UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(MARK ONE)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED April 30, 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.)
100 East Wisconsin Ave, Suite 2780
Milwaukee, Wisconsin 53202
(Address of principal executive offices)
(Zip Code)
(414) 319-8500
(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 June 7, 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
April 30, 2001
PART I. - FINANCIAL INFORMATION Page No.
--------
Item 1 - Financial Statements:
Consolidated Statement of Operations -
Three and Six Months Ended April 30, 2001 and 2000 3
Consolidated Balance Sheet -
April 30, 2001 and October 31, 2000 4 - 5
Consolidated Statement of Cash Flow -
Six Months Ended April 30, 2001 and 2000 6
Consolidated Statement of Shareholders' Equity (Deficit) -
Six Months Ended April 30, 2001 and 2000 7
Notes to Consolidated Financial Statements 8 - 29
Item 2 - Management's Discussion and Analysis
of Financial Condition and Results of Operations 30 - 40
Item 3 - Quantitative and Qualitative Disclosures About
Market Risk 40
PART II. - OTHER INFORMATION
Item 1 - Legal Proceedings 41
Item 2 - Changes in Securities 41
Item 3 - Defaults Upon Senior Securities 41
Item 4 - Submission of Matters to a Vote of Security Holders 41
Item 5 - Other Information 41 - 42
Item 6 - Exhibits and Reports on Form 8-K 43
Signatures 44
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 Six Months Ended
April 30, April 30,
------------------------- -----------------------
In thousands except per share amounts 2001 2000 2001 2000
- --------------------------------------------- ------------ ------------ ------------ ---------
Revenues
Net sales $ 287,755 $ 283,025 $ 555,261 $ 570,006
Other income 415 731 961 1,778
--------- --------- --------- ---------
288,170 283,756 556,222 571,784
Cost of sales 212,958 213,417 417,559 436,924
Product development, selling
and administrative expenses 55,567 53,313 107,106 105,729
Reorganization items 18,915 11,462 30,206 23,035
Restructuring (credit)charge (42) 168 (42) 6,479
--------- --------- --------- ---------
Operating income (loss) 772 5,396 1,393 (383)
Interest expense - net (excludes contractual
interest expense of $17,647 and $35,547
for 3 and 6 months ended April 30, 2001) (3,687) (8,541) (7,417) (17,134)
--------- --------- --------- ---------
Loss before provision for income taxes
and minority interest (2,915) (3,145) (6,024) (17,517)
Provision for income taxes (3,000) (3,000) (6,000) (6,000)
Minority interest (546) (198) (687) (372)
--------- --------- --------- ---------
Loss from continuing operations (6,461) (6,343) (12,711) (23,889)
Gain (loss) from discontinued operations, net
of tax 5,878 -- (3,170) --
--------- --------- --------- ---------
Net loss $ (583) $ (6,343) $ (15,881) $(23,889)
========= ========= ========= =========
Basic Earnings (Loss) Per Share:
Loss from continuing operations $ (0.14) $ (0.13) $ (0.27) $ (0.51)
Income (loss) from discontinued
operation 0.12 -- (0.07) --
-------- --------- --------- ---------
Net loss per share $ (0.02) $ (0.13) $ (0.34) $ (0.51)
======== ========= ========= =========
Diluted Earnings (Loss) Per Share:
Loss from continuing operations $ (0.14) $ (0.13) $ (0.27) $ (0.51)
Income (loss) from discontinued
operation 0.12 -- (0.07) --
--------- --------- --------- ---------
Net loss per share $ (0.02) $ (0.13) $ (0.34) $ (0.51)
========= ========= ========= =========
See accompanying notes to consolidated financial statements
HARNISCHFEGER INDUSTRIES, INC.
(Debtor-in-Possession as of June 7, 1999)
CONSOLIDATED BALANCE SHEET
(Unaudited)
April 30, October 31,
In thousands 2001 2000
- ----------------------------- ------------ ------------
Assets
Current Assets:
Cash and cash equivalents $ 46,906 $ 72,123
Accounts receivable-net 200,231 177,151
Inventories 425,924 410,331
Other current assets 53,633 49,819
----------- -----------
726,694 709,424
----------- -----------
Assets of Discontinued Operations 14,734 15,231
Property, Plant and Equipment:
Land and improvements 17,408 17,548
Buildings 127,326 127,724
Machinery and equipment 263,274 258,749
----------- -----------
408,008 404,021
Accumulated depreciation (236,293) (226,608)
----------- -----------
171,715 177,413
----------- -----------
Investments and Other Assets:
Goodwill 313,130 320,947
Intangible assets 26,469 29,831
Other assets 40,849 40,082
----------- -----------
380,448 390,860
----------- -----------
$ 1,293,591 $ 1,292,928
=========== ===========
See accompanying notes to consolidated financial statements
HARNISCHFEGER INDUSTRIES, INC.
(Debtor-in-Possession as of June 7, 1999)
CONSOLIDATED BALANCE SHEET
(Unaudited)
April 30, October 31,
In thousands 2001 2000
- ----------------------------------------------------------- ------------- --------------
Liabilities and Shareholders' Equity (Deficit)
Current Liabilities:
Short-term notes payable, including current
portion of long-term obligations $ 141,149 $ 108,774
Trade accounts payable 65,336 72,491
Employee compensation and benefits 48,889 52,210
Advance payments and progress billings 22,562 11,052
Accrued warranties 33,290 34,941
Income taxes payable 106,713 104,869
Other current liabilities 106,604 106,291
----------- -----------
524,543 490,628
Long-term Obligations 2,682 3,124
Other Non-current Liabilities:
Liability for postretirement benefits 32,708 32,331
Accrued pension costs 14,741 13,738
Other 5,435 5,866
----------- -----------
52,884 51,935
Liabilities Subject to Compromise 1,233,283 1,220,675
Liabilities of Discontinued Operations,
including liabilities subject to compromise
of $253,219 and $246,154, respectively 293,210 314,725
Minority Interest 6,986 6,533
Commitments and Contingencies (Note (f)) -- --
Shareholders' Equity (Deficit):
Common stock, $1 par value (51,668,939 shares issued) 51,669 51,669
Capital in excess of par value 563,575 563,542
Retained deficit (1,220,195) (1,204,314)
Accumulated comprehensive loss (124,298) (114,874)
Less:
Stock employee compensation trust (1,433,147
shares) at market (133) (100)
Treasury stock (3,881,929 shares) at cost (90,615) (90,615)
----------- -----------
(819,997) (794,692)
----------- -----------
$ 1,293,591 $ 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)
Six Months Ended
April 30,
In thousands 2001 2000
- ---------------------------------------------------------------- --------- ----------
Operating Activities:
Net loss $(15,881) $(23,889)
Add (deduct) - Items not affecting cash:
Loss from discontinued operations 3,170 --
Restructuring (credits) charges (42) 6,479
Reorganization items 4,416 7,899
Minority interest 687 372
Depreciation and amortization 25,373 27,431
Increase in income taxes, net 2,249 1,958
Other - net (434) 3,222
Changes in Working Capital Items:
(Increase) in accounts receivable - net (25,214) (215)
(Increase) decrease in inventories (22,589) 31,389
(Increase) in other current assets (4,237) (1,459)
(Decrease) in trade accounts payable (6,399) (9,059)
(Decrease) increase in employee compensation and benefits (5,409) 2,066
Increase (decrease) in advance payments and progress billings 11,571 (20,125)
(Decrease) in other current liabilities (6,581) (20,045)
-------- --------
Net cash provided (used) by continuing operations (39,320) 6,024
-------- --------
Investment and Other Transactions:
Property, plant and equipment acquired (10,010) (14,861)
Property, plant and equipment retired 1,993 4,278
Other - net 2,579 8,916
-------- --------
Net cash used by investment and other transactions (5,438) (1,667)
-------- --------
Financing Activities:
Borrowings under DIP facility 45,000 70,000
Repayment of borrowings under DIP facility (5,000) (51,000)
Net issuance of long-term obligations 2,065 795
Increase (decrease) in short-term notes payable- net (8,066) 1,650
