable period in 2000. If the Company's proposed
plan of reorganization is confirmed by the Bankruptcy Court, the Company's
equity interest in Beloit will be cancelled and Beloit and its remaining
subsidiaries will be liquidated under the control of a liquidating trustee.
On March 30, 1998, the Company completed the sale of the Company's P&H Material
Handling ("Material Handling") segment to Chartwell Investments, Inc. Material
Handling filed for Chapter 11 bankruptcy protection on May 17, 2000. Material
Handling and its affiliates asserted more than 200 claims against the Debtors in
their bankruptcy cases and Debtors filed a similar number of claims against
Material Handling in Material Handling's bankruptcy cases. In addition, Material
Handling advised Debtors that it might assert additional claims for
approximately $340 million based on theories that the transaction in which
Material Handling was sold to Chartwell Investments, Inc. was voidable.
Following extensive negotiations, the parties agreed on terms of a settlement,
subject to definitive documentation and the approval of the respective
bankruptcy courts, releasing certain claims made by each party and its
affiliates against the bankruptcy estates of the other party and its affiliates,
resolving certain trademark licensing issues, agreeing to assume their existing
agreements in their respective bankruptcy cases, and providing that the Company
will allow Material Handling a $10 million unsecured pre-petition claim in
exchange for a release of any liabilities arising out of the sale of Material
Handling to Chartwell Investments, Inc.
The loss from discontinued operations of $9.0 million for the three months ended
January 31, 2001, was primarily due to the $10.0 million settlement with
Material Handling. See Note (f) - Liabilities Subject to Compromise.
Income Taxes
The income tax provision recognized in the Company's consolidated statement of
operations differs from the income tax provision computed by applying the
statutory federal income tax rate to the loss from continuing operations for the
three months ended January 31, 2000 due to (i) an additional valuation allowance
on deferred tax benefits and (ii) the effects of state and foreign taxes.
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 Company's proposed plan of
reorganization provides that existing Harnischfeger common stock will be
cancelled. As a result, if the plan is confirmed, current shareholders of
Harnischfeger will receive nothing. The U.S. Trustee for the District of
Delaware has appointed an Official Committee of Equity Holders to represent the
Company's shareholders in the proceedings before the Bankruptcy Court.
Working Capital
Working capital of continuing operations, excluding liabilities subject to
compromise, as of January 31, 2001, was $210.0 million including $60.0 million
of cash and cash equivalents, as compared to working capital of $218.8 million
including $72.1 million of cash and cash equivalents as of October 31, 2000. The
increase in accounts receivable of $12.5 million was primarily offset by the
decrease in cash and cash equivalents of $12.1 million. Most significantly,
there was a $37.1 million increase in short-term notes payable, including
current portion of long-term debt, that was used to pay for the $8.2 million and
$6.3 million increase in inventory and other current assets, respectively, and
the decrease of $11.1 million in trade accounts payable. There was also a $6.3
million reduction in employee compensation and benefits and a $4.8 million
increase in advance payments and progress billings.
Cash Flow from Continuing Operations
Although the Company recorded a loss from continuing operations of $6.3 million
in the first quarter of fiscal 2001 as compared with a loss from continuing
operations of $17.5 million for the same period in 2000, cash used by continuing
operations was $30.6 million for the three months ended January 31, 2001
compared to cash used by continuing operations of $2.9 million for the
comparable period in 2000.
The increased cash usage in 2001 resulted from the following factors: (i) an
increase in accounts receivable of $11.9 million in the first quarter of fiscal
2001 as compared to an increase of $6.5 million in 2000; (ii) an inventory
build-up of $7.2 million in the first quarter of 2001 compared with an inventory
reduction of $14.6 million in 2000; and (iii) paydown of accounts payable and
employee bonuses of $11.4 million and $6.4 million, respectively, in the first
quarter of fiscal 2001.
Cash flow used by investment and other transactions was $6.0 million for the
three months ended January 31, 2001 compared to $8.4 million during the
corresponding period in 2000. The difference between periods is primarily due to
a reduction in capital expenditures on property, plant and equipment and
software of approximately $1.0 million and $2.0 million, respectively compared
with the prior year.
