-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, I/aIaZ7BQnPe6yZPEmteyUJMWTq+s7hDJcwulxtTrW1qlCIMRC3mPLSOejLbFzFU U608xCGvQirGyAUo1DaCLA== 0000801898-00-000016.txt : 20000216 0000801898-00-000016.hdr.sgml : 20000216 ACCESSION NUMBER: 0000801898-00-000016 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 19991031 FILED AS OF DATE: 20000214 FILER: COMPANY DATA: COMPANY CONFORMED NAME: HARNISCHFEGER INDUSTRIES INC CENTRAL INDEX KEY: 0000801898 STANDARD INDUSTRIAL CLASSIFICATION: MINING MACHINERY & EQUIP (NO OIL & GAS FIELD MACH & EQUIP) [3532] IRS NUMBER: 391566457 STATE OF INCORPORATION: DE FISCAL YEAR END: 1031 FILING VALUES: FORM TYPE: 10-K SEC ACT: SEC FILE NUMBER: 001-09299 FILM NUMBER: 544545 BUSINESS ADDRESS: STREET 1: 3600 SOUTH LAKE DRIVE CITY: ST FRANCIS STATE: WI ZIP: 53235-3716 BUSINESS PHONE: 4144866400 MAIL ADDRESS: STREET 1: 3600 SOUTH LAKE DRIVE CITY: ST FRANCIS STATE: WI ZIP: 53235 10-K 1 FORM 10-K SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K /X/ Annual report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 for the fiscal year ended October 31, 1999. / / Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 for the transition period from to . Commission file number 1-9299 HARNISCHFEGER INDUSTRIES, INC. (Exact Name of Registrant as Specified in Its Charter) Delaware 39-1566457 (State or Jurisdiction of (I.R.S. Employer Identification No.) Incorporation or Organization) 3600 South Lake Drive, St. Francis, Wisconsin 53235-3716 (Address of Principal Executive Office) (Zip Code) Registrant's Telephone Number, Including Area Code: (414) 486-6400 Securities registered pursuant to Section 12(b) of the Act: None Securities registered pursuant to Section 12(g) of the Act: Title of Each Class Common Stock, $1 Par Value Preferred Stock Purchase Rights Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months, and (2) has been subject to such filing requirements for the past 90 days. Yes /X/ No / / Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. / / The aggregate market value of Registrant's Common Stock held by non-affiliates, as of February 11, 2000, based on a closing price of $0.875 per share, was approximately $42.0 million. The number of shares outstanding of Registrant's Common Stock, as of February 11, 2000, was 47,949,089. HARNISCHFEGER INDUSTRIES, INC. (Debtor-in-Possession as of June 7, 1999) INDEX TO ANNUAL REPORT ON FORM 10-K For The Year Ended October 31, 1999 Page Part I Item 1. Business.................................................... 3 Item 2. Properties.................................................. 6 Item 3. Legal Proceedings........................................... 8 Item 4. Submission of Matters to a Vote of Security Holders................................. 9 Part II Item 5. Market for Registrant's Common Equity and Related Stockholder Matters..................... 9 Item 6. Selected Financial Data..................................... 10 Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations.............. 11 Item 7a. Quantitative and Qualitative Disclosures About Market Risk........................................... 22 Item 8. Financial Statements and Supplementary Data.................. 23 Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure...................... 24 Part III Item 10. Directors and Executive Officers of the Registrant........... 24 Item 11. Executive Compensation....................................... 26 Item 12. Security Ownership of Certain Beneficial Owners and Management.............................................. 31 Item 13. Certain Relationships and Related Transactions............... 31 Part IV Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K........................................ 32 Signatures ...................................................... 66 PART I Item 1. Business General Harnischfeger Industries, Inc. ("Harnischfeger" or the "Company") is involved in the worldwide manufacture, distribution and servicing of surface mining equipment (P&H Mining Equipment or "P&H") and underground mining machinery (Joy Mining Machinery or "Joy"). Harnischfeger is the direct successor to a business begun over 115 years ago which, at October 31, 1999, through its subsidiaries, manufactures and markets products classified into two business segments: Surface Mining Equipment and Underground Mining Machinery. P&H is a major producer of surface mining equipment for the extraction of ores and minerals and provides extensive operational support for many types of equipment used in surface mining. Joy is a major manufacturer of underground mining equipment for the extraction of bedded minerals and offers comprehensive service locations near major mining regions worldwide. This document contains forward-looking statements. When used in this document, terms such as "anticipate", "believe", "estimate", "expect", "indicate", "may be", "objective", "plan", "predict", "will be", and the like are intended to identify such statements. Forward-looking statements are subject to certain risks, uncertainties and assumptions that could cause actual results to differ materially from those projected, including without limitation, those described below under the heading "Cautionary Factors". Reorganization Under Chapter 11 On June 7, 1999, the Company and substantially all of its domestic operating subsidiaries (collectively, the "Debtors") filed voluntary petitions for reorganization under Chapter 11 of the U.S. Bankruptcy Code (the "Bankruptcy Code") in the United States Bankruptcy Court for the District of Delaware (the "Bankruptcy Court") and orders for relief were entered. The Debtors include the Company's principal domestic operating subsidiaries, Beloit Corporation ("Beloit"), Joy Mining Machinery, and P&H Mining Equipment. The Debtors' Chapter 11 cases are jointly administered for procedural purposes only under case number 99-2171. The issue of substantive consolidation of the Debtors has not been addressed. Unless Debtors are substantively consolidated under a confirmed plan of reorganization, payment of prepetition claims of each Debtor may substantially differ from payment of prepetition claims of other Debtors. See also Item 7 - Management's Discussion and Analysis of Financial Condition and Results of Operations for further discussion of the bankruptcy proceedings. Discontinued Operation On October 8, 1999, the Company announced its plan to dispose of its Pulp and Paper Machinery segment owned by Beloit Corporation and its subsidiaries (the "Beloit Segment"). See Item 7 - Management's Discussion and Analysis of Financial Condition and Results of Operations. This segment has been classified as a discontinued operation as is more fully discussed in Note 3 - Discontinued Operations in Notes to Consolidated Financial Statements included in Item 8 - Financial Statements and Supplementary Data and Item 14 - Exhibits, Financial Statement Schedules, and Reports on Form 8-K. Accordingly, Item 1 - Business and Item 2 - Properties describe the Company's continuing businesses without the Beloit Segment. DIP Facility On July 8, 1999, the Bankruptcy Court approved a two-year, $750 million Revolving Credit Term Loan and Guaranty Agreement underwritten by Chase Manhattan Bank (the "DIP Facility"). The DIP Facility is more fully discussed in Item 7- Management's Discussion and Analysis of Financial Condition and Results of Operations and Note 10 - Borrowings and Credit Facilities in Notes to Consolidated Financial Statements included in Item 8 - Financial Statements and Supplementary Data and Item 14 - Exhibits, Financial Statement Schedules, and Reports on Form 8-K. Surface Mining Equipment P&H is the world's largest producer of electric mining shovels and, in recent years, large walking draglines and is a major provider of manufacturing, repair and support services for the surface mining industry through it's MinePro Services group. In addition, P&H is a significant producer of large diameter blasthole drills and dragline bucket products. P&H products are used in mines, quarries and earth moving operations in the digging and loading of coal, copper, gold, iron ore, lead, zinc, bauxite, uranium, phosphate, stone, clay and other minerals and ores. P&H MinePro Services personnel are strategically located close to customers in major mining centers around the world to provide service, training, repairs, rebuilds, used equipment services, parts and enhancement kits. Electric mining shovels range in capacity from 18 to 80 cubic yards. Capacities for walking draglines range from 20 to 150 cubic yards. Blasthole drill models have drilling diameters ranging from 9 to 22 inches and bit load capacities from 70,000 to 150,000 pounds. P&H has a relationship in the electric mining shovel business with Kobe Steel, Ltd. ("Kobe") pursuant to which P&H licenses Kobe to manufacture certain electric mining shovels and related replacement parts in Japan. P&H has the exclusive right to market Kobe-manufactured mining shovels and parts outside Japan (except in the case of certain government sales). In addition, P&H is party to an agreement with a corporate unit of the People's Republic of China licensing the manufacture and sale of two models of electric mining shovels and related components. This relationship provides P&H with an opportunity to sell component parts for shovels built in China. Underground Mining Machinery Joy believes it is a leading manufacturer of underground mining equipment. It manufactures and services mining equipment for the underground extraction of coal and other bedded materials. Joy has significant facilities in Australia, South Africa, the United Kingdom and the United States, as well as sales offices in Poland, India, Russia, and the People's Republic of China. Joy products include: continuous miners; complete longwall mining systems; longwall shearers; roof supports; armored face conveyors; shuttle cars; continuous haulage systems; flexible conveyor trains; and roof bolters. Joy also maintains an extensive network of service and replacement parts distribution centers to rebuild and service equipment and to sell replacement parts in support of its installed base. This network includes eight service centers in the United States and five outside of the United States, all of which are strategically located in major underground mining regions. Certain Financial Information Financial information about our business segments and geographic areas of operation are contained in Note 24 - Business Segment Information in Notes to Consolidated Financial Statements included in Item 8 - Financial Statements and Supplementary Data and Item 14 - Exhibits, Financial Statement Schedules, and Reports on Form 8-K. International Operations Foreign sales of the Surface Mining Equipment segment generated approximately 65% of the segment's consolidated net sales in 1999, 68% in 1998, and 71% in 1997. Foreign sales of the Underground Mining Machinery segment approximated 43% in 1999, 27% in 1998, and 42% in 1997. See Note 24 - Business Segment Information in Notes to Consolidated Financial Statements included in Item 8 - Financial Statements and Supplementary Data and Item 14 - Exhibits, Financial Statement Schedules, and Reports on Form 8-K. Harnischfeger's international operations are subject to certain risks not generally applicable to its domestic businesses, including currency fluctuations, changes in tariff restrictions, restrictive regulations of foreign governments (including price and exchange controls), and other governmental actions. Harnischfeger has entered into various foreign currency exchange contracts with major international financial institutions designed to minimize its exposure to exchange rate fluctuations on foreign currency transactions. See "Cautionary Factors" below for additional risks associated with international operations. Employees As of October 31, 1999, Harnischfeger employed approximately 6,780 people in its continuing operations, of which approximately 4,350 were employed in the United States. Approximately 1,635 of the U. S. employees are represented by local unions under collective bargaining agreements. Harnischfeger believes that it maintains generally good relationships with its employees. Seasonality The Company's businesses, excluding aftermarket activity, are subject to cyclical movements in the markets for both surface and underground mining equipment. Distribution P&H and Joy sales are made mostly through the segments' headquarters and sales offices located around the world. The manufacture and sale of repair and replacement parts and the servicing of equipment are important aspects of the Company's businesses. Competitive Conditions P&H and Joy conduct their domestic and foreign operations under highly competitive market conditions, requiring that their products and services be competitive in price, quality, service and delivery. P&H is the leading manufacturer of electric mining shovels and, in recent years, large walking draglines. P&H's shovels and draglines compete with similar products made by another U.S. manufacturer and, in certain foreign markets in smaller sizes of such equipment, with foreign manufacturers. These products also compete with hydraulic mining excavators, large rubber tired front end loaders and bucket wheel excavators in certain mining applications. P&H's large rotary blasthole drills compete with several worldwide drill manufacturers. P&H's aftermarket services compete with a large number of primarily regional suppliers. Joy believes it is a leading manufacturer of underground mining equipment. Its continuous mining machinery, longwall shearers, continuous haulage equipment, roof supports and armored face conveyors compete with a number of worldwide manufacturers of such equipment. Joy's rebuild services compete with a large number of local repair shops. Joy competes with various regional suppliers in the sale of replacement parts for Joy equipment. Both P&H and Joy compete on the basis of providing superior productivity, reliability and service and lower overall cost to their customers. Backlog Backlog by business segment for the Company's continuing operations as of October 31 was: In thousands 1999 1998 1997 - -------------------------------------------------------------------------------- Surface Mining Equipment $ 141,950 $ 204,451 $ 165,987 Underground Mining Machinery 218,458 181,555 192,353 ------------- ------------- ------------- $ 360,408 $ 386,006 $ 358,340 ============= ============= ============= Raw Materials P&H purchases raw and semi-processed steel, castings, forgings, copper and other materials from a number of suppliers. In addition, component parts, such as engines, bearings, controls, hydraulic components, and a wide variety of mechanical and electrical items, are purchased from approximately 1,500 suppliers. Purchases of materials and components are made on a competitive basis with no single source being dominant. Joy purchases electric motors, gears, hydraulic parts, electronic components, forgings, steel, clutches and other components and raw materials from outside suppliers. Although Joy purchases certain components and raw materials from a single supplier, alternative sources of supply are available for all such items. Joy believes that it has adequate sources of supply for component parts and raw materials for its manufacturing requirements. No single source is dominant. Patents and Licenses P&H and Joy and their respective subsidiaries own numerous patents and trademarks and have patent licenses from others relating to their respective products and manufacturing methods. Also, patent licenses are granted to others throughout the world and royalties are received under most of these licenses. While Harnischfeger does not consider any particular patent or license or group of patents or licenses to be essential to its respective businesses, it considers its patents and licenses significant to the conduct of its businesses in certain product areas. Research and Development Harnischfeger maintains a strong commitment to research and development with engineering staffs that are engaged in full-time research and development of new products and improvement of existing products. P&H and Joy pursue technological development through the engineering of new products, systems and applications; the improvement and enhancement of licensed technology; and synergistic acquisitions of technology by segment. Research and development expenses were $11.1 million in 1999, $18.0 million in 1998 and $15.7 million in 1997. Environmental and Health and Safety Matters The activities of the Company are regulated by federal, state and local statutes, regulations and ordinances relating to both environmental protection and worker health and safety. These laws govern current operations, require remediation of environmental impacts associated with past or current operations, and under certain circumstances provide for civil and criminal penalties and fines, as well as injunctive and remedial relief. The Company's foreign operations are subject to similar requirements as established by their respective countries. The Company has expended substantial managerial and financial resources in developing and implementing actions for continued compliance with these requirements. The Company believes that it has substantially satisfied these diverse requirements. However, because these requirements are complex and, in many areas, rapidly evolving, there can be no guarantee against the possibility of sizeable additional costs for compliance in the future. These same requirements must also be met by the Company's competitors and, therefore, the costs for present and future compliance with these laws should not create a competitive disadvantage. Further, these laws have not had, and are not presently expected to have, a material adverse effect on the Company. The Company's operations or facilities have been and may become the subject of formal or informal enforcement actions or proceedings for alleged noncompliance with either environmental or worker health and safety laws or regulations. Such matters have typically been resolved through direct negotiations with the regulatory agency and have typically resulted in corrective actions or abatement programs. However, in some cases, fines or other penalties have been paid. Historically, neither such commitments nor such penalties have been material. Cautionary Factors This report and other documents or oral statements which have been and will be prepared or made in the future contain or may contain forward-looking statements by or on behalf of the Company. Such statements are based upon management's expectations at the time they are made. Actual results may differ materially. In addition to the assumptions and other factors referred to specifically in connection with such statements, the following factors, among others, could cause actual results to differ materially from those contemplated. The Company's principal businesses involve designing, manufacturing, marketing and servicing large, complex machines. Significant periods of time are necessary to plan, design and build these machines. With respect to new machines and equipment, there are risks of customer acceptances and start-up or performance problems. Large amounts of capital are required to be devoted by the Company's customers to purchase these machines and to finance the mines that use these machines. The Company's success in obtaining and managing a relatively small number of sales opportunities, including the Company's success in securing payment for such sales and meeting the requirements of warranties and guarantees associated with such sales, can affect the Company's financial performance. In addition, many projects are located in undeveloped or developing economies where business conditions are less predictable. In recent years, between 25% and 65% of the Company's total sales occurred outside the United States. Other factors that could cause actual results to differ materially from those contemplated include: o Factors relating to the Company's Chapter 11 filing, such as: the possible disruption of relationships with creditors, customers, suppliers and employees; the Company's degree of success in executing its plan of disposition of Beloit; the ability to successfully prepare, have confirmed