-------- --------
Net cash provided by financing activities 33,999 21,445
-------- --------
Effect of Exchange Rate Changes on Cash and
Cash Equivalents (743) (1,276)
Cash Used in Discontinued Operations (13,715) (16,081)
-------- --------
(Decrease) increase in Cash and Cash Equivalents (25,217) 8,445
Cash and Cash Equivalents at Beginning of Period 72,123 57,453
-------- --------
Cash and Cash Equivalents at End of Period $ 46,906 $ 65,898
======== ========
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 Compre- Retained Accumulated
Common Excess of hensive Earnings Comprehensive Treasury
In thousands Stock Par Value Loss (Deficit) Loss SECT Stock Total
- ---------------------------------------- -----------------------------------------------------------------------------------------
Six Months Ended April 30, 2001
Balance at October 31, 2000 $ 51,669 $ 563,542 $(1,204,314) $(114,874) $ (100) $(90,615) $ (794,692)
Comprehensive loss:
Net loss $ (15,881) (15,881) (15,881)
Other comprehensive loss:
Derivative fair value adjustment,
net of income taxes (445) (445) (445)
Currency translation adjustment (8,979) (8,979) (8,979)
---------
Total comprehensive loss $ (25,305)
=========
Adjust SECT shares to market value 33 (33) --
---------- --------- --------------------------------------------------------
Balance at April 30, 2001 $ 51,669 $ 563,575 $(1,220,195) $(124,298) $ (133) $(90,615) $ (819,997)
========== ========= ========================================================
Six Months Ended April 30, 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 $ (23,889) (23,889) (23,889)
Other comprehensive loss:
Currency translation adjustment (18,764) (18,764) (18,764)
---------
Total comprehensive loss $ (42,653)
=========
300,000 shares purchased by employee
and director benefit plans (7,519) 7,519
Adjust SECT shares to market value (761) 761 --
---------- --------- --------------------------------------------------------
Balance at April 30, 2000 $ 51,669 $ 564,293 $(1,492,827) $ (98,724) $ (851) $(91,364) $(1,067,804)
========== ========= ========================================================
See accompanying notes to consolidated financial statements
HARNISCHFEGER INDUSTRIES, INC.
(Debtor-in-Possession as of June 7, 1999)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
April 30, 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 Bankruptcy
Court order confirming the Debtors' plan of reorganization became final on
May 29, 2001. The Company must close on its exit financing facility before
it can emerge from bankruptcy. The Debtors anticipate emerging from
bankruptcy as soon as the Company closes on its exit financing facility. In
general, the Debtors' plan of reorganization provides that the existing
Harnischfeger common stock will be cancelled upon emergence and that the
creditors of Harnischfeger will be issued new common stock in reorganized
Harnischfeger. As a result, 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. The initial distributions of new stock
and notes are expected to occur thirty to sixty days after the Company's
emergence from bankruptcy. Under Debtors' plan of reorganization, the
assets and liabilities of Beloit will not be part of the reorganized
Company. To facilitate Beloit's exit from bankruptcy, the Company has
agreed to lend Beloit up to $15 million, secured by all of Beloit's
remaining assets.
The Debtors have operated 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. 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 day 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.
Although the Company currently anticipates that it will close on its exit
financing facility and emerge from Bankruptcy in the near term, it is still
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 timing or
the ability of the Company to close on its exit financing facility and
emerge from bankruptcy.
In accounting for the effects of the reorganization, the Company will
implement the "fresh start" accounting principles pursuant to the American
Institute of Certified Public Accountants Statement of Position 90-7,
"Financial Reporting by Entities in Reorganization Under the Bankruptcy
Code" ("SOP 90-7"). Under fresh start accounting principles, the Company
will determine the value to be assigned to the equity of the reorganized
Company as of a date, which is expected to be June 24, 2001, selected for
financial reporting purposes.
The reorganized Company's enterprise value has been estimated at $1,020
million, of which $704 million is attributed to shareholder' equity and
$328 million is attributed to debt plus $12 million of excess cash. Three
methodologies were used to establish the enterprise value, a comparable
companies analysis, a comparable acquisitions analysis and a discounted
cash flow analysis. The enterprise value will be allocated to specific
tangible and identifiable intangible assets and liabilities. The
unallocated portion of the enterprise value will be classified as
"Reorganization value in excess of amounts allocable to identifiable
assets" and may be subject to amortization. The following reflects the
pro-forma reorganized condensed consolidated balance sheet showing
pre-reorganized balance, reorganization adjustments and reorganized balance
as of April 30, 2001. Additional adjustments will be required to reflect
the reorganized balance sheet as of the date selected for financial
reporting purposes.
HARNISCHFEGER INDUSTRIES, INC.
(Debtor-in-possession as of June 7,1999)
----------------------------------------
PRO FORMA REORGANIZED CONDENSED CONSOLIDATED BALANCE SHEET
AS OF APRIL 30, 2001
(UNAUDITED)
Pre-
Reorganization Reorganization Reorganized
In thousands Balance Adjustments Balance
- --------------------------------------------------- ------------------- ------------------- ----------------
ASSETS
Current Assets:
Cash and cash equivalents $ 46,906 $ 46,906
Accounts receivable, net 200,231 200,231
Inventories 425,924 159,548 (a) 585,472
Other current assets 53,633 53,633
Assets of discontinued operations 14,734 (14,734)(b) --
Note receivable from Beloit -- -- (m) --
Property plant and equipment, net 171,715 108,100 (d) 279,815
Goodwill and intangible assets 339,599 (313,130)(e) 26,469
Reoganization value in excess of amounts allocable
to identifiable assets -- 308,931 (f) 308,931
Other assets 40,849 (22,100)(g) 18,749
----------- ----------- -----------
Total Assets $ 1,293,591 $ 226,615 $ 1,520,206
=========== =========== ===========
LIABILITIES AND SHAREHOLDERS' EARNINGS (DEFICIT)
Current Liabilities:
Short-term notes payable, including current portion
of long-term obligations $ 141,149 $ (70,000)(h) 71,149
Trade accounts payable 65,336 -- 65,336
Employee compensation and benefits 48,889 (4,275)(i) 44,614
Advance payments and progress billings 22,562 -- 22,562
Accrued warranties 33,290 -- 33,290
Other current liabilities 213,317 (25,900)(i) 187,417
----------- ----------- -----------
524,543 (100,175) 424,368
Long-term obligations 2,682 12,600 (j) 15,282
Liability for postretirement benefits and accrued
pension costs 47,449 70,557 (g) 118,006
Other liabilities 5,435 -- 5,435
Senior secured debt -- 131,500 (k) 131,500
Senior unsecured notes -- 110,600 (l) 110,600
Liabilities subject to compromise 1,233,283 (1,233,283)(m) --
Liabilities of discontinued operations 293,210 (288,881)(m) 4,329
Minority interest 6,986 -- 6,986
Old equity (819,997) 819,997 --
New equity 703,700 703,700
----------- ----------- -----------
Total liabilities and shareholders' earnings
(deficit) $ 1,293,591 $ 226,615 $ 1,520,206
=========== =========== ===========
Adjustments reflected in the Pro-forma Reorganize Condensed Consolidated
Balance Sheet are as follows:
(a) Increase inventory to its estimated fair value.