DIP Facility
On July 8, 1999 the Bankruptcy Court approved a two-year, $750 million Revolving
Credit, Term Loan and Guarantee Agreement underwritten by the Chase Manhattan
Bank (the "DIP Facility"). In May, 2000, the Company voluntarily reduced the
size of the DIP Facility to $350 million and on July 6, 2000, an order was
entered by the Court approving the amendment to the DIP Facility reducing it to
$350 million consisting of a Tranche A sub-facility of $250 million and a
Tranche B sub-facility of $100 million. The Tranche A sub-facility has a final
maturity of June 6, 2001 (the original maturity date), and the Tranche B
sub-facility matured on December 31, 2000. Additionally, as permitted by the
original order authorizing the DIP Facility, on August 3, 2000 the DIP Facility
was further amended to, among other things, effect the syndication of the DIP
Facility among a group of nine lenders, with Chase Manhattan Bank retaining the
agent role.
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.
Under the amended terms of the DIP Facility, the Company is permitted to make
loans and issue letters of credit in favor of or on behalf of foreign
subsidiaries for specified limited purposes, including individual limits for
loans and advances of up to $75 million for working capital needs and $100
million for loans and letters of credit used for support or repayment of
existing foreign credit facilities, and an aggregate limit of $150 million for
all such loans and letters of credit, including any stand-by letters of credit
issued to support foreign business opportunities. The DIP Facility contains
monthly minimum EBITDA tests and quarterly limits on capital expenditures.
DIP Facility lenders benefit 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. 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 DIP Facility, payable monthly in arrears. The DIP Facility matures
on the earlier of the substantial consummation of a plan of reorganization or
June 6, 2001.
In proceedings filed with the Bankruptcy Court, the Company agreed with the
Official Committee of Unsecured Creditors appointed by the U.S. Trustee (the
"Creditors' Committee") and with MFS Municipal Income Trust and MFS Series Trust
III (collectively, the "MFS Funds"), holders of certain debt issued by Joy, to a
number of restrictions regarding transactions with foreign subsidiaries and
Beloit:
|X| The Company agreed to give at least five days prior written notice to the
Creditors Committee and to the MFS Funds of the Debtors' intention to (a)
make loans or advances to, or investments in, any foreign subsidiary for
working capital purposes in an aggregate amount in excess of $90 million;
(b) make loans or advances to, or investments in, any foreign subsidiary to
repay the existing indebtedness or cause letters of credit to be issued in
favor of a creditor of a foreign subsidiary in an aggregate amount,
cumulatively, in excess of $30 million; or (c) make postpetition loans or
advances to, or investments in, Beloit or any of Beloit's subsidiaries in
excess of $115 million. In September 1999, the Company notified the
Creditors Committee and MFS Funds that it intended to exceed the stipulated
$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. All such reports and notices have been provided to the
Creditors Committee as agreed.
|X| In addition, the Company agreed to give notice to the Creditors Committee
and to the MFS Funds with respect to any liens created by or on a foreign
subsidiary or on any of its assets to secure any indebtedness. In
accordance with this requirement, the Company has provided such notice in
connection with the refinancing of the credit facilities of certain foreign
subsidiaries.
|X| The Company also agreed to notify the MFS Funds of any reduction in the net
book value of Joy of ten percent or more from $364 million after which MFS
Funds would be entitled to receive periodic financial statements for Joy.
As of October 31, 1999, MFS Funds is entitled to receive periodic financial
statements for Joy.
The principal sources of liquidity for the Company's operating requirements have
been cash flows from operations and the sale of Beloit assets. While the Company
expects that cash flow from operations and the DIP Facility will provide
sufficient working capital to operate its businesses, there can be no assurances
that such sources will prove to be sufficient. The Debtors are jointly and
severally liable under the DIP Facility. At January 31, 2001, $55 million in
direct borrowings had been drawn under the DIP Facility and are classified as a
short-term obligation on the Company's Balance Sheet. Additionally, letters of
credit in the face amount of $54.3 million had been issued under the DIP
Facility.