and implement a plan of reorganization; the availability of financing and refinancing; and the Company's ability to comply with covenants in its DIP Facility. As a result of the Company's Chapter 11 filing, the continuation of the Company, or segments of the Company, on a going concern basis is subject to significant uncertainty. o Factors affecting customers' purchases of new equipment, rebuilds, parts and services such as: production capacity, stockpiles, and production and consumption rates of coal, copper, iron, gold and other ores and minerals; the cash flows of customers; the cost and availability of financing to customers and the ability of customers to obtain regulatory approval for investments in mining projects; consolidations among customers; work stoppages at customers or providers of transportation; and the timing, severity and duration of customer buying cycles. o Factors affecting the Company's ability to capture available sales opportunities, including: customers' perceptions of the quality and value of the Company's products as compared to competitors' products; whether the Company has successful reference installations to show customers; customers' perceptions of the health and stability of the Company as compared to its competitors; the Company's ability to assist customers with competitive financing programs; and the availability of manufacturing capacity at the Company's factories. o Factors affecting the Company's ability to successfully manage sales it obtains, such as: the accuracy of the Company's cost and time estimates for major projects; the adequacy of the Company's systems to manage major projects and its success in completing projects on time and within budget; the Company's success in recruiting and retaining managers and key employees; wage stability and cooperative labor relations; plant capacity and utilization; and whether acquisitions are assimilated and divestitures completed without notable surprises or unexpected difficulties. o Factors affecting the Company's general business, such as: unforeseen patent, tax, product, environmental, employee health or benefit, or contractual liabilities; nonrecurring restructuring and other special charges; changes in accounting or tax rules or regulations; reassessments of asset valuations for such assets as receivables, inventories, fixed assets and intangible assets; and leverage and debt service. o Factors affecting general business levels, such as: political and economic turmoil in major markets such as the United States, Canada, Europe, Asia and the Pacific Rim, South Africa, Australia and Chile; environmental and trade regulations; and the stability and ease of exchange of currencies. Item 2. Properties As of October 31, 1999, the following principal properties of the Company's continuing operations were owned, except as indicated. All of these properties are generally suitable for operations. Harnischfeger owns a 94,000 square foot office building in St. Francis, Wisconsin, which is used as its worldwide corporate headquarters. SURFACE MINING EQUIPMENT LOCATIONS Floor Space Land Area Location (Sq. Ft.) (Acres) Principal Operations Milwaukee, Wisconsin.........1,067,000 46 Electric mining shovels, electric and diesel-electric draglines and large diameter rotary blasthole drills. Milwaukee, Wisconsin......... 180,000 13 Electrical products. Cleveland, Ohio.............. 270,000 8 Gearing manufacturing. Cleveland, Ohio.............. 70,000 (1) 2 Rebuild service center. Gillette, Wyoming............ 29,500 (2) 3 Rebuild service center. Mesa, Arizona................ 17,000 5 Rebuild service center. Kilgore, Texas............... 12,400 4 Rebuild Service Center Bassendean, Australia........ 72,500 5 Components and parts for mining machinery. Mt. Thorley, Australia....... 81,800 11 Components and parts for mining machinery. Mackay, Australia............ 35,500 3 Components and parts for mining machinery. Johannesburg, So. Africa.... 44,000 (3) 1 Rebuild service center. Belo Horizonte, Brazil....... 37,700 1 Components and parts for mining shovels. Santiago, Chile.............. 6,800 1 Antofagasta, Chile........... 21,000 1 Rebuild service center. Calama, Chile................ 5,500 1 UNDERGROUND MINING MACHINERY LOCATIONS Floor Space Land Area Location (Sq. Ft.) (Acres) Principal Operations Franklin, Pennsylvania....... 739,000 58 Underground mining machinery, components and parts. Reno, Pennsylvania........... 121,400 22 Components and parts for mining machinery. Brookpark, Ohio.............. 85,000 4 Components and parts for mining machinery. Solon, Ohio.................. 101,200 10.6 Components and parts for mining machinery. Abingdon, Virginia .......... 63,400 22 Underground mining machinery and components. Bluefield, Virginia.......... 102,160 15 Duffield, Virginia........... 90,000 11 Homer City, Pennsylvania..... 79,920 10 Meadowlands, Pennsylvania.... 117,899 13 Mining machinery rebuild, Mt. Vernon, Illinois......... 107,130 12 service and parts sales. Price, Utah.................. 44,200 6 Wellington, Utah............. 68,000 60 Kurri Kurri, Australia....... 61,000 7 Mining machinery rebuild, service and parts sales. McCourt Road, Australia...... 101,450 33 Underground mining machinery, components and parts. Parkhurst, Australia......... 33,500 15 Rebuild service center. Cardiff, Australia........... 22,600 (4) 3 Repair service center. Wollongong, Australia........ 27,000 (4) 4 Roof bolting equipment. Steeledale, South Africa..... 285,140 12.6 Underground mining machinery, components and parts. Wadeville, South Africa...... 184,620 28.6 Underground mining machinery assembly and service. Pinxton, England............. 76,000 10 Service and rebuild. Wigan, England............... 337,000 27 Mining machinery, components and parts. Worcester, England........... 100,000 9 Mining machinery, components and parts. - ------------------------- (1) Under a lease expiring in 2002. (2) Under a lease expiring in 2000. (3) Under a lease expiring in 2005. (4) Under a lease expiring in 2001. The surface mining equipment segment operates warehouses in Casper and Gillette, Wyoming; Cleveland, Ohio; Hibbing, Minnesota; Charleston, West Virginia; Milwaukee, Wisconsin; Mesa, Arizona; Elco, Nevada; Hinton, Sparwood, and Cornwall, Canada; Mt. Thorley, Australia; Belo Horizonte, Brazil; Santiago, Iquique and Calama, Chile; Johannesburg, South Africa; and Puerto Ordaz, Venezuela. The warehouses in Casper, Hibbing, Milwaukee, Mt. Thorley, Belo Horizonte and Johannesburg are owned; the others are leased. In addition, the segment leases sales offices throughout the United States and in principal surface mining locations in other countries. The underground mining machinery segment operates warehouses in Green River, Wyoming; Pineville, West Virginia; Brookwood, Alabama; Carlsbad, New Mexico; Norton, Virginia; Lovely and Henderson, Kentucky; Cardiff, Emerald, Kurri Kurri, Moranbah and Lithgow, Australia; Hendrina and Secunda, South Africa. All warehouses are owned except for the warehouses in Lovely and Henderson, Kentucky; and Secunda, South Africa, which are leased. Item 3. Legal Proceedings Chapter 11 Bankruptcy Filing As a result of the bankruptcy filings, litigation relating to prepetition claims against the Debtors is stayed. The Bankruptcy Court has, however, lifted the stay with regard to certain litigation. See also Item 1 - Reorganization under Chapter 11 and Item 7 - Management's Discussion and Analysis of Financial Condition and Results of Operations for information regarding our bankruptcy proceedings, which is incorporated herein by reference. General The Company is a party to litigation matters and claims that are normal in the course of its operations. Although the outcome of these matters cannot be predicted with certainty and favorable or unfavorable resolution may affect income on a quarter-to-quarter basis, management believes that such matters will not have a materially adverse effect on the Company's consolidated financial position. Environmental The Company is also involved in a number of proceedings and potential proceedings relating to environmental matters. Although it is difficult to estimate the potential exposure to the Company related to these environmental matters, the Company believes that the resolution of these matters will not have a materially adverse effect on its consolidated financial position. Other Matters The Company and certain of its present and former senior executives have been named as defendants in a class action, entitled In re: Harnischfeger Industries, Inc. Securities Litigation, in the United States District Court for the Eastern District of Wisconsin. This prepetition action seeks damages in an unspecified amount on behalf of an alleged class of purchasers of the Company's common stock, based principally on allegations that the Company's disclosures with respect to the Indonesian contracts of Beloit (discussed under APP Arbitration below) violated the federal securities laws. The Company has sought to extend the stay imposed by the Bankruptcy Code to stay this litigation. Because the Company's motion has not yet been resolved, this litigation is currently stayed. The Company and certain of its current and former directors have been named defendants in a purported class action, entitled Brickell Partners, Ltd., Plaintiff v. Jeffery T. Grade et. al., in the Court of Chancery of the State of Delaware. This prepetition action seeks damages of an unspecified amount on behalf of shareholders based on allegations that the defendants failed to explore all reasonable alternatives to maximize shareholder value. Potlatch Litigation Filed originally in 1995, the Potlatch lawsuit is a prepetition claim against Beloit related to a 1989 purchase of pulp line washers supplied by Beloit for less than $15 million. In June 1997, a Lewiston, Idaho jury awarded Potlatch $95 million in damages in the case which, together with fees, costs and interest to April 2, 1999, approximated $120 million. On April 2, 1999 the Supreme Court of Idaho vacated the judgment of the Idaho District Court in the Potlatch lawsuit and remanded the case for a new trial. This litigation has been stayed as a result of the bankruptcy filings. Potlatch filed a motion with the Bankruptcy Court to lift the stay. The Company opposed this motion and the motion was denied. APP Arbitration In fiscal 1996 and 1997, Beloit's Asian subsidiaries received orders for four fine paper machines from Asia Pulp & Paper Co. Ltd. ("APP") for a total of approximately $600 million. The first two machines were substantially paid for and installed at APP facilities in Indonesia. Beloit sold approximately $44 million of receivables from APP on these first two machines to a financial institution. The machines are currently in the start-up/optimization phase and are required to meet certain contractual performance tests. The contracts provide for potential liquidated damages, including performance damages, in certain circumstances. Beloit has had discussions with APP on certain claims and back charges on the first two machines. The two remaining machines were substantially manufactured by Beloit. Beloit received a $46 million down payment from APP and issued letters of credit in the amount of the down payment. In addition, the Company repurchased various notes receivable due from APP in December 1998 and February 1999 of $2.8 million and $16.2 million, respectively, which had previously been sold to a financial institution. On December 15, 1998, Beloit's Asian subsidiaries declared APP in default on the contracts for the two remaining machines. Consequently, on December 16, 1998, Beloit's Asian subsidiaries filed for arbitration in Singapore for the full payment from APP for the second two machines plus at least $125 million in damages and delay costs. On December 16, 1998, APP filed a notice of arbitration in Singapore against Beloit's Asian subsidiaries seeking a full refund of approximately $46 million paid to Beloit's Asian subsidiaries for the second two machines. APP also seeks recovery of other damages it alleges were caused by Beloit's Asian subsidiaries' claimed breaches. The $46 million is included in liabilities subject to compromise. See Note 9 - Liabilities Subject to Compromise in Notes to Consolidated Financial Statements included in Item 8 - Financial Statements and Supplementary Data and Item 14 - Exhibits, Financial Statement Schedules, and Reports on Form 8-K. The APP arbitration involving Beloit's non-Debtor affiliates is not stayed by the Bankruptcy Code. In addition, APP seeks a declaration in the arbitration that it has no liability under certain promissory notes. A hearing on the merits began on January 31, 2000 and is expected to continue for approximately four weeks. A decision of the arbitration panel is expected in March or April, 2000. APP subsequently filed an additional notice of arbitration in Singapore against Beloit seeking the same relief on the grounds that Beloit was a party to the Beloit Asian subsidiaries' contracts with APP and was also a guarantor of the Beloit Asian subsidiaries' performance of those contracts. The arbitration against Beloit was stayed by agreement of the parties after the Chapter 11 proceedings were filed. Since then, APP has not sought to pursue this arbitration. Also, APP has filed for and received an injunction from the Singapore courts that prohibits Beloit from acting on the notes receivable from APP except in the Singapore arbitration. Beloit and its Asian subsidiaries will vigorously defend against all of APP's assertions. APP has attempted to draw on approximately $15.9 million of existing letters of credit issued by Banca Nazionale del Lavaro ("BNL") in connection with the down payments on the contracts for the second two machines. The Company filed for and received a preliminary injunction that prohibits BNL from making payment under the letters of credit. The final disposition of the Company's request for a permanent injunction remains pending with the United States District Court for the Eastern District of Wisconsin, but has been stayed pending the outcome of the Singapore arbitration with APP. The Company has placed funds on deposit with BNL to provide for payment under the letters of credit should the permanent injunction not be granted. To mitigate APP's damages and to improve short-term liquidity, Beloit's Asian subsidiaries have sought to sell the assets associated with these two machines to alternative customers. Item 4. Submission of Matters to a Vote of Security Holders No matters were submitted to a vote of security holders during the last quarter of fiscal 1999. PART II Item 5. Market for Registrant's Common Equity and Related Stockholder Matters Harnischfeger common stock (including the associated preferred stock purchase rights) traded on the New York Stock Exchange (NYSE) and Pacific Exchange under the symbol "HPH" until December 8, 1999. Currently, the Company's stock is traded over the counter using the symbol "HRZI". At January 31, 2000, there were approximately 2,300 holders of record of Harnischfeger common stock. The following table sets forth the high and low sales prices as reported on the NYSE and dividends paid for the periods indicated: Fiscal 1999 Dividends High Low (per share) ------------ ---------------- ---------- First Quarter $ 11 3/8 $ 8 1/16 $ 0.10 Second Quarter 11 1/4 5 1/4 - Third Quarter 10 3/16 11/16 - Fourth Quarter 2 1 - Fiscal 1998 Dividends High Low (per share) ------------ ---------------- ---------- First Quarter $ 40 $ 32 5/32 $ 0.10 Second Quarter 35 15/16 27 0.10 Third Quarter 32 24 13/16 0.10 Fourth Quarter 24 7/8 6 1/8 0.10 Shortly before the filing of this report, the common stock traded at a price of approximately $ 7/8 per share. As a result of the Chapter 11 proceedings, the Company will not pay cash dividends in the foreseeable future. The Company's DIP Facility contains covenants which restrict the declaration and payment of dividends. Item 6. Selected Financial Data The following table sets forth certain selected historical financial data of the Company as of October 31, on a consolidated basis. The selected consolidated financial data was derived from the Consolidated Financial Statements of the Company. Beloit has been classified as a discontinued operation as of October 31, 1999 and, accordingly, the results of operations of prior years have been restated to reflect classifying the Beloit segment as a discontinued operation. The balance sheet data has not been restated for 1998 and other prior years. The selected consolidated financial data should be read in conjunction with the Consolidated Financial Statements of the Company appearing in Item 8 - Financial Statements and Supplementary Data and Item 14 - Exhibits, Financial Statement Schedules, and Reports on Form 8-K.
RESULTS OF OPERATIONS Years Ended October 31, 1999* 1998 1997 1996 1995 In thousands except per share amounts ----------- ----------- ---------- ----------- ----------- - -------------------------------------- ----------- ----------- ---------- ----------- ----------- Revenues Net sales $ 1,114,146 $ 1,212,307 $ 1,467,341 $ 1,405,936 $ 941,779 Other income 3,909 1,324 18,023 5,769 5,530 ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- 1,118,055 1,213,631 1,485,364 1,411,705 947,309 Cost of sales 922,806 916,970 1,090,947 1,035,812 696,337 Product development, selling and administrative expenses 238,952 235,268 217,629 213,492 148,164 Strategic and financing initiatives 7,716 -- -- -- -- Reorganization items 20,304 -- -- -- -- Restructuring charge 11,997 -- -- -- -- Charge related to executive changes 19,098 -- -- -- -- ----------- ----------- ----------- ----------- ----------- (102,818) 61,393 176,788 162,401 102,808 Interest expense - net (28,865) (70,600) (70,259) (60,988) (38,717) Joy Merger cost -- -- -- -- (17,459) Gain on sale of Measurex investment -- -- -- -- 29,657 ----------- ----------- ----------- ----------- ----------- Operating income (loss) (131,683) (9,207) 106,529 101,413 76,289 (Provision) benefit for income taxes (220,448) 24,608 (36,519) (36,898) (28,320) Minority interest (957) (1,035) (2,129) (1,547) (1,359) ----------- ----------- ----------- ----------- ----------- Income (loss) from continuing operations (353,088) 14,366 67,881 62,968 46,610 Income (loss) from discontinued operations, net of applicable income taxes (798,180) (184,399) 70,399 51,249 36,223 Gain (loss) on disposal of discontinued operations, net of applicable income taxes (529,000) 151,500 -- -- (21,948) Extraordinary loss on retirement of debt, net of applicable income taxes -- -- (12,999) -- (3,481) ----------- ----------- ----------- ----------- ----------- Net income (loss) $(1,680,268) $ (18,533) $ 125,281 $ 114,217 $ 57,404 =========== =========== =========== =========== =========== Earnings (Loss) Per Share - Basic Income (loss) from continuing operations $ (7.62) $ 0.31 $ 1.42 $ 1.34 $ 1.00 Income (loss) from and net gain (loss) on disposal of discontinued operations (28.65) (0.71) 1.47 1.08 0.32 Extraordinary loss on retirement of debt -- -- (0.27) -- (0.08) ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- Net income (loss) per common share $ (36.27) $ (0.40) $ 2.62 $ 2.42 $ 1.24 =========== =========== =========== =========== =========== =========== =========== =========== =========== =========== Earnings (Loss) Per Share - Diluted Income (loss) from continuing operations $ (7.62) $ 0.31 $ 1.41 $ 1.32 $ 1.00 Income (loss) from and net gain (loss) on disposal of discontinued operations (28.65) (0.71) 1.45 1.08 0.31 Extraordinary loss on retirement of debt -- -- (0.27) -- (0.08) ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- Net income (loss) per common share $ (36.27) $ (0.40) $ 2.59 $ 2.40 $ 1.23 =========== =========== =========== =========== =========== =========== =========== =========== =========== =========== Average Shares Outstanding Basic 46,329 46,445 47,827 47,196 46,218 Diluted 46,329 46,445 48,261 47,565 46,659 Dividends Per Common Share $ 0.10 $ 0.40 $ 0.40 $ 0.40 $ 0.40 Bookings $ 1,088,548 $ 1,239,973 $ 1,390,161 $ 1,406,381 $ 972,419 Backlog $ 360,408 $ 386,006 $ 358,340 $ 453,480 $ 221,540
*Beloit has been classified as a discontinued operation as of October 31, 1999 and the results of operations of prior years have been restated accordingly.