(b) Remove the assets and liabilities related to the Beloit discontinued
operations.
(c) Beloit note in the amount of $15 million which will be fully reserved.
(d) Increase fixed assets to their estimated fair values based on
appraisals of an outside party.
(e) Eliminate the Company's historical goodwill.
(f) Record reorganization value in excess of the Company's enterprise
value, as determined by the Company's financial advisor, over the fair
value of the Company's assets and liabilities.
(g) Eliminate the prepaid pension asset and increase the pension liability
related to the Company's Employee Retirement Benefit Plans based on
actuarial calculations.
(h) Repayment of the debtor-in-possession financing facility.
(i) Professional fees, administrative fees, employee retention bonus,
priority and secured claims required to be paid at emergence.
(j) Reclass reinstated industrial revenue bonds from liabilities subject
to compromise.
(k) New senior secured loan proceeds (exit financing facility).
(l) New senior unsecured notes to prepetition claimants of Joy and P&H.
(m) Discharge of prepetition obligations (liabilities subject to
compromise) from continuing operations.
(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' plan of reorganization has been approved by
creditors and confirmed by the Bankruptcy Court, there can be no assurance
that the Debtors' will close on their exit financing and emerge from
bankruptcy. Continuing on a going concern basis is dependent upon, among
other things, 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 the 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 the 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 SOP 90-7 which 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 $0.4 million for the six
months ended April 30, 2001 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 $1.0 million and $0.9 million for the three months
ended April 30, 2001 and 2000, respectively and $2.6 million for the six
months ended April 30 in both fiscal 2001 and 2000.
In the opinion of management, all adjustments necessary for the fair
presentation on a going concern basis of the results of operations for the
three and six months ended April 30, 2001 and 2000, cash flows for the
six months ended April 30, 2001 and 2000, and financial position at
April 30, 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"), in October, 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. In May 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.
In November 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 June 7,
2001, most of Beloit's assets had been sold. Beloit expects that closings
on sales of its' remaining assets will occur in fiscal 2001.
In September 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. On April 17, 2001, the Bankruptcy Court approved the Committee
Settlement Agreement. The Committee Settlement Agreement is an integral
part of the Company's plan of reorganization. On May 18, 2001, the
Bankruptcy Court confirmed the plan.
The Company classified the Beloit Segment as a discontinued operation in
its Consolidated Financial Statements as of October 31, 1999 and
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 $0.8 million for the six months ended
April 30, 2001 and $158.2 million for the comparable period in 2000. The
Company's plan of reorganization provides that the Company's equity
interest in Beloit will be transferred to a liquidating trust and Beloit
and its remaining subsidiaries will be liquidated under the control of a
liquidating trustee.
In March 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 in May 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 the approval of the respective bankruptcy
courts, (i) releasing certain claims made by each party and its affiliates
against the bankruptcy estates of the other party and its affiliates, (ii)
resolving certain trademark licensing issues, (iii) agreeing to assume
their existing agreements in their respective bankruptcy cases, and (iv)
allowing Material Handling a $10 million unsecured pre-petition claim
against the Company in exchange for a release of any liabilities arising
out of the sale of Material Handling to Chartwell Investments, Inc. The $10
million claim was recorded as a charge to loss from discontinued operations
and was included in liabilities subject to compromise in the first quarter
of 2001.
(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 second quarter of fiscal
2001, reorganization expenses related to continuing operations were as
follows:
Three months Six months
ended ended
In thousands April 30, 2001 April 30, 2001
- --------------------------------------------------------------------------------
Professional fees directly related to the filing $ 17,424 * $ 25,192
Amortization of DIP financing costs 1,644 3,288
Accrued retention plan costs 38 2,228
Interest earned on DIP proceeds (191) (502)
-------- --------
$ 18,915 $ 30,206
======== ========
* Includes success bonuses for outside professionals accrued in the second
quarter.
(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. The restructuring reserves
are recorded in other current liabilities on the balance sheet.
Details of these restructuring charges are as follows:
In thousands
-------------------------------------------------------------------
10/31/00 Reserve 01/31/01 Reserve 04/30/01
Reserve Utilized Reserve Utilized Reserve
-------- -------- ------- -------- --------
Employee severance $1,536 $ 188 $1,348 $ 241 $1,107
Facility closures 161 -- 161 11 150
------ ------ ------ ------ ------
Total $1,697 $ 188 $1,509 $ 252 $1,257
====== ====== ====== ====== ======
(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
Debtors' 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:
April 30, 2001 October 31, 2000
------------------------------------ -------------------------------------------
Continuing Discontinued Continuing Discontinued
In thousands Operations Operations Total Operations Operations Total
- -------------------------------------------- ---------- ------------ --------- ---------- ------------- ------------
Trade accounts payable $ 93,010 $ 139,700 $ 232,710 $ 93,638 $ 133,054 $ 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 2,489 21,104 18,615 2,471 21,086
Notes payable 20,000 - 20,000 20,000 - 20,000
Other 25,166 4,124 29,290 21,942 3,723 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
Material Handling settlement 10,000 - 10,000 - - -
APP letter of credit 17,000 - 17,000 17,000 - 17,000
------------ ----------- ------------ ------------ ----------- ------------
$1,233,283 $ 253,219 $1,486,502 $1,220,675 $ 246,154 $1,466,829
============ =========== ============ ============ =========== ============
As a result of the bankruptcy filing, principal and interest payments may
not be made on prepetition debt without Bankruptcy Court approval. Such
interest, which has not been accrued during the pendancy of the bankruptcy,
is not treated as an allowed claim under the Debtors' confirmed plan of
reorganization. The Bankruptcy Code generally disallows the payment of
interest that accrues postpetition with respect to unsecured claims.
Contingent liabilities:
At April 30, 2001, the Company was contingently liable to banks, financial
institutions and others for approximately $121.1 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 $121.1 million, approximately $6.2 million was issued at the request of
the Company on behalf of Beloit and approximately $49.2 million was issued
at the request of HII, Joy and P&H Debtor entities prior to the bankruptcy
filing. Included in the $121.1 million outstanding as of April 30, 2001
were $50.4 million of letters of credit issued under the DIP Facility (See
Note (g) - Borrowings and Credit Facilities) and $15.0 million of
outstanding letters of credit or other guarantees issued by non-U.S. banks
for non-U.S. subsidiaries. Contingent liabilities as of the Chapter 11
filing date are subject to compromise.
As of June 7, 2001, the Debtors had 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. Conversely, assumption of
executory contracts could result in additional administrative claims and a
reduction in prepetition claims.
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 1999,
approximated $120.0 million. In April 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. In October 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 June 7, 2001, APP has
not paid Beloit the $0.8 million.