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, 2001 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, 2001, the nominal or face value of forward foreign exchange
contracts to which the Company was a party was $80.2 million in absolute U.S.
dollar equivalent terms.
Accounting Pronouncements
The Company adopted SFAS No. 133, "Accounting for Derivative Instruments and
Hedging Activities" during the first quarter of fiscal 2001. The adoption
resulted in the Company recognizing a fair value adjustment related to certain
derivative instruments of $0.2 million which is reflected as an adjustment to
other comprehensive income in the Statement of Stockholders Equity (Deficit).
The Company adopted EITF Issue No. 00-10, "Accounting for Shipping and Handling
Fees and Costs" during the first quarter of fiscal 2001. The adoption resulted
in the Company reclassifying certain shipping and handling costs that were
recovered from customers from net sales to cost of sales. The financial
statement effect was to increase net sales and cost of sales approximately $1.6
million and $1.7 million in fiscal 2001 and 2000, respectively.
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
See Item 3 - Legal Proceedings, of Part I of the Company's annual report on
Form 10-K for the year ended October 31, 2000.
On March 30, 1998, the Company completed the sale of the Company's P&H
Material Handling ("Material Handling") segment to Chartwell Investments,
Inc. Material Handling filed for Chapter 11 bankruptcy protection on May
17, 2000. Material Handling and its affiliates asserted more than 200
claims against the Debtors in their bankruptcy cases and Debtors filed a
similar number of claims against Material Handling in Material Handling's
bankruptcy cases. In addition, Material Handling advised Debtors that it
might assert additional claims for approximately $340 million based on
theories that the transaction in which Material Handling was sold to
Chartwell Investments, Inc. was voidable. Following extensive negotiations,
the parties agreed on terms of a settlement, subject to definitive
documentation and the approval of the respective bankruptcy courts,
releasing certain claims made by each party and its affiliates against the
bankruptcy estates of the other party and its affiliates, resolving certain
trademark licensing issues, agreeing to assume their existing agreements in
their respective bankruptcy cases, and providing that the Company will
allow Material Handling a $10 million unsecured pre-petition claim in
exchange for a release of any liabilities arising out of the sale of
Material Handling to Chartwell Investments, Inc.
The Company, Beloit and certain of their officers and employees were named
as defendants in an action in the Bankruptcy Court brought by Omega Papier
Wernhausen GmbH ("Omega"). The action concerned pre-petition and
post-petition commitments allegedly made by the Company, Beloit and the
officers and employees named in the action with respect to a pre-petition
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 and related claims
were settled during the first fiscal quarter of 2001. The settlement
requires Beloit or the Company to make a $2 million cash payment to Omega.
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 2001.
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 design and build these machines. Large amounts of
capital must 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 mines are located in undeveloped or developing economies
where business conditions are less predictable. In recent years, up to 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:
|X| 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 success of disposing of
Beloit's assets; the Company's success in confirming and implementing
its plan of reorganization; the availability of financing and
refinancing; and the Company's ability to comply with covenants in its
DIP Facility and other financing facilities.
|X| 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, oil 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.
|X| Factors affecting the Company's ability to capture available sales
opportunities, including: customers' perceptions of the quality and
value of the Company's products and services as compared to
competitors' products and services; whether the Company has successful
reference installations to display to 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.
|X| Factors affecting the Company's ability to successfully manage sales
it obtains, such as: the accuracy of the Company's cost and time
estimates; the adequacy of the Company's cost and control systems; and
the Company's success in delivering products and completing service
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.
|X| Factors affecting the Company's general business, such as: unforeseen
patent, tax, product, environmental, employee health and 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.
|X| 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:
None.
(b) Reports on Form 8-K
None.
FORM 10-Q
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
HARNISCHFEGER INDUSTRIES, INC.
------------------------------
(Registrant)
/s/ Kenneth A. Hiltz
------------------------------
Kenneth A. Hiltz
Senior Vice President and
Chief Financial Officer
Date: March 13, 2001
/s/ Michael S. Olsen
------------------------------
Michael S. Olsen
Vice President and Controller
Date: March 13, 2001