OTHER FINANCIAL DATA Dollar amounts in thousands As of October 31, except per share amounts 1999* 1998 1997 1996 1995 - ---------------------------------- ------------ ------------ ------------ ------------ ------------ Working Capital: Current assets $ 758,385 $ 1,463,144 $ 1,588,712 $ 1,410,250 $ 1,213,390 Current liabilities 571,216 1,026,280 1,180,497 1,077,127 723,303 ------------ ------------ ------------ ------------ ------------ Working capital $ 187,169 $ 436,864 $ 408,215 $ 333,123 $ 490,087 Current ratio 1.3 1.4 1.3 1.3 1.7 ------------ ------------ ------------ ------------ ------------ Plant and Equipment Net properties $ 210,747 $ 613,581 $ 657,100 $ 634,045 $ 487,656 Capital expenditures 26,610 133,925 126,401 76,555 67,875 Depreciation expense 26,613 66,769 67,156 63,342 53,008 ------------ ------------ ------------ ------------ ------------- Total Assets $ 1,711,813 $ 2,787,259 $ 2,924,535 $ 2,690,029 $ 2,040,767 ------------ ------------ ------------ ------------ ------------ Debt and Capitalized Lease Obligations Long-term obligations (1) $ 226,127 $ 1,001,573 $ 725,193 $ 662,137 $ 462,991 Short-term notes payable 86,538 117,607 214,126 45,261 18,921 Liabilities subject to compomise 1,193,554 -- -- -- -- ------------ ------------ ------------ ------------ ------------ $ 1,506,219 $ 1,119,180 $ 939,319 $ 707,398 $ 481,912 Minority Interest $ 6,522 $ 43,838 $ 97,724 $ 93,652 $ 89,611 ------------ ------------ ------------ ------------ ------------ Debt to Capitalization Ratio (2), (3) -- 61.2% 52.6% 48.0% 42.6% ------------ ------------- ------------ ------------ ------------ Shareholders' Equity (Deficit) ($ 1,025,151) $ 666,850 $ 749,660 $ 673,485 $ 559,276 Book value per common share (3) $ -- $ 14.52 $ 15.93 $ 14.15 $ 11.98 Common shares outstanding (4) 46,516 45,916 47,046 47,598 46,693 ------------- ------------ ------------ ------------ ------------ Number of (End of Year): Employees 6,800 13,700 17,700 17,100 14,000 Common shareholders of record 2,300 2,100 1,861 1,972 2,114
* Items for the year ended October 31, 1999 exclude the discontinued Beloit operation. (1) Includes amounts classified as current portion of long-term obligations. (2) Total debt to the sum of total debt, minority interest and shareholders' equity (deficit). (3) Data omitted for 1999 due to lack of comparability with prior periods. (4) As of end of year, excluding SECT shares. Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations On June 7, 1999, Harnischfeger Industries, Inc. (the "Company") and substantially all of its domestic operating subsidiaries (collectively, the "Debtors") filed voluntary petitions for reorganization under Chapter 11 of the U.S. Bankruptcy Code (the "Bankruptcy Code") in the United States Bankruptcy Court for the District of Delaware (the "Bankruptcy Court") and orders for relief were entered. The Debtors include the Company's principal domestic operating subsidiaries, Beloit Corporation ("Beloit"), Joy Mining Machinery ("Joy"), and P&H Mining Equipment ("P&H"). Beloit is being presented as a discontinued operation as is more fully discussed in Note 3 - Discontinued Operations in Notes to Consolidated Financial Statements included in Item 8 - Financial Statements and Supplementary Data and Item 14 - Exhibits, Financial Statement Schedules, and Reports on Form 8-K. The Debtors' Chapter 11 cases are jointly administered for procedural purposes only under case number 99-2171. The issue of substantive consolidation of the Debtors has not been addressed. Unless Debtors are substantively consolidated under a confirmed plan of reorganization, payment of prepetition claims of each Debtor may substantially differ from payment of prepetition claims of other Debtors. The Debtors are currently operating their businesses as debtors-in-possession pursuant to the Bankruptcy Code. Pursuant to the Bankruptcy Code, actions to collect prepetition indebtedness of the Debtors and other contractual obligations of the Debtors generally may not be enforced. In addition, under the Bankruptcy Code, the Debtors may assume or reject executory contracts and unexpired leases. Additional prepetition claims may arise from such rejections, and from the determination by the Bankruptcy Court (or as agreed by the parties in interest) to allow claims for contingencies and other disputed amounts. From time to time since the Chapter 11 filing, the Bankruptcy Court has approved motions allowing the Company to reject certain business contracts that were deemed burdensome or of no value to the Company. As of the date of this report, the Debtors had not completed their review of all their prepetition executory contracts and leases for assumption or rejection. See also Note 9 - Liabilities Subject to Compromise in Notes to Consolidated Financial Statements included in Item 8 - Financial Statements and Supplementary Data and Item 14 - Exhibits, Financial Statement Schedules, and Reports on Form 8-K. The Debtors received approval from the Bankruptcy Court to pay or otherwise honor certain of their prepetition obligations, including employee wages and product warranties. In addition, the Bankruptcy Court authorized the Debtors to maintain their employee benefit programs. Funds of qualified pension plans and savings plans are in trusts and protected under federal regulations. All required contributions are current in the respective plans. The Company has the exclusive right, until June 8, 2000, subject to meeting certain milestones regarding delivery to the Official Committee of Unsecured Creditors of a business plan, plan of reorganization term sheet and certain portions of a disclosure statement prior to that time, to file a plan of reorganization. Such period may be extended at the discretion of the Bankruptcy Court. Subject to certain exceptions set forth in the Bankruptcy Code, acceptance of a plan of reorganization requires approval of the Bankruptcy Court and the affirmative vote (i.e. more than 50% of the number and at least 66-2/3% of the dollar amount, both with regard to claims actually voted) of each class of creditors and equity holders whose claims are impaired by the plan. Alternatively, absent the requisite approvals, the Company may seek Bankruptcy Court approval of its reorganization plan under "cramdown" provisions of the Bankruptcy Code, assuming certain tests are met. If the Company fails to submit a plan of reorganization within the exclusivity period prescribed or any extensions thereof, any creditor or equity holder will be free to file a plan of reorganization with the Court and solicit acceptances thereof. February 29, 2000 was set as the last date creditors may file proofs of claim under the Bankruptcy Code. There may be differences between the amounts recorded in the Company's schedules and financial statements and the amounts claimed by the Company's creditors. Litigation may be required to resolve such disputes. The Company's schedules are available from the Poorman-Douglas Corporation, telephone: 503-350-5954. The Company will incur significant costs associated with the reorganization. The amount of these expenses, which are being expensed as incurred, is expected to significantly affect future results. See Note 6 - Reorganization Items in Notes to Consolidated Financial Statements included in Item 8 - Financial Statements and Supplementary Data and Item 14 - Exhibits, Financial Statement Schedules, and Reports on Form 8-K. Currently, it is not possible to predict the length of time the Company will operate under the protection of Chapter 11, the outcome of the Chapter 11 proceedings in general, or the effect of the proceedings on the business of the Company or on the interests of the various creditors and security holders. Under the Bankruptcy Code, postpetition liabilities and prepetition liabilities (i.e., liabilities subject to compromise) must be satisfied before shareholders can receive any distribution. The ultimate recovery to shareholders, if any, will not be determined until the end of the case when the fair value of the Company's assets is compared to the liabilities and claims against the Company. There can be no assurance as to what value, if any, will be ascribed to the common stock in the bankruptcy proceedings. The U.S. Trustee for the District of Delaware has appointed an Official Committee of Equity Holders to represent shareholders in the proceedings before the Bankruptcy Court. The accompanying Consolidated Financial Statements have been prepared on a going concern basis which contemplates continuity of operations, realization of assets, and liquidation of liabilities in the ordinary course of business and do not reflect adjustments that might result if the Debtors are unable to continue as going concerns. As a result of the Debtors' Chapter 11 filings, such matters are subject to significant uncertainty. The Debtors intend to file a plan of reorganization with the Bankruptcy Court. Continuing on a going concern basis is dependent upon, among other things, the Debtors' formulation of an acceptable plan of reorganization, the success of future business operations, and the generation of sufficient cash from operations and financing sources to meet the Debtors' obligations. Other than recording the estimated loss on the sale of the Beloit discontinued operations, the Consolidated Financial Statements do not reflect: (a) the realizable value of assets on a liquidation basis or their availability to satisfy liabilities; (b) aggregate prepetition liability amounts that may be allowed for claims or contingencies, or their status or priority; (c) the effect of any changes to the Debtors' capital structure or in the Debtors' business operations as the result of an approved plan of reorganization; or (d) adjustments to the carrying value of assets (including goodwill and other intangibles) or liability amounts that may be necessary as the result of actions by the Bankruptcy Court. The Company's financial statements as of October 31, 1999 have been presented in conformity with the AICPA's Statement of Position 90-7, "Financial Reporting By Entities In Reorganization Under the Bankruptcy Code," issued November 19, 1990 ("SOP 90-7"). The statement requires a segregation of liabilities subject to compromise by the Bankruptcy Court as of the bankruptcy filing date and identification of all transactions and events that are directly associated with the reorganization of the Company. Surface Mining Equipment The following table sets forth certain data from the Consolidated Statement of Operations of the Company for the fiscal years ended October 31: In thousands 1999 1998 1997 - -------------------------------------------------------------------------------- Net sales $ 498,343 $ 443,330 $ 489,789 Operating Profit $ 33,976 $ 31,416 $ 60,459 Bookings $ 435,842 $ 481,794 $ 447,915 Sales of the Surface Mining Equipment segment were $498.3 million in fiscal 1999, a 12% increase from 1998 sales of $443.3 million. Continued market softness for original equipment resulted in only a small increase in capital sales of 2%. Product innovation and superior product support for customers led to a 55% increase in sales of electric mining shovels. This was offset by decreases in sales related to draglines and drills that resulted from generally low commodity prices and a combination of mine closures, production cutbacks at mines and deferral of new mine startups. Aftermarket sales increased 22% as customers took advantage of increased parts and service offerings. Sales in 1997 were $489.8 million and included very strong capital sales that were 48% greater than 1999 and 45% greater than 1998. Operating profit was $34.0 million or 6.8% of sales in 1999, compared to operating profit of $31.4 million and 7.1% in 1998 and $60.5 million and 12.3% in 1997, respectively. The higher operating profit in 1999 as compared to 1998 was primarily due to increased aftermarket sales, although the negative effect of the 1998 United Steelworkers' strike in Milwaukee was also significant. Operating profit in 1998 was lower than 1997 because of the decrease in capital sales and the effect of the strike. These costs were partially offset by reductions in operating expenses from cost reduction initiatives and reduced headcounts. Bookings amounted to $435.8 million in 1999 compared to $481.8 million in 1998. The decrease is primarily due to continued market softness for original equipment. Bookings in 1997 were $447.9 million and included strong capital bookings that were 41% greater than 1998. Aftermarket bookings in 1998 were 45% greater than 1997. The Chapter 11 filing in the third quarter impacted operating results in several ways. Supplier shipments in the latter part of the year were lower than expected resulting in lost sales and production inefficiencies. Collection difficulties increased as some customers delayed paying outstanding receivables due to their own operating difficulties and their concerns about the Company's financial condition. As a result, the third quarter of 1999 reflected charges amounting to approximately $5.0 million for additional warranty expense and excess and obsolete inventory accruals. The Surface Mining Equipment segment has generally maintained its overall market position and its product by product price realization. Underground Mining Machinery The following table sets forth certain data from the Consolidated Statement of Operations of the Company for the fiscal years ended October 31: In thousands 1999 1998 1997 - -------------------------------------------------------------------------------- Net sales $ 615,803 $ 768,977 $ 977,552 Operating profit (loss) $ (65,893) $ 50,568 $ 141,344 Bookings $ 652,706 $ 758,179 $ 933,107 Sales of the Underground Mining Machinery segment were $615.8 million in fiscal 1999, a 20% decrease from 1998 sales of $769 million. Shipments of new underground coal mining machines declined in the United States and Australia. This is primarily due to decreased mining activity resulting from depressed coal prices and excess coal stockpiles, particularly at mines, and continuing consolidation of the underground coal mining industry in the United States as mining companies consolidate and close some of their less efficient mines. Stricter environmental regulations on U.S. mining companies also constrained their capital expenditures. In addition, changes in underground coal mining regulations in South Africa caused mining houses there to postpone the purchase of equipment while they reassess their capital equipment needs. Economic instability in Russia prevented our customers in that country from obtaining financing necessary to finalize the purchase of equipment they have on order. Depressed coal prices and overcapacity in Australian coal mines led producers there to close mines and cut costs, thus reducing their spending on new equipment. Repair service sales in the United States and the United Kingdom continued to reflect softness in the aftermarket in those countries, resulting primarily from mine closures and production cutbacks. Sales of continuous miners and longwall shearing machines were lower in 1999 than in 1998. In the aftermarket, the $30 million decrease in net sales in 1999 as compared to 1998 resulted from a $21 million reduction in machine rebuilds in the United Kingdom and lower component repair sales in the United States. The continued reduction in machine rebuilds in the UK reflects the lower number of underground coal mines in operation in that market. Net sales in 1998 were 21% or $200 million lower than net sales in 1997. The decrease in sales from 1997 resulted primarily from a $150 million decline in new equipment sales and a $40 million decrease in machine rebuild shipments. The new equipment sales decrease in 1998 included the impact of $60 million sales of third party equipment into Russia in 1997 that was part of a large system order that was not repeated in 1998. In addition, the global softness in the market for new underground mining equipment began in 1998 and Joy experienced lower shipments for all of its new equipment (with the exception of longwall shearing machines) in all of its global markets. In 1999, Joy reported an operating loss of $65.9 million compared to an operating profit of $50.6 million in 1998. The 1999 operating loss included approximately $12 million of restructuring charges which were recorded in the third and fourth quarters as part of Joy's actions to reduce its cost structure in response to reductions in sales revenue over the previous two years. In addition, in the third quarter of 1999, Joy recorded $63.5 million of charges associated with revised valuation estimates concerning accounts receivables, inventories and warranty reserves. The remaining reduction in operating profit in 1999 was the result of the decrease in net sales partially offset by approximately $45 million of cost reductions. Operating profit in 1998 was $50.6 million compared to $141.3 million in 1997. The decrease in operating profit in 1998 resulted primarily from decreases in gross margins and manufacturing burden absorption due to reduced net sales. New order bookings were 14% lower in 1999 than they were in 1998. This decrease in new orders received was experienced for both new equipment and aftermarket products, primarily in the United States and in the United Kingdom. In the United States, consolidations among coal producers, combined with the supply of coal exceeding demand, led to a continued soft market in 1999. In the United Kingdom, activity in the coal industry remains at a low level as the few remaining mines concentrate on reducing costs. New order bookings in 1998 were 19% lower than they were in 1997. The decrease in new orders in 1998 was almost entirely associated with the decrease in demand for new equipment on a global basis. In the United States, roof support orders were $100 million higher in 1997 compared to 1998 as there were significantly fewer roof support systems being replaced in 1998. Additionally, in 1997 the United Kingdom received a new equipment order from a Russian customer that included $25 million of third party equipment that did not recur in 1998. The Chapter 11 filing in the third quarter impacted operating results in several ways. Supplier shipments in the latter part of the year were lower than expected resulting in lost sales and production inefficiencies. The decision was made to discontinue several equipment models that were either not required by customers or that no longer provided sufficient margins to be attractive. Collection difficulties increased as some customers delayed paying outstanding receivables due to their own operating difficulties and their concerns about the Company's financial condition and continued ability to fulfill commitments. The Underground Mining Machinery segment has generally maintained its overall market position and its product by product price realization. The third and fourth quarters of fiscal 1999 reflected the following charges against earnings: Underground Mining In thousands Machinery - ------------------------------------------------------------- Changes in estimates: Allowance for doubtful accounts $ 5,300 Warranty and other 22,000 Excess and obsolete inventory 36,200 ------------ 63,500 Restructuring charges 11,997 ------------ $ 75,497 ============ The restructuring charges of $12.0 million were recorded for rationalization of certain of Joy's original equipment manufacturing capacity and the reorganization and reduction of its operating structure on a global basis. Costs of $7.3 million were charged in the third quarter, primarily for the impairment of certain assets related to a facility rationalization announced in January 2000. In addition, charges amounting to $4.7 million (third quarter $0.9 million; fourth quarter $3.8 million) were made for severance