Disputes arose between Beloit and APP regarding the second two papermaking
machines. In March 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 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 prior to the settlement. 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. 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 second interest payment of $8.3 million and the first
principal payment of $13.7 million, due on March 31, 2001, were not paid.
No value for the note has been recognized in the financial statements as of
April 30, 2001. 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.
On April 3, 2001, pursuant to the terms of the APP note indenture, Beloit
requested the trustee, the Bank of New York, to declare the entire
principal of the note to be accelerated and therefore due and owing to
Beloit. On April 17, 2001, Beloit filed a motion for summary judgment in
lieu of complaint in the Supreme Court of the State of New York, County of
New York, seeking the entire $110 million in principal, plus accrued
interest. As reported in the worldwide press, and as stated publicly by
APP, APP continues to encounter and face significant financial
difficulties. As such, if Beloit is able to prevail in the litigation it
has initiated, collection of a judgment from APP is not certain.
Furthermore, APP failed to exercise certain rights it obtained pursuant to
the settlement agreement to take possession of various components and spare
parts produced or acquired by Beloit in connection with the two papermaking
machines. Beloit is seeking declaratory relief from the Bankruptcy Court in
order to quiet title and take control of equipment that is owned by Beloit
and remains in the possession of third party storage facilities. In
addition, Beloit has also filed a motion with the Bankruptcy Court to
assume certain contracts with its vendors. Because APP failed to timely
comply with the settlements terms, Beloit has now elected to assume these
contracts and take control of the equipment which is the subject matter of
the contracts.
The Company and certain of its present and former senior executives were
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, seeking 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. The Company and the individual defendants have reached an
agreement in principle to settle this action. This agreement, if finalized,
will be subject to the approval of the United States District Court after
notice to the plaintiff class.
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.
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
during the pendancy of the bankruptcy case.
(g) Borrowings and Credit Facilities
Borrowings consisted of the following:
April 30, October 31,
In thousands 2001 2000
-------------------------------------------- ------------ ----------
Domestic:
DIP Facility $ 70,000 $ 30,000
Capital Leases 1,884 2,259
Foreign:
Australian Term Loan, due 2001 45,738 47,106
Short term notes payable and bank overdrafts 24,708 30,965
Other 1,501 1,568
--------- ---------
143,831 111,898
Less: Amounts due within one year (141,149) (108,774)
--------- ---------
Long-term Obligations $ 2,682 $ 3,124
======== ========
Exit Financing Facility
On April 2, 2001, the Company signed a commitment letter with Bankers Trust
Company for a four and one half year, $350 million senior secured exit
facility (the "Exit Facility") to replace the DIP Facility described below.
The Exit Facility also provides financing facilities to replace the
Company's existing borrowing arrangements in Australia, Canada and the
United Kingdom. The amount of the facility is scheduled to reduce in
increments to $250 million by the fourth year. As of June 7, 2001, the
Company expects to close the Exit Facility in the near term. Upon closing
the Exit Facility, the Company will emerge from bankruptcy.
Senior Notes
Following emergence from bankruptcy, the Company will issue senior notes to
the holders of allowed claims against Joy Mining Machinery and P&H Mining
Equipment and their respective subsidiaries. The notes will bear interest
at a rate of 10.75% from the emergence date and are scheduled to mature
April 30, 2006 unless earlier redeemed according to their terms. The notes
will be general unsecured obligations of the Company guaranteed by Joy
Mining Machinery and P&H Mining Equipment and their respective reorganizing
subsidiaries. As of June 7, 2001, an estimated $110.6 million of senior
notes would be distributed in connection with the Company's emergence from
bankruptcy.
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 in
July 2000, an order was entered by the Bankruptcy 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 7, 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, in August 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. The Company has made arrangements to extend the term of the DIP
Facility in the event the Company is unable to close on its exit financing
facility before the DIP Facility expires.
Proceeds from the DIP Facility may be used to fund postpetition working
capital and for other general corporate purposes. 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 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.
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 April
30, 2001, $70 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 $50.4
million had been issued under the DIP Facility.
Foreign Credit Facilities
As of April 30, 2001, short-term bank credit lines of foreign subsidiaries
amounted to $81.9 million. Outstanding borrowings against these were $24.7
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
$45.7 million) term loan facility with a group of four banks at a floating
interest rate expressed in relation to Australian dollar denominated Bank
Bills of Exchange. As of April 30, 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 and six months ended April 30, 2001 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. Because the
Company's confirmed plan of reorganization results in a significantly
modified capital structure for the Company, it is 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 value in excess of amounts allocable
to identifiable assets until exhausted and thereafter be reported as
additional paid in capital.
(i) Inventories
Consolidated inventories consisted of the following:
April 30, October 31,
In thousands 2001 2000
- -------------------------------------- --------- ------------
Finished goods $ 246,164 $ 208,473
Work in process and purchased parts 202,260 224,554
Raw materials 29,323 29,127
--------- ---------
477,747 462,154
Less excess of current cost over stated
LIFO value (51,823) (51,823)
--------- ---------
$ 425,924 $ 410,331
========= =========
Inventories valued using the LIFO method represented approximately 65% and
64% of consolidated inventories at April 30, 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 Six Months Ended
April 30, April 30,
------------------------------- ----------------------------
In thousands except per share amounts 2001 2000 2001 2000
- ------------------------------------------------ --------------- -------------- --------------- -----------