of approximately 240 employees. Additional future cash charges of approximately $12.9 million in connection with the cost reduction initiatives will commence during fiscal 2000. Strategic and Financing Initiatives The Company incurred $7.7 million of charges related to certain consulting and legal costs associated with strategic financing and business alternatives investigated prior to the Chapter 11 filing. Reorganization Items Reorganization expenses are items of income, expense and loss that were realized or incurred by the Company as a result of its decision to reorganize under Chapter 11 of the Bankruptcy Code. Net reorganization expenses in fiscal 1999 consisted of the following: In thousands ------------------------------------------------------------------- Professional fees directly related to the filing $ 14,457 Rejected equipment leases 2,322 Amortization of DIP financing costs 3,125 Accrued retention plan costs 730 Interest earned on DIP proceeds (330) ----------- $ 20,304 =========== Cash payments made during fiscal 1999 with respect to the professional fees listed above were $2.6 million. Charge Related to Executive Changes In connection with certain management organizational changes that occurred during the third quarter of fiscal 1999, a charge to earnings of $19.1 million was made. The charge was primarily associated with supplemental retirement, restricted stock, and long-term compensation plan obligations. This charge consisted of $0.6 million paid prior to the Chapter 11 filing, adjustments of $10.0 million reducing the carrying value of the applicable plan assets and an accrued liability of $8.5 million which has been classified in the consolidated balance sheet as part of the liabilities subject to compromise. Income Taxes As a result of continuing losses in fiscal 1999 and its Chapter 11 filing, the Company recorded a valuation allowance against its entire U.S. net deferred tax asset in the amount of $387.3 million. The Company will continue to record valuation reserves to offset any future U.S. income tax benefits until it is more likely than not that the Company will be able to realize such benefits. The Company believes that realization of net operating loss and tax credit benefits in the near term is unlikely. Should the Company's plan of reorganization result in a significantly modified capital structure, SOP 90-7 would require the Company to apply fresh start accounting. Under fresh start accounting, realization of net operating loss and tax credit benefits first reduces any reorganization goodwill until exhausted and thereafter is reported as additional paid-in capital. In certain substantial changes in the Company's ownership should occur, there could be an annual limitation on the amount of the federal carryforwards which the Company may be able to utilize. Discontinued Operations Beloit Corporation In light of continuing losses at Beloit and following an evaluation of the prospects of reorganizing the Pulp and Paper Machinery segment, on October 8, 1999 the Company announced its plan to dispose of the segment. Subsequently, Beloit notified certain of its foreign subsidiaries that they could no longer expect funding of their operations to be provided by either Beloit or the Company. Certain of the notified subsidiaries have since filed for or were placed into receivership or other applicable forms of judicial supervision in their respective countries. On November 7, 1999, the Bankruptcy Court approved procedures and an implementation schedule for the divestiture plan (the "Court Sales Procedures"). Two sales agreements were approved under the Court Sales Procedures on February 1, 2000 and three sales agreements were approved under the Court Sales Procedures on February 8, 2000. These agreements have been entered into by Beloit with respect to the sale of a majority of its businesses and operating assets. Closing on certain of these transactions is subject to regulatory approval and the completion of information satisfactory to the applicable buyer concerning certain representations and warranties by Beloit. The Company expects that closings on all these sales agreements will occur by the end of the second quarter of fiscal 2000. The Company has classified this segment as a discontinued operation in its Consolidated Financial Statements as of October 31, 1999 and has, accordingly, restated its consolidated statements of operations for prior periods. The Company has not restated its consolidated balance sheets or consolidated statements of cash flow for prior periods. Revenues for this segment were $684.0 million, $851.4 million, and $1,300.0 million in 1999, 1998, and 1997, respectively. Income (loss) from discontinued operations was ($798.2 million), ($188.8 million) and $45.3 million in 1999, 1998, and 1997, respectively. The loss from discontinued operations of $798.2 million includes (i) allocated interest expense of approximately $30.0 million based on Beloit's portion of the consolidated debt, (ii) restructuring charges of $78.7 million in the third quarter and $3.6 million in the fourth quarter, (iii) additional estimated losses on APP contracts of $87.0 million in the second quarter and $163.5 million in the third quarter, (iv) additional expenses of $143.1 million in the third quarter reflecting the effects of changes in other accounting estimates and (v) reorganization expenses of $136.1 million in the third quarter associated with the closing of a pulp and paper mill and the related rejection of a 15-year operating lease. The Company did not record an income tax benefit with respect to the 1999 loss. See Note 12 - Income Taxes in Notes to Consolidated Financial Statements included in Item 8 - Financial Statements and Supplementary Data and Item 14 - Exhibits, Financial Statement Schedules, and Reports on Form 8-K. The elements of the 1999 loss from discontinued operations are discussed below. |X| The restructuring charges primarily related to a strategic reorganization of Beloit. This reorganization rationalized certain product offerings from a full breadth of product lines to more specific offerings. As part of the restructuring, outsourcing was expected to increase significantly. The charge consisted of facility closure charges including estimated amounts for reductions in assets to net realizable values of $74.1 million and accruals for closing and disposal costs of $8.2 million related to closing certain manufacturing facilities, engineering offices and research and development centers. In connection with these restructuring charges, the Company expected to reduce headcount at Beloit by at least 600 employees. These actions included staff reductions in manufacturing, engineering, marketing, product development and administrative support functions. |X| The additional estimated losses on APP contracts primarily relate to the Company's efforts to mitigate damages with respect to the APP matter more fully discussed below and to improve short-term liquidity. Beloit's Asian subsidiaries had sought to sell the assets associated with two papermaking machines to alternative customers. The Company recorded an $87.0 million reserve in the second quarter against the decrease in realizable value of certain paper machines for Asian customers, primarily the second two paper machines ordered by APP. The Company recorded an additional $147.7 million reserve in the third quarter to reflect the Company's determination that the foreseeable market conditions for this type of large paper machine did not support valuing these machines at greater than estimated liquidation values. The Company also recorded a $15.8 million charge in the third quarter for changes in estimates of costs associated with the first two machines sold to APP. |X| The additional estimated losses on contracts and other expenses reflecting changes in other accounting estimates relate to the Company's provisions for excess and obsolete inventory, doubtful accounts receivable, and anticipated losses on contracts. These changes in estimates were based on the Company's best estimates of costs to complete contracts, customer demand for new machines, rebuilds and services, costs of financing, material and labor costs, and overall levels of customer satisfaction with machine performance. The need for these changes in estimates arose as a result of the Chapter 11 filing and a combination of adverse factors impacting the Company during the third quarter, including reductions in product line offerings and material supply delays caused by prepetition liquidity limitations and postpetition resupply timing difficulties. The third quarter charges were originally classified in the consolidated statement of operations as follows: In thousands ------------------------------------------------------- Charged to product development, selling, and administrative expenses: Allowance for doubtful accounts $ 35,900 ------------- Charged to cost of sales: Warranties and other 32,400 Excess and obsolete inventory 25,000 Losses on contracts 49,800 ------------ $107,200 ------------ $143,100 ============= |X| Reorganization expenses of $136.1 million relate to Princeton Paper Company, LLC, ("Princeton Paper"), a subsidiary of Beloit and one of the Debtors, who had, until July 1999, operated a pulp and paper mill located in Fitchburg, Massachusetts (the "Mill"). Beloit originally became responsible for the operations of Princeton Paper and the Mill in 1997 through settlement of a dispute with the former owner of the Mill and the holders of bonds which had been issued to finance the Mill. Under that settlement, Princeton Paper committed to make lease payments under a fifteen-year operating lease of the Mill. Beloit guaranteed those obligations. On July 8, 1999, the Company obtained authority from the Bankruptcy Court for Princeton Paper to fully cease operating, and shortly thereafter the Mill was shut down. Subsequently, the Company rejected the lease and settlement agreement, pursuant to the Bankruptcy Code. The Company has recorded a charge of $82.1 million relating to the decision to close Princeton Paper including a charge of $54.0 million relating to the rejection of the lease. The characterization and treatment of the lease in the bankruptcy case could affect Beloit's ultimate liability for the lease payments. Beloit has provided $54.0 million as an estimate of the claims which may be allowed by the Bankruptcy Court. Cash flow used by Beloit in operating activities during fiscal 1999 was $222.2 million. The principal sources of funding for Beloit was provided by its operations, credit facilities of its subsidiaries and the Company. Between the Chapter 11 filing on June 7, 1999 and October 31, 1999, the cash used by Beloit was $116.0 million and was provided primarily through the DIP Facility. Beloit and the other Debtors are jointly and severally liable under the DIP Facility. Between October 31, 1999 and January 31, 2000, Beloit has used additional cash of approximately $40.0 million. During 1999, the Company recorded an estimated loss of $529.0 million on the disposal of the Pulp and Paper Machinery segment. The amount by which the estimated loss recognized during fiscal 1999 differs from the ultimate loss resulting from the realization of the divestiture plan and any Beloit contingencies will be reported as an adjustment to the loss on disposal of discontinued operations in the future period during which the amount is ultimately determined. The Company did not record an income tax benefit associated with this estimated loss. See Note 12 - Income Taxes in Notes to Consolidated Financial Statements included in Item 8 - Financial Statements and Supplementary Data and Item 14 - Exhibits, Financial Statement Schedules, and Reports on Form 8-K. This estimated loss is comprised of the following: In thousands - -------------------------------------------------------------------------------- Estimated loss on the disposal of the businesses and assets $ (472,118) Accrued estimated operating losses and facility wind-down costs (43,304) Accured post petition letters of credit, guarantees and sureties (12,500) Accrued post-closing environmental costs (7,000) Accrued employee termination costs (12,000) Gain on curtailment of defined benefit pension plans 17,922 ----------- Net estimated loss on the disposal of discontinued operations $ (529,000) =========== The elements of the estimated loss on the disposal of the segment are discussed below. |X| The estimated loss on the disposal of the Beloit businesses and assets of $472.1 million anticipates that there will be approximately $243.2 million in sales proceeds from the five sales agreements approved under the Court Sales Procedure and an additional $34.4 million in proceeds, based primarily on appraisals, from the disposition of the remaining 13 domestic and 18 international operations that will be sold or liquidated by the end of the wind-down process. |X| The accrual for estimated operating losses and wind-down costs represents approximately $28.3 million in estimated operating losses from October 31, 1999 until the facilities are sold or operations otherwise cease and approximately $15.0 million for the wind-down costs for facilities that will be sold or liquidated. |X| The accrual for estimated additional costs under post petition letters of credit, guarantees and sureties of $12.5 million represents estimated additional customer contract claims as a result of the divestiture plan. |X| The accrual for estimated employee termination costs reflects estimated severance and related benefits costs with respect to approximately 1,071 employees, the majority of whom received applicable notifications during January 2000. |X| The accrual for estimated post-closing environmental costs of $7.0 million relate to (i) cost estimates for the removal of asbestos and hazardous wastes at certain facilities being sold or closed and (ii) increased estimated costs associated with the completion of certain remediation activities at one of Beloit's domestic manufacturing facilities assuming the activities will be performed by a buyer or subcontracted to a third-party. |X| The gain on the curtailment of defined benefit plans of $17.9 million reflects the elimination of future years of service accruals. At October 31, 1999, Beloit was contingently liable to banks, financial institutions, and others for approximately $20.0 million for outstanding letters of credit and bank guarantees. This amount was all issued by non-US banks for non-US Beloit subsidiaries. Beloit may also guarantee performance of its equipment at levels specified in sales contracts without the requirement of a letter of credit. The assets and liabilities of discontinued operations are comprised of the following as of October 31, 1999: In thousands - -------------------------------------------------------------------------------- Assets: Cash and cash equivalents $ 19,290 Accounts receivable - net 153,761 Inventories 110,770 Other current assets 18,662 Property, plant and equipment - net 311,424 Other non-current assets 39,691 Goodwill and other intangibles 96,520 Allowance for estimated loss on disposal (472,118) ------------- Total assets, representing estimated disposal cash proceeds $ 278,000 ============= Liabilities: Post-petition liabilities: Trade accounts payable $ (57,111) Employee compensation and benefits (14,605) Accrued contract losses, restructuring costs and other (76,859) Funded debt and capitalized lease obligations (24,080) Operating losses and facility wind-down costs (43,304) Post-petition letters of credit, guarantees and sureties (12,500) Employee termination costs (12,000) Post-closing environmental costs (7,000) ------------- Total post-petition liabilities (247,459) ------------- Pre-petition liabilities: Trade accounts payable (145,955) Funded debt (14,128) Advance payments and progress billings (125,696) Accrued warranties (34,054) Princeton Paper lease (54,000) APP claims (46,000) Pension and other (53,437) Minority interest (21,536) ------------- Total pre-petition liabilities (494,806) ------------- Total liabilities, including liabilities subject to compromise $ (742,265) ============= As of October 31, 1999, there were approximately $766.0 million in net intercompany liabilities owed by certain corporations comprising the Beloit segment to certain non-Beloit affiliated corporations included in the Consolidated Financial Statements. Additionally, there are substantial intercompany accounts between certain corporations within the Beloit segment. Many of the corporations comprising the Beloit segment and possessing intercompany accounts are Debtors under the Chapter 11 filing and several others, subsequent to October 31, 1999, have been placed in receivership or other applicable forms of judicial supervision in their respective countries. A substantial portion of the intercompany accounts arose prior to the Chapter 11 filing. In light of the Chapter 11 filing, receiverships and other applicable forms of judicial supervision, the realizability of these accounts may be uncertain. All intercompany accounts, including Beloit intracompany accounts, have been eliminated in the Consolidated Financial Statements in accordance with generally accepted accounting principles. While such intercompany obligations eliminate in the preparation of consolidated financial statements, they remain obligations on a separate legal entity basis. Other Beloit Matters: o The Potlatch lawsuit, filed originally in 1995, related to a 1989 purchase of pulp line washers supplied by Beloit for less than $15.0 million. In June 1997, a Lewiston, Idaho jury awarded Potlatch $95.0 million in damages in the case which, together with fees, costs and interest to April 2, 1999, approximated $120.0 million. On April 2, 1999 the Supreme Court of Idaho vacated the judgement of the Idaho District Court in the Potlatch lawsuit and remanded the case for a new trial. This litigation has been stayed as a result of the bankruptcy filings. Potlatch filed a motion with the Bankruptcy Court to lift the stay. The Company opposed this motion and the motion was denied. o In fiscal 1996 and 1997, Beloit's Asian subsidiaries received orders for four fine paper machines from Asia Pulp & Paper Co. Ltd. ("APP") for a total of approximately $600.0 million. The first two machines were substantially paid for and installed at APP facilities in Indonesia. Beloit sold approximately $44.0 million of receivables from APP on these first two machines to a financial institution. The machines are currently in the start-up/optimization phase and are required to meet certain contractual performance tests. The contracts provide for potential liquidated damages, including performance damages, in certain circumstances. Beloit has had discussions with APP on certain claims and back charges on the first two machines. The two remaining machines were substantially manufactured by Beloit. Beloit received a $46.0 million down payment from APP and issued letters of credit in the amount of the down payment. In addition, the Company repurchased various notes receivable from APP in December 1998 and February 1999 of $2.8 million and $16.2 million, respectively, which had previously been sold to a financial institution. On December 15, 1998, Beloit's Asian subsidiaries declared APP in default on the contracts for the two remaining machines. Consequently, on December 16, 1998, Beloit's Asian subsidiaries filed for arbitration in Singapore for the full payment from APP for the second two machines plus at least $125.0 million in damages and delay costs. On December 16, 1998, APP filed a notice of arbitration in Singapore against Beloit's Asian subsidiaries seeking a full refund of approximately $46.0 million paid to Beloit's Asian subsidiaries for the second two machines. APP also seeks recovery of