Basic Earnings (Loss):
- ------------------------------------------------
Loss from continuing operations $ (6,461) $ (6,343) $(12,711) $ (23,889)
Income (loss) from discontinued operation 5,878 -- (3,170) --
-------- -------- -------- ---------
Net loss $ (583) $ (6,343) $(15,881) $ (23,889)
======== ======== ======== =========
Basic weighted average common shares outstanding 46,816 46,719 46,816 46,618
-------- -------- -------- ---------
Basic Earnings (Loss) Per Share:
Loss from continuing operations $ (0.14) $ (0.13) $ (0.27) $ (0.51)
Income (loss) from discontinued operation 0.12 -- (0.07) --
-------- -------- -------- ---------
Net loss $ (0.02) $ (0.13) $ (0.34) $ (0.51)
======== ======== ======== =========
Diluted Earnings (Loss):
Loss from continuing operations $ (6,461) $ (6,343) $(12,711) $ (23,889)
Income (loss) from discontinued operation 5,878 -- (3,170) --
-------- -------- -------- ---------
Net loss $ (583) $ (6,343) $(15,881) $ (23,889
======== ======== ======== =========
Basic weighted average common shares outstanding 46,816 46,719 46,816 46,618
Assumed exercise of stock options -- -- -- --
-------- -------- -------- --------
Diluted weighted average common shares outstanding 46,816 46,719 46,816 46,618
-------- -------- -------- --------
Diluted Earnings (Loss) Per Share:
Loss from continuing operations $ (0.14) $ (0.13) $ (0.27) $ (0.51)
Income (loss) from discontinued operation 0.12 -- (0.07) --
-------- -------- -------- -------
Net loss $ (0.02) $ (0.13) $ (0.34) $ (0.51)
======== ======== ======== =======
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 April 30, 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
- ----------------------------------------- -------------------------------------------------------------------------------------
Net Operating Depreciation and Capital Identifiable
Sales (1) Income (Loss) Amortization Expenditures Assets
--------------- --------------- ------------- -------------- ----------------
Three months ended April 30, 2001
Surface Mining $ 114,584 $ 11,210 $ 3,321 $ 2,512 $ 438,823
Underground Mining 173,171 12,373 (2) 7,474 1,615 825,339
--------------- --------------- ------------- -------------- ----------------
Total continuing operations 287,755 23,583 10,795 4,127 1,264,162
Discontinued operations - - - - 14,734
Reorganization item - (18,915) - - -
Corporate - (3,896) 2,115 761 14,695
--------------- --------------- ------------- -------------- ----------------
Consolidated Total $ 287,755 $ 772 $12,910 $ 4,888 $ 1,293,591
=============== =============== ============= ============== ================
Three months ended April 30, 2000
Surface Mining $ 134,806 $ 15,711 $ 4,209 $ 6,019 $ 403,062
Underground Mining 148,219 5,078 (2) 7,410 2,694 874,315
--------------- --------------- ------------- -------------- ----------------
Total continuing operations 283,025 20,789 11,619 8,713 1,277,377
Discontinued operations - - - - 202,000
Reorganization item - (11,462) - - -
Corporate - (3,931) 2,167 - 67,352
--------------- --------------- ------------- -------------- ----------------
Consolidated Total $ 283,025 $ 5,396 $13,786 $ 8,713 $ 1,546,729
=============== =============== ============= ============== ================
Six months ended April 30, 2001
Surface Mining $ 227,011 $ 18,894 $ 6,689 $ 4,820 $ 438,823
Underground Mining 328,250 20,192 (2) 14,857 4,429 825,339
--------------- --------------- ------------- -------------- ----------------
Total continuing operations 555,261 39,086 21,546 9,249 1,264,162
Discontinued operations - - - - 14,734
Reorganization item - (30,206) - - -
Corporate - (7,487) 3,827 761 14,695
--------------- --------------- ------------- -------------- ----------------
Consolidated Total $ 555,261 $ 1,393 $25,373 $ 10,010 $ 1,293,591
=============== =============== ============= ============== ================
Six months ended April 30, 2000
Surface Mining $ 256,211 $ 25,168 $ 8,239 $ 10,723 $ 403,062
Underground Mining 313,795 5,719 (2) 14,840 4,138 874,315
--------------- --------------- ------------- -------------- ----------------
Total continuing operations 570,006 30,887 23,079 14,861 1,277,377
Discontinued operations - - - - 202,000
Reorganization item - (23,035) - - -
Corporate - (8,235) 4,352 - 67,352
--------------- --------------- ------------- -------------- ----------------
Consolidated Total $ 570,006 $ (383) $27,431 $ 14,861 $ 1,546,729
=============== =============== ============= ============== ================
(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 (credit)/charge of $(42) and $168 and $(42) and $6,479
for the three and six months ended April 30, 2001 and 2000, respecively-
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 April 30, 2001
United States $ 197,865 $ (38,950) $ 158,915 $ 10,230 $ 1,346,674
Europe 46,302 (11,694) 34,608 9,279 317,389
Other Foreign 96,932 (2,700) 94,232 10,405 256,432
Interarea Eliminations (53,344) 53,344 - (6,331) (656,333)
--------------- --------------- --------------- --------------- ----------------
$ 287,755 $ - $ 287,755 $ 23,583 $ 1,264,162
=============== =============== =============== =============== ================
Three months ended April 30, 2000
United States $ 217,420 $ (27,063) $ 190,357 $ 20,156 $ 1,307,070
Europe 27,609 (8,993) 18,616 610 325,891
Other Foreign 76,243 (2,191) 74,052 6,146 272,970
Interarea Eliminations (38,247) 38,247 - (6,123) (628,554)
--------------- --------------- --------------- --------------- ----------------
$ 283,025 $ - $ 283,025 $ 20,789 $ 1,277,377
=============== =============== =============== =============== ================
Six months ended April 30, 2001
United States $ 395,245 $ (74,376) $ 320,869 $ 18,738 $ 1,346,674
Europe 98,417 (36,644) 61,773 19,344 317,389
Other Foreign 178,961 (6,342) 172,619 16,615 256,432
Interarea Eliminations (117,362) 117,362 - (15,611) (656,333)
--------------- --------------- --------------- --------------- ----------------
$ 555,261 $ - $ 555,261 $ 39,086 $ 1,264,162
=============== =============== =============== =============== ================
Six months ended April 30, 2000
United States $ 416,344 $ (51,255) $ 365,089 $ 30,664 $ 1,307,070
Europe 77,941 (28,380) 49,561 (1,452) 325,891
Other Foreign 164,400 (9,044) 155,356 13,642 272,970
Interarea Eliminations (88,679) 88,679 - (11,967) (628,554)
--------------- --------------- --------------- --------------- ----------------
$ 570,006 $ - $ 570,006 $ 30,887 $ 1,277,377
=============== =============== =============== =============== ================
(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 Six months ended April 30, 2001
- ----------------------------------------------------------------------------------------------------------
Entities in Entities not in
Reorganization Reorganization Combined
Proceedings Proceedings Eliminations Consolidated
------- -------- -------- ---------
Revenues
Net sales $ 395,245 $ 254,386 $ (94,370) $ 555,261
Other income (7,241) (9,039) 17,241 961
------- -------- -------- ---------
388,004 245,347 (77,129) 556,222
Cost of sales 283,455 219,375 (85,271) 417,559
Product, development, selling