other damages it alleges were caused by Beloit's Asian subsidiaries' claimed breaches. The $46.0 million is included in liabilities subject to compromise. See Note 9 - Liabilities Subject to Compromise in Notes to Consolidated Financial Statements included in Item 8 - Financial Statements and Supplementary Data and Item 14 - Exhibits, Financial Statement Schedules, and Reports on Form 8-K. In addition, APP seeks a declaration in the arbitration that it has no liability under certain promissory notes. A hearing on the merits began on January 31, 2000 and is expected to continue for approximately four weeks. A decision of the arbitration panel is expected in March or April, 2000. APP subsequently filed an additional notice of arbitration in Singapore against Beloit seeking the same relief on the grounds that Beloit was a party to the Beloit Asian subsidiaries' contracts with APP and was also a guarantor of the Beloit Asian subsidiaries' performance of those contracts. The arbitration against Beloit was stayed by agreement of the parties after the Chapter 11 proceedings were filed. Since then, APP has not sought to pursue this arbitration. Also, APP has filed for and received an injunction from the Singapore courts that prohibits Beloit from acting on the notes receivable from APP except in the Singapore arbitration. Beloit and its Asian subsidiaries will vigorously defend against all of APP's assertions. APP has attempted to draw on approximately $15.9 million of existing letters of credit issued by Banca Nazionale del Lavaro ("BNL") in connection with the down payments on the contracts for the second two machines. The Company filed for and received a preliminary injunction that prohibits BNL from making payment under the draw notice. The final disposition of the Company's request for a permanent injunction remains pending with the United States District Court for the Eastern District of Wisconsin, but has been stayed pending the outcome of the Singapore arbitration with APP. The Company has placed funds on deposit with BNL to provide for payment under the letters of credit should the permanent injunction not be granted. To mitigate APP's damages and to improve short-term liquidity, Beloit's Asian subsidiaries have sought to sell the assets associated with these two machines to alternative customers. Material Handling On March 30, 1998, the Company completed the sale of approximately 80% of the common stock of the Company's P&H Material Handling ("Material Handling") segment to Chartwell Investments, Inc. in a leveraged recapitalization transaction. As such, the accompanying financial statements have been reclassified to reflect Material Handling as a discontinued operation. The Company retained approximately 20% of the outstanding common stock and 11% of the outstanding voting securities of Material Handling and holds one director seat in the new company. In addition, the Company has licensed Material Handling to use the "P&H" trademark on existing Material Handling-produced products on a worldwide basis for periods specified in the agreement for a royalty fee payable over a ten year period. The Material Handling segment recorded revenues of $130.5 million in 1998 (prior to the divestiture) and $353.4 million in 1997. Income (loss) from discontinued operations included income of $4.4 million in 1998 and $25.1 million in 1997 derived from this segment. The Company reported a $151.5 million after-tax gain on the sale of this discontinued operation in the second quarter of fiscal 1998. Proceeds consisted of $341.0 million in cash and preferred stock, originally valued at $4.8 million, with a 12.25% payment-in-kind dividend; $7.2 million in common stock was not reflected in the Company's balance sheet or gain calculations due to the nature of the leveraged recapitalization transaction. Material Handling recently issued additional shares of common stock, reducing the company's holding to 15.6% of the outstanding common stock. In view of continuing operating losses by Material Handling, the Company reduced to zero the $5.4 million carrying value of its investment in this business during the third quarter of 1999. Liquidity and Capital Resources Chapter 11 Proceedings The matters described under this caption "Liquidity and Capital Resources", to the extent that they relate to future events or expectations, may be significantly affected by the Chapter 11 proceedings. Those proceedings will involve, or result in, various restrictions on the Company's activities, limitations on financing, the need to obtain Bankruptcy Court approval for various matters and uncertainty as to relationships with vendors, suppliers, customers and others with whom the Company may conduct or seek to conduct business. In addition, the recorded amounts of: (i) the estimated cash proceeds to be realized upon the disposal of Beloit's assets to be sold or liquidated, and (ii) the estimated cash requirements to fund Beloit's remaining costs and claims, could be materially different from the actual amounts. Under the Bankruptcy Code, postpetition liabilities and prepetition liabilities (i.e., liabilities subject to compromise) must be satisfied before shareholders can receive any distribution. The ultimate recovery to shareholders, if any, will not be determined until the end of the case when the fair value of the Company's assets is compared to the liabilities and claims against the Company. There can be no assurance as to what value, if any, will be ascribed to the common stock in the bankruptcy proceedings. The U.S. Trustee for the District of Delaware has appointed an Official Committee of Equity Holders to represent the shareholders in the proceedings before the Bankruptcy Court. Working Capital Working capital of continuing operations, excluding liabilities subject to compromise, as of October 31, 1999, was $179.2 million including $54.7 million of cash and cash equivalents, as compared to working capital of $436.9 million including $30.0 million of cash and cash equivalents as of October 31, 1998. The decrease in working capital is due primarily to: (i) the inclusion in 1998 of Beloit's working capital of $189.6 million, (ii) additional restructuring charges and changes in other accounting estimates of the realizability of certain accounts receivable and inventory, primarily related to the Underground Mining Machinery segment, in 1999, (iii) the provision in 1999 of a full valuation allowance on deferred income tax assets, (iv) the classification of the Australian term loan facility as a current liability in 1999, (v) higher professional fee accruals in 1999 due to the Chapter 11 filing, (vi) the effects of a major inventory reduction program in 1999, primarily impacting the Underground Mining Machinery segment and (vii) higher trade payables in 1999 at both continuing segments due to the stay on prepetition liabilities as of the bankruptcy filing date. Cash Flow from Continuing Operations Cash flow from operating activities was $10.6 million for fiscal 1999 compared to cash flow used by continuing operations of $429.1 million for the comparable period in 1998. The reduction in cash used between periods is due primarily to (i) the inclusion in 1998 of cash of $347.8 million used in Beloit's operations, (ii) working capital reductions during 1999 as described above, (iii) lower interest payments of $49.9 million in 1999 due to the effect of the Chapter 11 filing and (iv) lower income tax payments of $43.9 million in 1999, the aggregate effect of which more than offset the decrease in operating income of $111.7 million in 1999, primarily in the Underground Mining Machinery segment. Cash flow used by investment and other transactions was $30.7 million for fiscal 1999 compared to cash flow provided by investment and other transactions of $289.8 million for fiscal 1998. The change is primarily due to the receipt of proceeds from the sale of J&L Fiber Services ($109.4 million) and Material Handling ($341.0 million) during 1998. In addition, the level of capital expenditures and other investments in the business in 1999 declined from the prior period. DIP Facility On July 8, 1999 the Bankruptcy Court approved a two-year, $750 million Revolving Credit Term Loan and Guaranty Agreement underwritten by the Chase Manhattan Bank (the "DIP Facility") consisting of three tranches: (i) Tranche A is a $350 million revolving credit facility with sublimits for import documentary letters of credit of $20 million and standby letters of credit of $300 million; (ii) Tranche B is a $200 million term loan facility; and (iii) Tranche C is a $200 million standby letter of credit facility. Proceeds from the DIP Facility may be used to fund postpetition working capital and for other general corporate purposes during the term of the DIP Facility and to pay up to $35 million of prepetition claims of critical vendors. The Company is permitted to make loans and issue letters of credit in an aggregate amount not to exceed $240 million to foreign subsidiaries for specified limited purposes, including up to $90 million for working capital needs of foreign subsidiaries and $110 million of loans and $110 million of letters of credit for support or repayment of existing credit facilities. The Company may use up to $40 million (of the $240 million) to issue stand-by letters of credit to support foreign business opportunities. Beginning August 1, 1999, the DIP Facility imposes monthly minimum EBITDA tests and quarterly limits on capital expenditures. At October 31, 1999, $167 million in direct borrowings had been drawn under the DIP Facility and classified as a long-term obligation and letters of credit in the face amount of $30.3 million had been issued under the DIP Facility. The Debtors are jointly and severally liable under the DIP Facility. The DIP Facility benefits from superpriority administrative claim status as provided for under the Bankruptcy Code. Under the Bankruptcy Code, a superpriority claim is senior to unsecured prepetition claims and all other administrative expenses incurred in the Chapter 11 case. The Tranche A and B direct borrowings under the DIP Facility are priced at LIBOR + 2.75% per annum on the outstanding borrowings. Letters of Credit are priced at 2.75% per annum (plus a fronting fee of 0.25% to the Agent) on the outstanding face amount of each Letter of Credit. In addition, the Company pays a commitment fee of 0.50% per annum on the unused amount of the commitment payable monthly in arrears. The DIP Facility matures on the earlier of the substantial consummation of a plan of reorganization or June 6, 2001. In proceedings filed with the Bankruptcy Court, the Company agreed with the Official Committee of Unsecured Creditors appointed by the U.S. Trustee (the "Creditors' Committee") and with MFS Municipal Income Trust and MFS Series Trust III (collectively, the "MFS Funds"), holders of certain debt issued by Joy, to a number of restrictions regarding transactions with foreign subsidiaries and Beloit: |X| The Company agreed to give at least five days prior written notice to the Creditors Committee and to the MFS Funds of the Debtors' intention to (a) make loans or advances to, or investments in, any foreign subsidiary for working capital purposes in an aggregate amount in excess of $90 million; (b) make loans or advances to, or investments in, any foreign subsidiary to repay the existing indebtedness or cause letters of credit to be issued in favor of a creditor of a foreign subsidiary in an aggregate amount, cumulatively, in excess of $30 million; or (c) make postpetition loans or advances to, or investments in, Beloit or any of Beloit's subsidiaries in excess of $115 million. In September 1999, the Company notified the Creditors Committee and MFS Funds that it intended to exceed the $115 million amount. The Company subsequently agreed, with the approval of the Bankruptcy Court, to provide the Creditors Committee with weekly cash requirement forecasts for Beloit, to restrict funding of Beloit to forecasted amounts, to provide the Creditors Committee access to information about the Beloit divestiture and liquidation process, and to consult with Creditors Committee regarding the Beloit divestiture and liquidation process. |X| In addition, the Company agreed to give notice to the Creditors Committee and to the MFS Funds with respect to any liens created by or on a foreign subsidiary or on any of its assets to secure any indebtedness. |X| The Company agreed to notify the MFS Funds of any reduction in the net book value of Joy of ten percent or more from $364 million after which MFS Funds would be entitled to receive periodic financial statements for Joy. As of October 31, 1999, MFS Funds is entitled to receive periodic financial statements for Joy. Without appropriate waivers from the Chase Manhattan Bank, completion of the sale of Beloit would violate certain negative covenants in the DIP Facility dealing with liens, asset sales and fundamental changes in business. In addition, minimum EBITDA tests in the DIP Facility did not anticipate the discontinuance of the Pulp and Paper Machinery segment. In light of the Company's plan in October, 1999 to dispose of this segment, the minimum EBITDA tests were no longer consistent with the Company's continuing operations. As of January 31, 2000, the Company and the Chase Manhattan Bank entered into a Waiver and Amendment Letter which waives compliance with certain negative covenants of the DIP Facility as they relate to the sale of the assets of Beloit and amends the EBITDA tests in the DIP Facility to levels that are appropriate for the Company's continuing businesses. The Waiver and Amendment Letter also waives the provisions of the DIP Facility which otherwise would require conversion of revolving borrowings to term loans. Continuation of unfavorable business conditions or other events could require the Company to seek further modifications or waivers of certain covenants of the DIP Facility. In such event, there is no certainty that the Company would obtain such modifications or waivers to avoid default under the DIP Facility. In light of the decision to dispose of the Beloit Segment, the Company and Chase Manhattan Bank began negotiations to restructure the DIP Facility to further align the provisions of the DIP Facility with the Company's continuing businesses. There can be no assurance that such negotiations will result in modifications to the DIP Facility. The principal sources of liquidity for the Company's operating requirements have been cash flows from operations and borrowings under the DIP Facility. While the Company expects that such sources will provide sufficient working capital to operate its businesses, there can be no assurances that such sources will prove to be sufficient. Year 2000 Systems Preparedness The Year 2000 issue focuses on the ability of information systems to properly recognize and process date-sensitive information beyond December 31, 1999. To address this problem, the Company implemented a Year 2000 readiness plan for information technology systems ("IT") and non-IT equipment, facilities and systems. All material IT and non-IT equipment, processes and software were compliant and resulted in no material Y2K issues as of the date of this report. While no material Y2K problems have been encountered to date and none are expected, it is possible that such problems could arise as the year progresses. Total expenses on the project through October 31, 1999 were approximately $5.5 million and were related to expenses for repair or replacement of software and hardware, expenses associated with facilities, products and supplier reviews and project management expenses. The cost of implementing SAP at Joy is excluded as this system implementation was undertaken primarily to improve business processes. Market Risk Volatility in interest rates and foreign exchange rates can impact the Company's earnings, equity and cash flow. From time to time the Company undertakes transactions to hedge this impact. The hedge instrument is considered effective if it offsets partially or completely the negative impact on earnings, equity and cash flow due to fluctuations in interest and foreign exchange rates. In accordance with the Company's policy, the Company does not execute derivatives that are speculative or that increase the Company's risk from interest rate or foreign exchange rate fluctuations. At October 31, 1999 the Company was not party to any interest rate derivative contracts. Foreign exchange derivatives at that date were exclusively in the form of forward exchange contracts executed over the counter. The counterparties to these contracts are several commercial banks, all of which hold investment grade ratings, but there is a concentration of these contracts held with The Chase Manhattan Bank which is currently the only institution entering into new forward foreign exchange contracts with the Company and those subsidiaries involved in the reorganization proceedings. The Company has adopted a Foreign Exchange Risk Management Policy. It is a risk-averse policy under which most exposures that impact earnings and cash flow are fully hedged, subject to a net $5 million equivalent of permitted exposures per currency. Exposures that impact only equity or do not have a cash flow impact are generally not hedged with derivatives. There are two categories of foreign exchange exposures that are hedged: assets and liabilities denominated in a foreign currency and future committed receipts or payments denominated in a foreign currency. These exposures normally arise from imports and exports of goods and from intercompany trade and lending activity. As of October 31, 1999, the nominal or face value of forward foreign exchange contracts to which the Company was a party was $210.2 million in absolute U.S. dollar equivalent terms. Accounting Pronouncements In June 1998, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards No. 133, "Accounting for Derivative Instruments and Hedging Activities" ("FAS 133"). FAS 133 (as amended by FAS 137) is effective for all fiscal quarters of all fiscal years beginning after June 15, 2000 (November 1, 2000 for the Company). FAS 133 requires that all derivative instruments be recorded on the balance sheet at their fair value. Changes in the fair value of derivatives are recorded each period in current earnings or other comprehensive income, depending on whether the derivative is part of a hedge transaction. For fair-value hedge transactions in which the Company is hedging, changes in an asset's, liability's or firm commitment's fair value and changes in the fair value of the derivative instrument will generally be offset in the income statement by changes in the fair value of the hedged item. For cash-flow hedge transactions, in which the Company is hedging the variability of cash flows related to a variable rate asset, liability or forecasted transaction, changes in the fair value of the derivative instrument will be reported in other comprehensive income. The gains and losses on the derivative instrument that are reported in other comprehensive income will be reclassified as earnings in the periods in which earnings are impacted by the variability of the cash flows of the hedged item. The ineffective portion of all hedges will be recognized in current period earnings. The Company has not yet determined the impact that the adoption of FAS 133 will have on its results of operations. Item 7A. Quantitative and Qualitative Disclosures about Market Risk See "Market Risk" in Item 7 - Management's Discussion and Analysis of Financial Condition and Results of Operations. Item 8. Financial Statements and Supplementary Data See the audited Consolidated Financial Statements and Financial Statement Schedule of Harnischfeger Industries, Inc. attached hereto and listed in the index.