and administrative expenses 77,686 29,420 - 107,106
Reorganization items 30,206 - - 30,206
Restructuring charges - (42) - (42)
------- -------- -------- ---------
391,347 248,753 (85,271) 554,829
------- -------- -------- ---------
Operating income (loss) (3,343) (3,406) 8,142 1,393
Interest income (expense)-net
(excludes contractual
interest expense of $35,547
in 2001) (11,505) 5,697 9,785 (7,417)
------- -------- -------- ---------
Income (loss) before (provision)
benefit for income taxes
and minority in interest (14,848) (9,103) 17,927 (6,024)
(Provision) benefit for income taxes 1,222 (7,222) - (6,000)
Minority interest 536 - (1,223) (687)
Equity in income (loss) of subsidiaries 7,119 1,049 (8,168) -
------- -------- -------- ---------
Income (loss) from continuing operations (5,971) (15,276) 8,536 (12,711)
Loss from discontined operations (2,413) (757) - (3,170)
------- -------- -------- ---------
Net income (loss) $ (8,384) $ (16,033) $ 8,536 $ (15,881)
In thousands Six months ended April 30, 2000
- ----------------------------------------------------------------------------------------------------------
Entities in Entities not in
Reorganization Reorganization Combined
Proceedings Proceedings Eliminations Consolidated
------- -------- -------- ---------
Revenues
Net sales $ 416,344 $ 242,341 $ (88,679) $ 570,006
Other income (6,838) (11,186) 19,802 1,778
------- -------- -------- ---------
409,506 231,155 (68,877) 571,784
Cost of sales 316,175 197,461 (76,712) 436,924
Product, development, selling
and administrative expenses 79,383 26,346 - 105,729
Reorganization items 23,035 - - 23,035
Restructuring charges - 6,479 - 6,479
------- -------- -------- ---------
418,593 230,286 (76,712) 572,167
------- -------- -------- ---------
Operating income (loss) (9,087) 869 7,835 (383)
Interest income (expense)-net
(excludes contractual
interest expense of $35,547
in 2001) (11,184) (5,950) - (17,134)
------- -------- -------- ---------
Income (loss) before (provision)
benefit for income taxes
and minority in interest (20,271) (5,081) 7,835 (17,517)
(Provision) benefit for income taxes (5,605) (395) - (6,000)
Minority interest - - (372) (372)
Equity in income (loss) of subsidiaries 28,117 389 (28,506) -
------- -------- -------- ---------
Income (loss) from continuing operations 2,241 (5,087) (21,043) (23,889)
Loss from discontined operations - - - -
------- -------- -------- ---------
Net income (loss) $ 2,241 $ (5,087) $(21,043) $ (23,889)
======= ======== ======== =========
CONDENSED COMBINED CONSOLIDATING
BALANCE SHEET
In thousands As of April 30, 2001
- ------------------------------------------------------------------------------------------------------------
Entities in Entities Not in
Reorganization Reorganization Combined
Proceedings Proceedings Eliminations Consolidated
----------- ----------- ------------ ------------
Assets
Current Assets:
Cash and cash equivalents $ 14,516 $ 32,390 $ - $ 46,906
Accounts receivable, net 111,820 103,629 (15,218) 200,231
Intercompany receivables 1,693,373 286,737 (1,980,110) -
Inventories 279,815 156,814 (10,705) 425,924
Other current assets 9,382 43,815 436 53,633
Prepaid income taxes (2,550) 2,550 - -
------------ ----------- ----------- ------------
2,106,356 625,935 (2,005,597) 726,694
Assets of Discontinued Operations 14,734 - - 14,734
Property, Plant and Equipment - Net 124,889 46,826 - 171,715
Intangible Assets 138,244 201,367 (12) 339,599
Investment in Subsidiaries 269,747 17,958 (285,487) 2,218
Other Assets 26,749 11,882 - 38,631
------------ ----------- ----------- ------------
Total Assets $ 2,680,719 $ 903,968 $(2,291,096) $ 1,293,591
============ =========== =========== ============
In thousands As of October 31, 2000 (1)
- ------------------------------------------ -----------------------------------------------------------------
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 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 157,118 15,770 (170,641) 2,247
Other Assets 22,644 15,153 38 37,835
------------ ----------- ----------- ------------
Total Assets $2,620,750 $ 887,836 $(2,215,658) $ 1,292,928
============ =========== =========== ============
(1) - The October 31, 2000 Investment in Subsidiary and corresponding
Elimination entry have been restated to be consistent with the current
quarter, with no effect to the Combined Consolidated total.
CONDENSED COMBINED CONSOLIDATING
BALANCE SHEET
In thousands As of April 30, 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 $ 70,703 $ 70,446 $ - $ 141,149
Trade accounts payable 27,233 38,103 - 65,336
Intercompany accounts payable 1,633,420 339,139 (1,972,559) -
Employee compensation and benefits 37,709 5,881 5,299 48,889
Advance payments and progress billings 11,711 12,651 (1,800) 22,562
Accrued warranties 20,059 13,231 - 33,290
Other current liabilities 164,862 60,922 (12,467) 213,317
------------ ----------- ----------- ------------
1,965,697 540,373 (1,981,527) 524,543
Long-term Obligations 1,181 1,501 - 2,682
Liability for Postretirement Benefits
and Accrued Pension Costs 50,101 2,647 (5,299) 47,449
Deferred Income Taxes (1,760) 1,760 - -
Other Liabilities 5,433 2 - 5,435
Liabilities Subject to Compromise 1,233,283 - - 1,233,283
Liabilities of Discontinued Operations,
including liabilities subject to compromise
of $253,219 and $246,154, respectively. 288,881 4,329 - 293,210
Minority Interest - - 6,986 6,986
Shareholders' Equity (Deficit)
Common stock 52,619 61,810 (62,760) 51,669
Capital in excess of par value 1,700,784 277,775 (1,414,984) 563,575
Retained earnings (deficit) (2,282,423) 193,586 868,642 (1,220,195)
Accumulative comprehensive (loss) (242,329) (179,815) 297,846 (124,298)
Less: Stock employee compensation trust (133) - - (133)
Treasury stock (90,615) - - (90,615)
------------ ----------- ----------- ------------
(862,097) 353,356 (311,256) (819,997)
$2,680,719 $ 903,968 $ (2,291,096) $1,293,591
In thousands As of April 30, 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 $ 30,668 $ 78,106 $ - $ 108,774
Trade accounts payable 31,793 40,698 - 72,491
Intercompany accounts payable 1,550,425 155,569 (1,705,994) -
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
Other liabilities 171,482 52,968 (13,290) 211,160
------------ ----------- ----------- ------------
1,848,099 356,514 (1,713,985) 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 $253,219 and $246,154, respectively. 301,105 25,963 (12,343) 314,725
Minority Interest - - 6,533 6,533
Shareholders' Equity (Deficit)
Common stock 52,619 61,835 (62,785) 51,669
Capital in excess of par value 1,700,750 278,006 (1,415,214) 563,542
Retained earnings (deficit) (2,237,350) 336,437 696,599 (1,204,314)
Accumulative comprehensive (loss) (228,921) (176,789) 290,836 (114,874)
Less: Stock employee compensation trust (100) - - (100)
Treasury stock (90,615) - - (90,615)
------------ ----------- ----------- ------------
(803,617) 499,489 (490,564) (794,692)
$2,620,750 $887,836 $(2,215,658) $1,292,928
(1) - The October 31, 2000 Intercompany, Equity and corresponding
Eliminations balances have been restated to be consistent with the current
quarter, with no effect to the Combined Consolidated total.