Unaudited Quarterly Financial Data 1999 Quarterly Financial Data Fiscal Quarter* 1999 (In thousands except per share amounts) First Second Third Fourth Year ------------------------------------------------------------ Net sales $ 264,437 $ 294,334 $ 273,693 $ 281,682 $ 1,114,146 Gross profit (loss) 63,027 71,109 (17,199) 74,403 191,340 Operating income (loss) 10,784 16,015 (135,613) 5,996 (102,818) Income (loss) from continuing operations (386) 4,399 (362,993) 5,892 (353,088) Loss from discontinued operation (16,013) (78,657) (656,410) (47,100) (798,180) Loss on disposal of discontinued operation -- -- -- (529,000) (529,000) ---------- -------- ----------- ----------- ---------- Net loss $ (16,399) $ (74,258) $(1,019,403) $ (570,208) $(1,680,268) ========= ========== ============ ============ =========== Earnings(Loss) Per Share - Basic: Income (loss) from continuing operations $ (0.01) $ 0.09 $ (7.81) $ 0.12 $ (7.62) Loss from and net loss on disposal of discontinued operation (0.35) (1.69) (14.11) (12.38) (28.65) ---------- --------- ----------- ----------- ----------- Net loss per share: $ (0.36) $ (1.60) $ (21.92) $ (12.26) $ (36.27) ========== ========= =========== =========== =========== Earnings (Loss) Per Share - Diluted Income (loss) from continuing operations $ (0.01) $ 0.09 $ (7.81) $ 0.12 $ (7.62) Loss from and net loss on disposal of discontinued operation (0.35) (1.69) (14.11) (12.38) (28.65) ---------- --------- ----------- ---------- ----------- Net loss per share $ (0.36) $ (1.60) $ (21.92) $ (12.26) $ (36.27) ========= ========= =========== ========== ===========
1998 Quarterly Financial Data Fiscal Quarter* 1998 (In thousands except per share amounts) First Second Third Fourth Year ------------------------------------------------------------- Net sales $ 321,122 $ 280,746 $ 338,727 $ 271,712 $ 1,212,307 Gross profit 87,869 79,323 70,116 58,029 295,337 Operating income (loss) 32,910 18,617 11,072 (1,206) 61,393 Income (loss) from continuing operations 8,914 7,974 (5,434) 2,912 14,366 Loss from discontinued operations (30,481) (79,828) (33,170) (40,920) (184,399) Gain on disposal of discontinued operation -- 151,500 -- -- 151,500 ---------- --------- ---------- --------- ----------- Net income (loss) $ (21,567) $ 79,646 $ (38,604) $ (38,008) $ (18,533) ========== ========= ========== ========= =========== Earnings (Loss) Per Share - Basic Income (loss) from continuing operations $ 0.19 $ 0.17 $ (0.11) $ 0.06 $ 0.31 Income (loss) from and net gain on disposal of discontinued operations (0.65) 1.54 (0.72) (0.88) (0.71) ----------- --------- ---------- --------- ----------- Net income (loss) per share $ (0.46) $ 1.71 $ (0.83) $ (0.82) $ (0.40) =========== ========= ========== ========= ============ Earnings (Loss) Per Share - Diluted Income (loss) from continuing operations $ 0.19 $ 0.17 $ (0.11) $ 0.06 $ 0.31 Income (loss) from and net gain on disposal of discontinued operations (0.65) 1.54 (0.72) (0.88) (0.71) ----------- --------- ---------- --------- ----------- Net income (loss) per share $ (0.46) $ 1.71 $ (0.83) $ (0.82) $ (0.40) =========== ========= ========== ========= ===========
*See Notes to Consolidated Financial Statements for descriptions of unusual items affecting quarters. Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure None PART III Item 10. Directors and Executive Officers of the Registrant Directors of the Registrant The following table contains certain information (including principal occupation, business experience and beneficial ownership of the Company's Common Stock as of January 31, 2000) regarding the directors of the Company. All shares beneficially owned by the directors under the Directors Stock Compensation Plan are voted by the trustee of the Company's Deferred Compensation Trust as directed by the Company's Management Policy Committee.
Director Current Shares Since Term Owned(1) Donna M. Alvarado........Principal of Aguila International, an 1992 2000 13,613(2) international business development consulting firm, since 1994. President and Chief Executive Officer of Quest International, a non-profit educational organization, from 1989 to 1994. Director, Park National Bank and Birmingham Steel Corp. Age 51. Harry L. Davis..........Professor of Creative Management at the 1987 2000 29,117(3) University of Chicago since 1994. Professor of Marketing from 1963 to 1994. Deputy Dean of the Graduate School of Business at the University of Chicago from 1983 to 1993. Director, Golden Rule Insurance Company and Peter Martin Associates. Age 62. John Nils Hanson........Vice Chairman, Chief Executive Officer 1996 2000 207,894(4) and President since 1999. Vice Chairman, President and Chief Operating Officer from 1998 to 1999. President and Chief Operating Officer from 1996 to 1998. Executive Vice President and Chief Operating Officer from 1995 to 1996. President and Chief Executive Officer of Joy Technologies Inc. from 1994 to 1995. President, Chief Operating Officer and Director of Joy Technologies Inc. from 1990 to 1995. Director, Arrow Electronics. Age 58. Stephen M. Peck.........Maintains an investment office at Gilder, 1998 2000 12,000(5) Gagnon, Howe & Co. since 1988. General Partner at Wilderness Partners, L.P., an investment partnership, since 1989. Director of Fresenius Medical Care, OFFIT Investment Funds, Banyan Strategic Realty Trust and Grand Union Co. Serves as a member of the Advisory Boards of the Torrey Funds and Brown Simpson Asset Management. Chairman of Mount Sinai-NYU Health. Non-employee Chairman of the Board of Grand Union Company. Age 65. John D. Correnti.........Chairman and Chief Executive Officer, 1994 2001 9,361(3) Birmingham Steel Corp., a major steel producer, since 1999. Chief Executive Officer, Vice Chairman and Director of Nucor Corporation, a major steel producer, from 1996 to 1999. President, Chief Operating Officer and Director of Nucor from 1991 to 1995. Director, Navistar International Corporation. Age 52. Robert B. Hoffman........Chairman of the Board of the Company 1994 2001 16,550(6) since 1999. Vice Chairman and Chief Financial Officer of Monsanto Company, a diversified company in agriculture, pharmaceuticals and food products, from 1997 to 1999. Senior Vice President and Chief Financial Officer from 1994 to 1997. Director, Kemper Scudder Group of Municipal Funds. Age 63. Jean-Pierre Labruyere....Chairman and Chief Executive since 1972 1994 2001 19,397(3) of Labruyere, Eberle S.A., a financial holding company based in France with global interests in many business areas including food distribution, laser printing, electronic archiving and wine production. Director, Promodes S.A., Algeco S.A. and Martin Maurel Bank - Banque de France Adviser. Age 62. Robert M. Gerrity........Chairman and Chief Executive Officer of 1994 2002 3,747(7) Antrim Group Inc., a technology corporation, since 1996. Director and former President and Chief Executive Officer of Ford New Holland, now New Holland n.v., a London- based agricultural and industrial equipment manufacturer. Director, Libralter Engineered Systems, Birmingham Steel Corp. and Standard Motor Products, Inc. Age 62. L. Donald LaTorre........President of L & G Management Consultants 1997 2002 16,707(8) Corporation since 1997. Retired Director of Engelhard Corporation, a world-leading provider of environmental technologies, specialty chemical products, engineered materials and related services, since 1997. President and Chief Operating Officer from 1995 to 1997. Senior Vice President and Chief Operating Officer from 1990 to 1995. Trustee, Bloomfield College; Chairman and Director, Mercer University School of Engineering Board. Age 62. Leonard E. Redon.........Director, Rochester Area Operations, and 1997 2002 16,055(3) Vice President, Eastman Kodak Company, a company engaged worldwide in developing, manufacturing and marketing consumer and commercial imaging products, since 1997. President and Chief Executive Officer of Qualex, Inc., the world's largest wholesale photo processor, in 1997. Vice President of Eastman Kodak Company and President, Customer Equipment Services Division of Eastman Kodak, 1995 to 1997. General Manager and Vice President of Government and Education Markets from 1994 to 1995. Age 48.
- ------------------- Notes (1) Beneficial ownership of these shares consists of sole voting power and sole investment power except as noted below. None of the directors beneficially owned 1% or more of the Company's Common Stock. (2) Includes 13,113 shares beneficially owned under the Directors Stock Compensation Plan. (3) Shares beneficially owned under the Directors Stock Compensation Plan. (4) Includes 68,057 shares of exercisable options. (5) Includes 5,000 shares held indirectly by his wife. (6) Includes 15,550 shares beneficially owned under the Directors Stock Compensation Plan. (7) Includes 2,747 shares beneficially owned under the Directors Stock Compensation Plan. (8) Includes 15,707 shares beneficially owned under the Directors Stock Compensation Plan. Executive Officers of the Registrant The following table sets forth the executive officers of the Company, their ages, their offices with the Company, and the period during which they have been executive officers of the Company.
Name Age Current Office and Principal Occupation Years as Officer John Nils Hanson...... 58 Chief Executive Officer since 1999. Vice Chairman since 4 1998; President and Chief Operating Officer since 1995; President and Chief Executive Officer of Joy 1990 to 1995. Director since 1996. James A. Chokey....... 56 Executive Vice President for Law and Government Affairs since 2 1997. Senior Vice President, Law and Corporate Development of Beloit from 1996 to 1997. Prior to joining the Company, Mr. Chokey held similar positions with Cooper Industries, A.O. Smith Corporation, RTE Corporation and Joy Technologies Inc. Robert N. Dangremond.. 56 Senior Vice President and Chief Restructuring Officer since - 1999. Principal with turnaround management firm Jay Alix & Associates. Kenneth A. Hiltz...... 47 Senior Vice President and Chief Financial Officer since - 1999. Principal with turnaround management firm Jay Alix & Associates. Wayne F. Hunnell...... 53 Senior Vice President since 1998. President and Chief 1 Operating Officer of Joy since 1998; Vice President and Controller of Joy from 1995 to 1998. Vice President and Controller of P&H from 1993 to 1995. Robert W. Hale........ 53 Senior Vice President since 1997. President and Chief 2 Executive Officer of P&H since 1994. Mark E. Readinger..... 46 Senior Vice President since 1997. President of Beloit 2 since 1998; President and Chief Operating Officer of Joy from 1996 to 1998; Senior Vice President of Marketing and General Manager of the Joy North American Aftermarket Operations from 1994 to 1996.
The business address of each of the executive officers is: 3600 South Lake Drive, St. Francis, Wisconsin 53235-3716. All executive officers are citizens of the United States of America. Officers are elected annually but may be removed at any time at the discretion of the Board of Directors. There are no family relationships between the executive officers. Involvement in Certain Legal Proceedings. On June 7, 1999, the Company and substantially all of its domestic operating subsidiaries, including Beloit, Joy, and P&H, filed for reorganization under Chapter 11 of the U.S. Bankruptcy Code. Several of the Company's officers are also officers or directors of other subsidiaries of the Company which filed for reorganization under Chapter 11. As such, each of the Company's executive officers has been associated with a corporation that filed a petition under the federal bankruptcy laws within the last five years. In addition, Mr. Dangremond served as Restructuring Officer and Chief Financial Officer of Zenith Electronics Corporation and as interim Chief Executive Officer and President of Forstmann & Company when those firms filed petitions under Chapter 11 of the United States Bankruptcy Code in 1999 and 1995, respectively. Section 16(a) Beneficial Ownership Reporting Compliance. Based solely upon a review of Forms 3 and 4 and amendments thereto furnished to the Company during the last fiscal year and Forms 5 and amendments thereto furnished to the Company with respect to the last fiscal year, and written representations from reporting persons that no Form 5 is required, the Company is not aware that any director, officer or beneficial owner of more than 10% of the Company's Common Stock failed to file on a timely basis reports required by Section 16(a) of the Securities Exchange Act of 1934 during the last fiscal year except in the case of Herbert S. Cohen who was elected Vice President and Controller on September 13, 1999 and whose Form 3 initial report of ownership indicating that he owned no shares of Common Stock was filed with the Securities and Exchange Commission on January 12, 2000. Mr. Cohen has not had reportable transactions in the Company's Common Stock. Item 11. Executive Compensation Summary Compensation Table. The following table shows compensation awarded to, earned by or paid to the Company's current Chief Executive Officer, each of the four most highly compensated executive officers (other than the Chief Executive Officer) who were serving as executive officers at the end of fiscal 1999, and the Company's former Chief Executive Officer for services rendered to the Company and its subsidiaries during fiscal 1999, 1998 and 1997. Two of the Company's executive officers, Mr. Dangremond and Mr. Hiltz, are employed by Jay Alix & Associates. Amounts earned by Jay Alix & Associates during fiscal 1999 are disclosed in Item 13 - Certain Relationships and Related Transactions.
=================================================================================================================================== Annual Compensation Long-Term Compensation --------------------------------------------------------------------------- --------------------------------------------------------------------------- Awards Payouts ---------------------------------------- Other Restricted Annual Stock Securities LTIP Name Bonus Compensation Awards Underlying Payouts All Other and Salary ($) ($) ($) Options/SARs ($) Compensation Principal Position Year ($) (1) (1) (2) (#) (3) ($) - ----------------------------------------------------------------------------------------------------------------------------------- - ----------------------------------------------------------------------------------------------------------------------------------- John Nils Hanson 1999 653,520 - 145,684 (4) - - - 6,726 (5) Vice Chairman, President and Chief 1998 462,900 - 43,716 (6) - 12,616 (7) - 8,550 Executive Officer 1997 432,600 260,973 122,699 - - 47,755 233,894 - ----------------------------------------------------------------------------------------------------------------------------------- - ----------------------------------------------------------------------------------------------------------------------------------- James A. Chokey 1999 296,800 - 41,542 (8) - - - 6,351 (5) Executive Vice President, Secretary and 1998 254,400 - 136,229 (9) - 6,004 (7) - 6,102 General Counsel 1997 213,336 109,441 36,480 - - - 114,613 - ---------------------------------------------------------------------------------------------------------------------------------- - ---------------------------------------------------------------------------------------------------------------------------------- Robert W. Hale 1999 235,020 - - - - - 3,846 (5) Senior Vice President and 1998 230,850 - - - 9,314 (7) - 8,550 President and CEO 1997 207,700 98,793 - - - 93,278 4,101 Harnischfeger Corporation - ---------------------------------------------------------------------------------------------------------------------------------- - ---------------------------------------------------------------------------------------------------------------------------------- Wayne F. Hunnell (10) 1999 240,500 - 6,867 (11) - - - 3,004 (5) Senior Vice President and President and COO 1998 221,323 57,856 6,949 (11) - 1,208 (7) - 1,440 Joy Technologies Inc. - ---------------------------------------------------------------------------------------------------------------------------------- - ---------------------------------------------------------------------------------------------------------------------------------- Mark E. Readinger 1999 325,000 - 29,569 (11) - - - 2,088 (5) Senior Vice President and President 1998 329,010 - 50,000 (12) - - - 1,827 Beloit Corporation 1997 259,885 175,220 1,031 - - - 3,983 - --------------------------------------------------------------------------------------------------------------------------------- - --------------------------------------------------------------------------------------------------------------------------------- Jeffery T. Grade 1999 443,912 - 20,795 (13) - - - 5,742,704 (15) Former Chief Executive 1998 700,008 - 126,856 (14) - 261,863 (7) - 8,550 Officer 1997 660,000 - 406,393 - - 246,011 686,052
Notes (1) Participants in the Company's Executive Incentive Plan may elect to defer up to 100% of their cash bonuses by converting them into Common Stock at a 25% discount from the price of the Common Stock on a date selected by the Human Resources Committee near the beginning of the fiscal year. All such stock is held in the Company's Deferred Compensation Trust and may not be withdrawn by a participant as long as the participant remains an employee of the Company. All of the named executive officers elected to convert 100% of their cash bonuses into Common Stock under this plan in each of the last three fiscal years except Mr. Hanson who elected to convert 50% of his 1997 cash bonus into Common Stock under the plan, Mr. Chokey who elected to convert 50% of his 1997 cash bonus into Common Stock under the Plan, Mr. Hale who elected to convert 60% of his 1997 cash bonus into Common Stock under the Plan, Mr. Hunnell who elected to convert 25% of his 1998 and 1997 cash bonuses into Common Stock under the Plan, and Mr. Readinger who elected to receive his 1997 bonus in cash. The Executive Incentive Plan also provides that dividends on shares held in participants' accounts are reinvested in Common Stock at a 25% discount from market prices. Any positive dollar values of the differences between (i) the bonus amount converted and the market value of the shares purchased and (ii) the dollar amounts attributable to the discount upon the reinvestment of dividends are included in the "Other Annual Compensation" column. The dollar value of the bonus amounts that have been converted into stock and deferred are reported in the "LTIP Payouts" and "All Other Compensation" columns. (2) No restricted Common Stock is outstanding. (3) Represents the portion of the bonus earned, if any, that resulted from bonuses that were "banked" in prior years under the Company's incentive compensation programs. (4) Includes $121,597 related to country club expenses and initial membership fees. (5) Represents group term life insurance premiums paid by the Company for the benefit of the executives. (6) Includes $31,133 related to automobile expenses. (7) All options granted in 1998 equal the number of shares withheld for tax purposes in connection with the distribution in 1998 of shares from the Company's Deferred Compensation Trust as a result of accounting rule changes in 1998. (8) Represents $25,722 related to automobile expenses and $15,820 related to country club expenses. (9) Includes $50,150 related to automobile expenses and $83,420 related to country club expenses and initial membership fees. (10) Information for Mr. Hunnell covers fiscal year 1999 and fiscal year 1998, the year he became an executive officer of the Company. (11) Represents automobile expenses. (12) Represents payment made to Mr. Readinger in connection with his transfer to Beloit. (13) Includes $19,530 related to automobile expenses. (14) Includes $33,156 representing dollar amounts attributable to the discount upon reinvestment of dividends on Common Stock held under the Executive Incentive Plan and $63,177 related to automobile expenses. (15) Represents $400,000 paid and $5,342,704 payable to Mr. Grade under the terms of the Termination and Release Agreement dated as of May 24, 1999 and $3,563 in group term life insurance premiums paid by the Company. The $5,342,704 payable is treated as a prepetition claim in the Company's bankruptcy proceedings. Options/SAR Grants Table. No grants of stock options or SARs were made during the last fiscal year to the executive officers named in the Summary Compensation Table. Aggregated Option/SAR Exercises and Fiscal Year-End Option/SAR Value Table. The following table shows information with respect to the executive officers named in the Summary Compensation Table concerning the number and value of options outstanding at the end of the last fiscal year. No options were exercised by executive officers during the last fiscal year.