COMBINED CONSOLIDATING
STATEMENT OF CASH FLOW
In thousands As of April 30, 2001
- ------------------------------------------------------------------- ------------------------------------------------
Entities in Entities Not in
Reorganization Reorganization Combined
Proceedings Proceedings Consolidated
Net Cash Provided (Used) by Continuing Operations $ (29,679) $ (9,641) (39,320)
Investment and Other Transactions:
Cash transferred to entities not in reorganization - - -
Property, plant and equipment acquired (7,798) (2,212) (10,010)
Property, plant and equipment retired 1,797 196 1,993
Other - net 2,670 (91) 2,579
-------------- --------------- ------------
Net cash provided (used) by investment and other transactions (3,331) (2,107) (5,438)
-------------- --------------- ------------
Financing Activities:
Borrowings under DIP Facility 45,000 - 45,000
Repayment of borrowing under DIP Facility (5,000) - (5,000)
Net issuance of long-term obligations - 2,065 2,065
Increase (decrease) in short-term notes payable - net - (8,066) (8,066)
-------------- --------------- ------------
-------------- --------------- ------------
Net cash used by financing activities 40,000 (6,001) 33,999
-------------- --------------- ------------
Effect of Exchange Rate Changes on Cash and Cash Equivalents - (743) (743)
-------------- --------------- ------------
Cash Used by Discontinued Operations (13,715) - (13,715)
Increase (Decrease) in Cash and Cash Equivalents (6,725) (18,492) (25,217)
Cash and Cash Equivalents at Beginning of the Period 21,241 50,882 72,123
-------------- --------------- ------------
Cash and Cash Equivalents at End of the Period $ 14,516 $ 32,390 $ 46,906
============== =============== ============
In thousands As of April 30, 2000
- ------------------------------------------------------------------- ------------------------------------------------
Entities in Entities Not in
Reorganization Reorganization Combined
Proceedings Proceedings Consolidated
Net Cash Provided (Used) by Continuing Operations $ (19,273) $ 25,297 $ 6,024
Investment and Other Transactions:
Cash transferred to entities not in reorganization (17,660) 17,660
Property, plant and equipment acquired (13,099) (1,762) (14,861)
Property, plant and equipment retired 2,797 1,481 4,278
Other - net 13,633 (4,717) 8,916
-------------- --------------- ------------
Net cash provided (used) by investment and other transactions (14,329) 12,662 (1,667)
-------------- --------------- ------------
Financing Activities:
Borrowings under DIP Facility 70,000 - 70,000
Repayment of borrowing under DIP Facility (51,000) - (51,000)
Net issuance of long-term obligations 1,555 (760) 795
Increase (decrease) in short-term notes payable - net - 1,650 1,650
-------------- --------------- ------------
-------------- --------------- ------------
Net cash used by financing activities 20,555 890 21,445
-------------- --------------- ------------
Effect of Exchange Rate Changes on Cash and Cash Equivalents - (1,276) (1,276)
-------------- --------------- ------------
Cash Used by Discontinued Operations 8,111 (24,192) (16,081)
Increase (Decrease) in Cash and Cash Equivalents (4,936) 13,381 8,445
Cash and Cash Equivalents at Beginning of the Period 30,175 27,278 57,453
-------------- --------------- ------------
Cash and Cash Equivalents at End of the Period $ 25,239 $ 40,659 $ 65,898
============== =============== ============
Item 2 - Management's Discussion and Analysis of Financial Condition and Results
of Operations
Six Months Ended April 30, 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 Bankruptcy Court order confirming the Debtors' plan of
reorganization became final on May 29, 2001. The Company must close on its exit
financing facility before it can emerge from bankruptcy. The Debtors anticipate
emerging from bankruptcy as soon as the Company closes on its exit financing
facility. In general, the Debtors' plan of reorganization provides that the
existing Harnischfeger common stock will be cancelled upon emergence and that
the creditors of Harnischfeger will be issued new common stock in reorganized
Harnischfeger. As a result, 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. The initial distributions of new stock and notes are expected
to occur thirty to sixty days after the Company's emergence from bankruptcy.
Under Debtors' plan of reorganization, the assets and liabilities of Beloit will
not be part of the reorganized Company. To facilitate Beloit's exit from
bankruptcy, the Company has agreed to lend Beloit up to $15 million, secured by
all of Beloit's remaining assets.
The Debtors have operated 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 June 7, 2001, the Debtors had 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 day 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
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. Continuing on a going concern basis is
dependent upon, among other things, 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 the 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 the 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 April 30, 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 April 30:
In thousands 2001 2000
----------------------------------------------------------------
Net sales $ 114,584 $ 134,806
Operating Profit $ 11,210 $ 15,711
Bookings $ 102,425 $ 110,470
Net sales in the second quarter of 2001 were $20.2 million lower than net sales
in the second quarter a year ago. The decrease was due to a decline in electric
mining shovel and drill sales, primarily in the copper market. The decrease in
new equipment sales was partially offset by an increase in aftermarket sales as
a result of higher parts sales in North and South America.
Operating profit during the quarter was $4.5 million lower than operating profit
for the same quarter a year ago. The decrease was the result of lower levels of
new equipment shipments during the current quarter combined with lower
manufacturing overhead absorption associated with the decrease in sales.
New order bookings were $8.0 million lower in the second quarter of fiscal 2001
than the second quarter of fiscal 2000. New machine orders for electric mining
shovels and drills in North and South America were lower than in the second
quarter of last year. Aftermarket orders for service sales were higher in
Australia and Canada than a year ago, while repair parts bookings during the
quarter were substantially the same as last year.
The order backlog as of April 30, 2001 was $72.7 million compared to $75.7
million at the end of October 2000. The decrease in backlog is due to lower
orders for electric mining shovels and drills. These backlog amounts exclude
customer arrangements under long-term equipment life cycle management progress.
The total estimated amount of these equipment life cycle management programs,
which extend for up to thirteen years, was approximately $325.0 million as of
April 30, 2001.
Six Months Ended April 30, 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 six months ended April 30:
In thousands 2001 2000
----------------------------------------------------------------
Net sales $227,011 $256,211
Operating Profit $ 18,894 $ 25,168
Bookings $223,991 $237,723
Net sales in the first six months of the 2001 fiscal year were $29.2 million
lower than net sales in the first six months of the previous fiscal year. A
$35.4 million decrease in electric mining shovels and drills was partially
offset by increases in repair parts and service sales. The market for new
equipment strengthened in Australia coal, but this was offset by lower sales in
North and South America as compared to a year ago. Aftermarket sales were strong
in all regions.
Operating profit for the first half of fiscal 2001 was $6.3 million lower than
operating results achieved during the first half of fiscal 2000. Lower operating
results were due to reduced new equipment shipments and higher product costs.
New order bookings during the first half of the current year were $13.7 million
lower than new orders received for the same period a year ago. Orders for
electric mining shovels and drills in North and South America were lower than a
year ago, offset partially by electric shovel orders in Australia. Aftermarket
bookings were $7.0 million higher than a year ago, with the increase occurring
primarily in Canada and Chile.
Underground Mining Machinery
Three Months Ended April 30, 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 second quarter ended April 30:
In thousands 2001 2000
---------------------------------------------------------
Net sales $ 173,171 $ 148,219
Operating Profit $ 12,373 * $ 5,078 **
Bookings $ 210,305 $ 143,310
-------------
* After restructuring credit of $(42) and charges of $900 for prepetition
lawsuit settlements. ** After restructuring charge of $168.
Net sales in the second quarter of the 2001 fiscal year were $25.0 million
greater than net sales in the second quarter a year ago. Approximately half of
the increase in net sales was due to roof supports shipments to customers served
by the United Kingdom operations. The remaining increase in net sales was
associated with higher levels of aftermarket shipments in the markets served by
the United States, United Kingdom and Australian operations. The improvement in
United States aftermarket sales reflects the somewhat higher level of coal
production in the United States while the aftermarket sales improvement in the
United Kingdom reflects a combination of strong parts sales into China and an
increase in complete machine rebuild shipments in the United Kingdom.
Operating profit during the current quarter was $7.3 million greater than
operating profit for the same quarter a year ago. This improvement resulted from
higher levels of shipments during the current quarter combined with benefits of
the cost reduction programs put in place during the 1999 and 2000 fiscal years
and higher manufacturing overhead absorption associated with the increase in net
sales.
New order bookings were $67.0 million higher in the second quarter of fiscal
2001 than the second quarter of fiscal 2000. New machine orders for continuous
miners, longwall shearers and roof supports in the United States and the United
Kingdom were higher than the depressed level of new machine orders received in
the second quarter last year. Aftermarket orders for repair parts, component
repairs, and complete machine rebuilds during the current quarter were higher
than a year ago in the United States, while aftermarket bookings were
substantially the same as last year in the rest of the markets served.
The order backlog as of April 30, 2001 was $173.3 million compared to $151.2
million at the end of October 2000. The increase in backlog is due to increased
orders for continuous miners and longwall shearers. These backlog amounts
exclude customer arrangements under long-term equipment life cycle management
programs. The total estimated amount of these equipment life cycle management
programs, which extend for periods up to eight years, was approximately $58.0
million as of April 30, 2001.
Six Months Ended April 30, 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 six months ended April 30:
In thousands 2001 2000
----------------------------------------------------------------
Net sales $ 328,250 $ 313,795
Operating Profit $ 20,192 * $ 5,719 *
Bookings $ 350,326 $ 262,193
-------------
* After restructuring (credits)/charges of $(42) and $6,479 in 2001 and
2000, respectively.
Net sales in the first six months of the 2001 fiscal year were $14.5 million
higher than net sales in the first six months of the previous fiscal year. A
slight decrease in new machine sales compared to a year ago, primarily roof
support shipments in the United States, was more than offset by increases in the
sales of repair parts, component repairs and machine rebuilds. After-market
sales in the United States improved, while higher levels of repair parts
shipments to China were achieved to support the installed base of equipment
shipped into that market over the last several years. The market for new
equipment in South Africa and Australia continued to be soft.
Operating profit for the first half of fiscal 2001, after adjusting for $6.5
million of restructuring charges recorded in the first six months of 2000, was
$8.0 million higher than operating results achieved during the first half of
fiscal 2000. Improved operating results resulted from profits associated with
increased net sales combined with the benefits of costs reduction actions put in
place during the 1999 and 2000 fiscal years.
New order bookings during the first half of the current year were $88.1 million
greater than new orders received for the same period a year ago. Both new
machines and aftermarket products had higher levels of bookings compared to the
first six months of the previous fiscal year. New machine orders in 2001
included two roof support system orders compared to none last year and
relatively higher orders for continuous miners and longwall shearers. In
addition, orders for repair parts in the United States and in the markets served
out of the United Kingdom were higher than they were in the first half of fiscal
2000.
Discontinued Operations
In light of continuing losses at Beloit and following an evaluation of the
prospects of reorganizing the Beloit Segment, in October 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.
In May 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.
In November 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 June 7,
2001, most of Beloit's assets had been sold.
In September 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. On April 17, 2001,
the Bankruptcy Court approved the Committee Settlement Agreement. The Committee
Settlement Agreement is an integral part of the Company's plan of
reorganization. On May 18, 2001, the Bankruptcy Court confirmed the plan.
The Company classified the Beloit Segment as a discontinued operation in its
Consolidated Financial Statements as of October 31, 1999 and 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 $0.8 million for the six months ended April 30, 2001 and $158.2
million for the comparable period in 2000. Upon emergence, the Company's equity
interest in Beloit will be transferred to a liquidation trust and Beloit and its
remaining subsidiaries will be liquidated under the control of a liquidating
trustee.
In March 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 in May 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 the approval of the respective bankruptcy courts, (i) releasing
certain claims made by each party and its affiliates against the bankruptcy
estates of the other party and its affiliates, (ii) resolving certain trademark
licensing issues, (iii) agreeing to assume their existing agreements in their
respective bankruptcy cases, and (iv) allowing Material Handling a $10 million
unsecured pre-petition claim against the Company in exchange for a release of
any liabilities arising out of the sale of Material Handling to Chartwell
Investments, Inc.
For the six months ended April 30, 2001, the discontinued operations recorded a
loss of $3.2 million. This loss was primarily due to approximately $6.5 million
realized for the sale of Beloit assets in excess of their recorded value in the
second quarter of 2001 offset by the $10 million settlement with Material
Handling recorded in the first quarter of 2001. 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 and six months ended April 30, 2001 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. Because the Company's confirmed plan of
reorganization results in a significantly modified capital structure, the
Company is 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 Company's plan of reorganization provides that
existing Harnischfeger common stock will be cancelled. As a result, current
shareholders of Harnischfeger will receive nothing.
Working Capital
Working capital of continuing operations, excluding liabilities subject to
compromise, as of April 30, 2001, was $202.2 million including $46.9 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
decrease in working capital resulted principally from the $40.0 million increase
in DIP borrowings that were used to pay professional fees. Additionally, net
accounts receivable and inventories increased by $23.1 million and $15.6
million, respectively, offset by a $25.2 million decrease in cash and cash
equivalents.
Cash Flow from Continuing Operations
Net cash used in continuing operations for the six months ended April 30, 2001
was $39.3 million as compared to net cash provided by continuing operations of
$6.0 million for the comparable period in 2000. This decrease is primarily due
to an inventory build-up of $22.6 million in the first six months of 2001
compared with an inventory reduction of $31.4 million in 2000.
Net cash used by investment and other activities was $5.4 million for the six
months ended April 30, 2001 compared to $1.7 million during the corresponding
period in 2000. The difference in periods is mainly due to the inclusion in the
first six months of 2000 of a $15.9 million APP letter of credit that was
returned to the Company.
Net cash provided by financing activities was $34.0 million for the six months
ended April 30, 2001 as compared to net cash provided of $21.4 million during
the same period in 2000. This is a direct result of an increase in net
borrowings under the DIP facility in 2001 to pay an increased amount of
professional fees.
Exit Financing Facility
On April 2, 2001, the Company signed a commitment letter with Bankers Trust
Company for a four and one half year, $350 million senior secured exit facility
(the "Exit Facility") to replace the DIP Facility described below. The Exit
Facility also provides financing facilities to replace the Company's existing
borrowing arrangements in Australia, Canada and the United Kingdom. The amount
of the facility is scheduled to reduce in increments to $250 million by the
fourth year. As of June 7, 2001, the Company expects to close the Exit Facility
in the near term. Upon closing the Exit Facility, the Company will emerge from
bankruptcy.
Senior Notes
Following emergence from
bankruptcy, the Company will issue senior notes to the holders of allowed claims
against Joy Mining Machinery and P&H Mining Equipment and their respective
subsidiaries. The notes will bear interest at a rate of 10.75% from the
emergence date and are scheduled to mature April 30, 2006 unless earlier
redeemed according to their terms. The notes will be general unsecured
obligations of the Company guaranteed by Joy Mining Machinery and P&H Mining
Equipment and their respective reorganizing subsidiaries. As of June 7, 2001, an
estimated $110.6 million of senior notes would be distributed in connection with
the Company's emergence from bankruptcy.
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 in July 2000, an order was entered
by the Bankruptcy 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 7, 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, in August 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. The Company has made arrangements to extend the term of the DIP
Facility in the event that the Company is unable to close on its exit financing
facility before the DIP Facility expires.
Proceeds from the DIP Facility may be used to fund postpetition working capital
and for other general corporate purposes. 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.
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 April 30, 2001, $70 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 $50.4 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 April 30, 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, as of April 30, 2001, was 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 April 30, 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 $0.4 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
$1.0 million and $0.9 million for the three months ended April 30, 2001 and
2000, respectively and $2.6 million for the six months ended April 30 in both
fiscal 2001 and 2000.
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 and Item 1 -
Legal Proceedings of Item II of the Company's quarterly report on Form
10-Q for the quarter ended January 31, 2001. The Company and the
individual defendants have reached an agreement in principle to settle
the class action captioned In re: Harnischfeger Industries, Inc.
Securities Litigation. This agreement, if finalized, will be subject
to approval of the United States District Court for the Eastern
District of Wisconsin after notice to the plaintiff class.
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
second 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 in closing on its
exit financing facility and implementing its plan of
reorganization; the availability of financing and refinancing;
and the Company's ability to comply with covenants in its
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
Date June 7, 2001 Chief Financial Officer
/s/ Michael S. Olsen
-------------------------------
Michael S. Olsen
Date June 7, 2001 Vice President and Controller