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR AND FY-END OPTION/SAR VALUES (1) =========================================================================================== Number of Securities Value of Unexercised Underlying Unexercised in-the-Money Options/ Options/SARs at SARs at Fiscal Year- Fiscal Year-End (#) End ($) (2) -------------------------------------------------------------------- -------------------------------------------------------------------- Name Exercisable Unexercisable Exercisable Unexercisable - ------------------------------------------------------------------------------------------- - ------------------------------------------------------------------------------------------- John Nils Hanson 68,057 (3) 7,750 -- -- James A. Chokey 12,129 875 -- -- Robert W. Hale 28,564 1,750 -- -- Wayne F. Hunnell 7,008 625 -- -- Mark E. Readinger 24,744 -- -- -- Jeffery T. Grade 261,863 -- -- --
Notes (1) No Stock Appreciation Rights (SARs) are outstanding. (2) All outstanding options have exercise prices above the closing price of the Company's Common Stock on the New York Stock Exchange at the end of the fiscal year of $1.125. (3) Includes 6,191 options under the Joy Technologies Inc. Stock Option Plan (the "Joy Option Plan"). As a consequence of the merger of the Company and Joy Technologies Inc. in November, 1994, all options that had been granted under the Joy Option Plan to any Joy Technologies Inc. employees were converted into options to purchase the Company's Common Stock. Long-Term Incentive Plan ("LTIP") Awards Table. No long-term incentive plan awards were made during the last fiscal year to the executive officers named in the Summary Compensation Table. Defined Benefit or Actuarial Plan Disclosure. The following table sets forth the estimated annual benefits payable upon retirement at normal retirement age for the years of service indicated under the Company's defined benefit pension plan (and excess benefit arrangements defined below) at the indicated remuneration levels. Remuneration covered by the plan includes the following amounts reported in the Summary Compensation Table: salary and bonus (including the cash value of bonuses forgone for stock under the Executive Incentive Plan). The years of service credited for each of the executive officers named in the Summary Compensation Table are: John Nils Hanson, 10 years; Mark E. Readinger, 5 years; Robert W. Hale, 11 years; Wayne F. Hunnell, 21 years; James A. Chokey, 17 years; and Jeffery T. Grade, 31 years. Benefits are based both upon credited years of service with the Company or its subsidiaries and the highest consecutive five year average annual salary and incentive compensation during the last ten calendar years of service. Estimated benefits under the retirement plan are subject to the provisions of the Internal Revenue Code which limit the annual benefits which may be paid from a tax qualified retirement plan. Amounts in excess of such limitations are payable from the general funds of the Company under the Company's Supplemental Retirement Plan. The estimated benefits in the table do not reflect offsets under the plan of 1.25% per year of service (up to a maximum of 50%) of the Social Security benefit.
=========================================================================================== Years of Service - ------------------------------------------------------------------------------------------- - ------------------------------------------------------------------------------------------- Remuneration 10 15 20 25 30 35 - -------------------- -------- -------- -------- -------- -------- ---------- - -------------------- -------- -------- -------- -------- -------- ---------- $ 300,000 . . . . $ 45,000 $ 67,500 $ 90,000 $112,500 $135,000 $157,500 - -------------------- -------- -------- -------- -------- -------- -------- - -------------------- -------- -------- -------- -------- -------- -------- 400,000 . . . . 60,000 90,000 120,000 150,000 180,000 210,000 - -------------------- -------- -------- -------- -------- -------- -------- - -------------------- -------- -------- -------- -------- -------- -------- 500,000 . . . . 75,000 112,500 150,000 187,500 225,000 262,500 - -------------------- -------- -------- -------- -------- -------- -------- - -------------------- -------- -------- -------- -------- -------- -------- 600,000 . . . . 90,000 135,000 180,000 225,000 270,000 315,000 - -------------------- -------- -------- -------- -------- -------- -------- - -------------------- -------- -------- -------- -------- -------- -------- 700,000 . . . . 105,000 157,500 210,000 262,500 315,000 367,500 - -------------------- -------- -------- -------- -------- -------- -------- - -------------------- -------- -------- -------- -------- -------- -------- 800,000 . . . . 120,000 180,000 240,000 300,000 360,000 420,000 - -------------------- -------- -------- -------- -------- -------- -------- - -------------------- -------- -------- -------- -------- -------- -------- 900,000 . . . . 135,000 202,500 270,000 337,500 405,000 472,500 - -------------------- -------- -------- -------- -------- -------- -------- - -------------------- -------- -------- -------- -------- -------- -------- 1,000,000 . . . . 150,000 225,000 300,000 375,000 450,000 525,000 ==================== ======== ======== ======== ======== ======== ========
Compensation of Directors. - ------------------------- Directors who are not officers or employees of the Company receive an annual retainer fee of $22,600 and a fee of $1,250 for each Board and Board committee meeting attended. Committee chairs receive $1,500 for each committee meeting attended. Directors who are employees of the Company earn no additional remuneration for their services as directors. The Company has a Directors Stock Compensation Plan under which non-employee directors are allowed to elect to defer up to 100% of their fees by converting their fees into Common Stock to be held in trust until termination of their status as directors. The Company also has an incentive compensation plan for outside directors based on the same performance targets used for the Company's Executive Incentive Plan. Under the plan, non-employee directors are eligible to earn annual incentive compensation awards in addition to annual retainer and meeting fees. Incentive compensation is determined by multiplying $25,000 by a figure which represents the performance of the Company in a given year expressed as a percentage of the performance target for that year. Incentive compensation awards are converted into shares of Common Stock under the Directors Stock Compensation Plan and held in trust until the director's status as a director terminates. No incentive compensation awards were earned under the Directors Stock Compensation Plan for the last fiscal year. Following the resignation of then Chairman and Chief Executive Officer, Jeffery T. Grade, on May 24, 1999, Mr. Robert B. Hoffman was elected non-employee Chairman. In June, 1999, the Human Resources Committee of the Board of Directors considered the compensation to be paid to Mr. Hoffman as a non-employee Chairman. Following recommendations from outside consultants as to compensation paid in comparable situations, it was determined that Mr. Hoffman should receive a quarterly payment of $125,000 (such amount to be periodically reviewed by the Human Resources Committee), in addition to outside director retainer and meeting fees. In 1997, the Board established a long-term compensation plan for outside directors that would award stock to directors if certain stock price targets were achieved. The minimum stock price at which awards could be made is $53.13. In light of the Company's Chapter 11 filing, it is unlikely that awards will be made under this plan. Employment Contracts, Termination of Employment and Change-in-Control Arrangements. The Company's Key Employee Retention Plan was approved by the Bankruptcy Court in September, 1999. This plan covers approximately 142 employees, including each of the executive officers named in the Summary Compensation Table (other than the former Chief Executive Officer), and provides emergence bonuses and severance and change-in-control benefits. Emergence is defined as the earlier of the consummation of a plan of reorganization or the consummated sale or substantially complete liquidation of the Company or, in the case of each of the presidents of the Company's three principal domestic operating subsidiaries, the respective operating subsidiaries. Emergence bonus payments for executive officers named in the Summary Compensation Table (excluding the former Chief Executive Officer) would be 85% of base salary. Severance benefits for the executive officers named in the Summary Compensation Table (excluding the former Chief Executive Officer) under the Key Employee Retention Plan would be paid in the event of an involuntary termination, other than for cause, and would amount to two year's base salary, payable over 24 months, with mitigation after twelve months. Medical benefit continuation for up to 24 months and outplacement assistance is also provided. Change-in-control benefits for the executive officers named in the Summary Compensation Table (excluding the former Chief Executive Officer) under the Key Employee Retention Plan would be paid in the event of an involuntary termination of employment, other than for cause, or a voluntary termination for "good reason" during the 24-month period following a change-in-control of the Company. Benefits to the executive officers named in the Summary Compensation Table (excluding the former Chief Executive Officer) under this provision would equal the lesser of three years base salary plus target bonus or the maximum amount that would not cause the payment to be non-deductible to the Company under Section 280G of the Internal Revenue Code and would be paid in a lump sum. In the event of a change-in-control that would entitle the executive officers named in the Summary Compensation Table to benefits under the Key Employee Retention Plan, they must elect between the change-in-control benefits provided by the Key Employee Retention Plan, which is treated as a post-petition administrative expense, and their pre-petition claim under the change-in-control provisions of the Company's Long-Term Compensation Plan for Key Executives. The Long-Term Compensation Plan for Key Executives provides for payments in the event that prior to November 1, 2001 there is a change-in-control of the Company or a termination of employment of the executive. The payments would vary depending on the highest reported sales price of the Common Stock during the sixty-day period prior to and including the date of the change-in-control. At a change-in-control price of $25 per share or less, the payment would be fifty percent of the total share award an executive could be awarded under the plan times $25. Similar payments would be made under the Long-Term Compensation Plan for Key Executives in the case of an involuntary or constructive termination of employment. Assuming a $25 or lower per share price, the approximate amounts that would be payable under this plan to the executives named in the Summary Compensation Table are: John Nils Hanson, $2,603,538; James A. Chokey, $1,627,188; Mark E. Readinger, $1,301,775; Wayne F. Hunnell, $1,301,775; and Robert W. Hale, $1,301,775. The Company's Executive Incentive Plan provides for the distribution of accrued benefits following termination of a participant's employment with the Company. The plan also provides that, in the event of a change-in-control of the Company, the Company will make cash payments to participants equal to the number of shares of Common Stock then allocated to such participants' accounts times the highest per-share price actually paid in connection with such change-in-control. The 1996 Stock Incentive Plan provides that, upon a change-in-control, all outstanding option grants become exercisable. All existing options under the 1988 Incentive Stock Plan become exercisable upon a change-in-control. Item 12. Security Ownership of Certain Beneficial Owners and Management The following table lists the beneficial ownership of Common Stock as of February 11, 2000 by any person known to the Company to own beneficially more than 5% of its Common Stock, each of the executive officers named in the Summary Compensation Table, and the Company's executive officers and directors as a group. Beneficial ownership of these shares consists of sole voting power and sole investment power except as noted below. As of February 11, 2000, no person had filed a Schedule 13G with the Securities and Exchange Commission indicating beneficial ownership of more than 5% of the Company's Common Stock. Name and Address Shares Percent of Beneficial Owner Owned of Class(1) John Nils Hanson 207,894 (2) 0.4% James A. Chokey 20,047 (3) less than 0.1% Robert W. Hale 40,148 (4) less than 0.1% Wayne F. Hunnell 9,385 (5) less than 0.1% Mark E. Readinger 27,744 (6) less than 0.1% All executive officers and directors as a group (16 persons) 424,250 (7) 0.9% Jeffery T. Grade 1,033,427 (8) 2.2% - ----------------------- Notes: (1) Based on 47,949,089 shares of Common Stock outstanding. (2) Includes 68,057 shares Mr. Hanson has a right to acquire upon exercise of stock options. (3) Includes 12,129 shares Mr. Chokey has a right to acquire upon exercise of stock options. (4) Includes 28,564 shares Mr. Hale has a right to acquire upon exercise of stock options. (5) Includes 7,008 shares Mr. Hunnell has a right to acquire upon exercise of stock options. (6) Shares Mr. Readinger has a right to acquire upon exercise of stock options. (7) Includes 143,502 shares which are subject to currently exercisable options. (8) Based on Company records. Includes 261,863 shares Mr. Grade has a right to acquire upon exercise of stock options. See Item 10 - Directors and Executive Officers for additional information on beneficial ownership of Common Stock by directors. All shares beneficially owned by the directors under the Directors Stock Compensation Plan are voted by the trustee of the Company's Deferred Compensation Trust as directed by the Company's Management Policy Committee. Item 13. Certain Relationships and Related Transactions Transactions with Management and Others; Indebtedness of Management. Prior to the acquisition of Joy Technologies Inc. ("JTI") by the Company in 1994, JTI lent John Nils Hanson, then an executive of JTI and currently an executive officer and director of the Company, $240,000 in connection with a program in which JTI lent executives money to encourage them to purchase and own JTI stock. The Company succeeded to the loan as a result of the JTI acquisition. The loan matured in 1997 and was extended by the Company in 1997, 1998 and 1999 for one-year periods. Mr. Hanson paid interest on the balance at the annual rate of 6.22%. The loan was forgiven during fiscal 1999. As a result, Mr. Hanson was credited with receiving income of $488,304 during the last fiscal year in the form of the $240,000 loan forgiveness and $248,304 of tax liability resulting from the loan forgiveness. Mr. Dangremond and Mr. Hiltz, non-employee executive officers of the Company, and several other financial professionals currently working on behalf of the Company, are principals or employees of the turnaround management-consulting firm of Jay Alix & Associates. The Company has retained Jay Alix & Associates to provide certain financial expertise to assist the Company during the pendency of its bankruptcy case. During fiscal 1999, the Company incurred fees of $1,948,926 payable to Jay Alix & Associates. The Company expects to continue to incur fees with Jay Alix & Associates during the pendency of the Company's bankruptcy case. PART IV Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K (a) The following documents are filed as part of this report: (1) Financial Statements: The response to this portion of Item 14 is submitted in a separate section of this report. See the audited Consolidated Financial Statements and Financial Statement Schedule of Harnischfeger Industries, Inc. attached hereto and listed on the index on page 2 of this report. (2) Financial Statement Schedule: The response to this portion of Item 14 is submitted in a separate section of this report. See the audited Consolidated Financial Statements and Financial Statement Schedule of Harnischfeger Industries, Inc. attached hereto and listed on the index on page 2 of this report. (3) Exhibits Number Exhibit ------- ---------------------------------------------------------------------- 3 (a) Restated Certificate of Incorporation of Harnischfeger Industries, Inc. (incorporated by reference to Exhibit 3(a) to Report of Harnischfeger Industries, Inc. on Form 10-Q for the quarter ended April 30, 1997). (b) Bylaws of Harnischfeger Industries, Inc., as amended November 22, 1999. (c) Certificate of Designations of Preferred Stock, Series D (incorporated by reference to Exhibit 28.1(b) to Registrant's Current Report on Form 8-K dated March 25, 1992). 4 (a) 9.1% Series A Senior Note Agreement dated as of September 15, 1989 (incorporated by reference to Exhibit 4(b) to Report of Harnischfeger Industries, Inc. on Form 10-K for the year ended October 31, 1991, File No.1-9299). (b) 9.1% Series B Senior Note Agreement dated as of October 15, 1989 (incorporated by reference to Exhibit 4(c) to Report of Harnischfeger Industries, Inc. on Form 10-K for the year ended October 31, 1991, File No.1-9299). (c) 8.95% Series C Senior Note Agreement dated as of February 15, 1991(incorporated by reference to Exhibit 4(d) to Report of Harnischfeger Industries, Inc. on Form 10-K for the year ended October 31, 1991, File No. 1-9299). (d) 8.9% Series D Senior Note Agreement dated as of October 1, 1991 (incorporated by reference to Exhibit 4(e) to Report of Harnischfeger Industries, Inc. on Form 10-K for the year ended October 31, 1991, File No. 1-9299). (e) Indenture for Debentures between Harnischfeger Industries, Inc. and Continental Bank, National Association, Trustee, dated March 1, 1992 (incorporated by reference to Exhibit 4(f) to Report of Harnischfeger Industries, Inc. on Form 10-K for the year ended October 31, 1992, File No. 1-9299). (f) First Supplemental Indenture for Debentures between Harnischfeger Industries, Inc. and Continental Bank, National Association, Trustee, dated June 12, 1992 (incorporated by reference to Exhibit 4(g) to Report of Harnischfeger Industries, Inc. on Form 10-K for the year ended October 31, 1992, File No. 1-9299). (g) Registration Statement filed on Form S-3, for issuance of Debt Securities of up to $200,000,000 dated April 10, 1996, File No. 333-2401. (h) Registration Statement filed on Form S-3, for issuance of Debt Securities of up to $200,000,000 dated February 23, 1998, File No. 333-46429. (i) Rights Agreement dated as of February 8, 1989 between the Registrant and the First National Bank of Boston, as Rights Agent, which includes as Exhibit A the Certificate of Designations of Preferred Stock, Series D, setting forth the terms of the Preferred Stock, Series D; as Exhibit B the Form of Rights Certificate; and as Exhibit C the Summary of Rights to Purchase Preferred Stock, Series D (incorporated by reference to Exhibit 1 to Registrant's Registration Statement on Form 8-A filed on February 9, 1989). (j) Amendment No. 1 to the Rights Agreement dated as of October 9, 1995 (incorporated by reference to Exhibit 4(j) to Report of Harnischfeger Industries, Inc. on Form 10-K for the year ended October 31, 1997, File No. 1-9299). (k) Amendment No. 2 to the Rights Agreement dated as of September 15, 1998 (incorporated by reference to Exhibit 4(k) to Report of Harnischfeger Industries, Inc. on Form 10-K for the year ended October 31, 1998, File No. 1-9299). (l) Harnischfeger Industries, Inc. Stock Employee Compensation Trust Agreement effective as of March 23, 1993 (incorporated by reference to Exhibit 4(k) to Report of Harnischfeger Industries, Inc. on Form 10-K for the year ended October 31, 1993, File No.1-9299).* (m) Amendment One to Harnischfeger Industries, Inc. Stock Employee Compensation Trust Agreement dated January 1, 1994 (incorporated by reference to Exhibit 4(j) to Report of Harnischfeger Industries, Inc. on Form 10-K for the year ended October 31, 1995, File No. 1-9299).* (n) Amendment Two to Harnischfeger Industries, Inc. Stock Employee Compensation Trust Agreement dated May 6, 1995 (incorporated by reference to Exhibit 4(k) to Report of Harnischfeger Industries, Inc. on Form 10-K for the year ended October 31, 1995, File No. 1-9299).* (o) $500,000,000 Credit Agreement dated as of October 17, 1997 among Harnischfeger Industries, Inc. as borrower and each other financial institution which from time to time thereto as lenders, Chase Manhattan Bank as Administrative Agent, First Chicago Markets, Inc. as Syndication Agent and Royal Bank of Canada as Documentation Agent (incorporated by reference to Exhibit 4(n) to Report of Harnischfeger Industries, Inc. on Form 10-K for the year ended October 31, 1997, File No.1-9299). (p) Revolving Credit, Term Loan and Guaranty Agreement dated as of June 7, 1999 among Harnischfeger Industries, Inc. as Borrower and The Chase Manhattan Bank, as Administrative Agent (incorporated by reference to Exhibit 10(a) to Report of Harnischfeger Industries, Inc. on Form 10-Q for the quarter ended April 30, 1999). (q) First Amendment to Revolving Credit, Term Loan and Guaranty Agreement, dated July 8, 1999 (incorporated by reference to Exhibit 10(a) to Report of Harnischfeger Industries, Inc. on Form 10-Q for the quarter ended July 31, 1999). (r) Second Amendment to Revolving Credit, Term Loan and Guaranty Agreement, dated July 8, 1999 (incorporated by reference to Exhibit 10(b) to Report of Harnischfeger Industries, Inc. on Form 10-Q for the quarter ended July 31, 1999). (s) Waiver and Amendment Letter dated as of January 31, 2000 to Revolving Credit, Term Loan and Guarantee Agreement dated July 8, 1999. 10 (a) Harnischfeger Industries, Inc. 1988 Incentive Stock Plan, as amended on March 6, 1995 (incorporated by reference to Exhibit 10(a) to Report of Harnischfeger Industries, Inc. on Form 10-K for the year ended October 31, 1995, File No. 01-9299).* (b) Harnischfeger Industries, Inc. Stock Incentive Plan as amended and restated as of September 12, 1998 (incorporated by reference to Exhibit 10(b) to Report of Harnischfeger Industries, Inc. on Form 10-K for the year ended October 31, 1998, File No. 1-9299).* (c) Harnischfeger Industries, Inc. Executive Incentive Plan, as amended and restated as of September 9, 1998 (incorporated by reference to Exhibit 10(c) to Report of Harnischfeger Industries, Inc. on Form 10-K for the year ended October 31, 1998, File No. 1-9299).* (d) Long-Term Compensation Plan for Key Executives, as amended and restated as of December 17, 1998 (incorporated by reference to Exhibit 10(b) to Report of Harnischfeger Industries, Inc. on Form 10-Q for the quarter ended January 31, 1999, File No. 1-9299).* (e) Harnischfeger Industries, Inc. Supplemental Retirement Plan, as amended and restated as of June 3, 1999.* (f) Directors Stock Compensation Plan, as amended and restated as of August 24, 1998 (incorporated by reference to Exhibit 10(f) to Report of Harnischfeger Industries, Inc. on Form 10-K for the year ended October 31, 1998, File No. 1-9299).* (g) Service Compensation Agreement for Directors effective as of June 1, 1992 (incorporated by reference to Exhibit 10(g) to Report of Harnischfeger Industries, Inc. on Form 10-K for the year ended October 31, 1992, File No.1-9299).* (h) Long-Term Compensation Plan for Directors, as amended and restated as of February 9, 1998 (incorporated by reference to Exhibit 10(e) to Report of Harnischfeger Industries, Inc. on Form 10-Q for the quarter ended January 31, 1998, File No. 1-9299).* (i) Joy Technologies Inc. 1991 Stock Option and Equity Incentive Plan dated November 12, 1991 (incorporated by reference to Exhibit 99-1999.1 to Registration Statement on Form S-8, File No. 33-57209).* (j) Amendment to Joy Technologies Inc. 1991 Stock Option and Equity Incentive Plan dated November 29, 1994 (incorporated by reference to Exhibit 99-1999.2 to Registration Statement on Form S-8, File No. 33-57209).* (k) Harnischfeger Industries Deferred Compensation Trust as amended and restated as of October 9, 1995 (incorporated by reference to exhibit 10 to Report of Harnischfeger Industries, Inc. on Form 10-Q for the quarter ended January 31, 1995, File No. O1-9299).* (l) Amendment No. 1 to Harnischfeger Industries Deferred Compensation Trust as amended and restated as of October 9, 1995 (incorporated by reference to Exhibit 10(j) to Report of Harnischfeger Industries, Inc. on Form 10-K for the year ended October 31, 1996, File No. 01-9299).* (m) Termination and Release Agreement dated as of May 24, 1999 by and between Harnischfeger Industries, Inc. and Jeffery T. Grade (incorporated by reference to Exhibit 10(c) to Report of Harnischfeger Industries, Inc. on Form 10-Q for the quarter ended April 30, 1999).* (n) Termination and Release Agreement dated as of May 24, 1999 by and between Harnischfeger Industries, Inc. and Francis M. Corby, Jr. (incorporated by reference to Exhibit 10(d) to Report of Harnischfeger Industries, Inc. on Form 10-Q for the quarter ended April 30, 1999).* (o) Form of Key Employee Retention Plan letter dated October 20, 1999 between Harnischfeger Industries, Inc. and John Nils Hanson, James A. Chokey, Robert W. Hale, Wayne F. Hunnell and Mark E. Readinger.* 11 Statement Re: Computation of Earnings Per Share, filed herewith. 21 Subsidiaries of the Registrant. 23 Consent of PricewaterhouseCoopers LLP. 24 Powers of Attorney. 25 Financial Data Schedules. * Represents a management contract or compensatory plan or arrangement required to be filed as an exhibit pursuant to Item 14(c) of Form 10-K. (b) Reports on Form 8-K None. HARNISCHFEGER INDUSTRIES, INC. (Debtor-in-Possession as of June 7, 1999) Form 10-K Item 8 and Items 14(a)(1) and 14(a)(2) Index to Consolidated Financial Statements And Financial Statement Schedule The following Consolidated Financial Statements of Harnischfeger Industries, Inc. and the related Report of Independent Accountants are included in Item 8 - Financial Statements and Supplementary Data and Item 14 - Exhibits, Financial Statement Schedules, and Reports on Form 8-K: Page in This Item 14(a) (1): Form 10-K - -------------------------------------------------------------------------------- Report of Independent Accountants 35 Consolidated Statement of Operations for the fiscal years ended October 31, 1999, 1998 and 1997 35 Consolidated Balance Sheets at October 31, 1999 and 1998 36 Consolidated Statements of Cash Flow for the fiscal years ended October 31, 1999, 1998 and 1997 37 Consolidated Statement of Shareholders' Equity (Deficit) for the fiscal years ended October 31, 1999, 1998 and 1997 38 Notes to Consolidated Financial Statements 39 The following Consolidated Financial Statement schedule of Harnischfeger Industries, Inc. and related Report of Independent Accountants is included in Item 14(a)(2): Report of Independent Accountants on Financial Statement Schedule for the Years Ended October 31, 1999, 1998 and 1997 67 Schedule II. Valuation and Qualifying Accounts 67 All other schedules are omitted because they are either not applicable or the required information is shown in the financial statements or notes thereto. Financial statements of less than 50% owned companies have been omitted because the proportionate share of their profit before income taxes and total assets are less than 20% of the respective consolidated amounts and investments in such companies are less than 20% of consolidated total assets. REPORT OF INDEPENDENT ACCOUNTANTS To The Directors and Shareholders of Harnischfeger Industries, Inc. In our opinion, the Consolidated Financial Statements appearing in the accompanying index present fairly, in all material respects, the financial position of Harnischfeger Industries, Inc. and its subsidiaries (the "Company") at October 31, 1999 and 1998, and the results of their operations and their cash flows for each of the three years in the period ended October 31, 1999, in conformity with accounting principles generally accepted in the United States. These financial statements are the responsibility of the Company's management; our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these statements in accordance with auditing standards generally accepted in the United States, which require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for the opinion expressed above. The accompanying Consolidated Financial Statements have been prepared assuming the Company will continue as a going concern. As discussed in Note 2 - Significant Accounting Policies in Notes to Consolidated Financial Statements, the Company has incurred substantial losses from operations and has experienced liquidity issues resulting in the filing for Chapter 11 Bankruptcy protection on June 7, 1999, which raises substantial doubt about its ability to continue as a going concern. The Consolidated Financial Statements do not include any adjustments that might result from the outcome of this uncertainty. /S/ PRICEWATERHOUSECOOPERS LLP PricewaterhouseCoopers LLP Milwaukee, Wisconsin February 11, 2000
Harnischfeger Industries, Inc. (Debtor-in-Possession as of June 7, 1999) Consolidated Statement of Operations - ------------------------------------------------------------------------------------------- In thousands except per share amounts Years Ended October 31, - ------------------------------------------- --------------------------------------------- 1999 1998 1997 - ------------------------------------------- ---------------- ----------- ------------- Revenues Net Sales $ 1,114,146 $ 1,212,307 $ 1,467,341 Other Income 3,909 1,324 18,023 ----------- ------------- ----------- 1,118,055 1,213,631 1,485,364 Cost of sales 922,806 916,970 1,090,947 Product development, selling and administrative expenses 238,952 235,268 217,629 Strategic and financing initiatives 7,716 -- -- Reorganization items 20,304 -- -- Restructuring charges 11,997 -- -- Charge related to executive changes 19,098 -- -- ----------- ------------- ----------- Operating income (loss) (102,818) 61,393 176,788 Interest expense - net (excludes contractual interest expense of $31,230 for 1999) (28,865) (70,600) (70,259) ----------- ------------- ----------- Income (loss) before (provision) benefit for income taxes and minority interest (131,683) (9,207) 106,529 Benefit (provision) for income taxes (220,448) 24,608 (36,519) Minority interest (957) (1,035) (2,129) ----------- ------------- ----------- Income (loss) from continuing operations (353,088) 14,366 67,881 Income (loss) from discontinued operations, net of applicable income taxes (798,180) (184,399) 70,399 Gain (loss) on disposal of discontinued operations, net of applicable income taxes in 1998 (529,000) 151,500 -- Extraordinary loss on retirement of debt, net of applicable income taxes -- -- (12,999) ----------- ------------- ----------- Net income (loss) $(1,680,268) $ (18,533) $ 125,281 =========== ============= =========== Basic earnings (loss) per share: Income (loss) from continuing operations $ (7.62) $ 0.31 $ 1.42 Income (loss) from and net gain (loss) on disposal of discontinued operations (28.65) (0.71) 1.47 Extraordinary loss on retirement of debt -- -- (0.27) ----------- ------------- ----------- Net income (loss) per share $ (36.27) $ (0.40) 2.62 =========== ============= =========== Diluted earnings (loss) per share: Income (loss) from continuing operations $ (7.62) $ 0.31 $ 1.41 Income (loss) from and net gain (loss) on disposal of discontinued operations (28.65) (0.71) 1.45 Extraordinary loss on retirement of debt -- -- (0.27) ----------- ------------- ----------- Net income (loss) per share $ (36.27) $ (0.40) $ 2.59 =========== ============= ===========
See accompanying notes to consolidated financial statements Harnischfeger Industries, Inc. (Debtor-in-Possession as of June 7, 1999) Consolidated Balance Sheet In thousands October 31, - ------------------------------------------------------------------------ 1999 1998 ------------ ------------ Assets Current Assets: Cash and cash equivalents (including cash equivalents of $48,211 and $6,816, in 1999 and 1998, respectively) $ 57,453 $ 30,012 Accounts receivable-net 202,830 692,326 Inventories 447,655 610,478 Prepaid income taxes -- 74,186 Other 50,447 56,142 ----------- ----------- 758,385 1,463,144 Assets of discontinued Beloit operations 278,000 -- Property, Plant and Equipment: Land and improvements 38,379 61,454 Buildings 131,961 289,789 Machinery and equipment 274,485 792,222 ----------- ----------- 444,825 1,143,465 Accumulated depreciation (234,078) (529,884) ----------- ----------- 210,747 613,581 Investments and Other Assets: Goodwill 358,191 480,625 Intangible assets 37,693 49,090 Deferred income taxes -- 44,781 Other 68,797 136,038 ----------- ----------- 464,681 710,534 ----------- ----------- $ 1,711,813 $ 2,787,259 =========== =========== See accompanying notes to consolidated financial statements.
Harnischfeger Industries, Inc. (Debtor-in-Possession as of June 7, 1999) Consolidated Balance Sheet - -------------------------------------------------------------------------------- In thousands October 31, - --------------------------------------------------------------------------------- 1999 1998 - --------------------------------------------------- ------------ ----------- Liabilities and Shareholders' Equity (Deficit) Current Liabilities: Short-term notes payable, including current portion of long-term obligations $ 144,568 $ 156,383 Trade accounts payable 70,012 333,624 Employee compensation and benefits 43,879 73,334 Advance payments and progress billings 45,340 115,320 Accrued warranties 39,866 58,053 Income taxes payable 101,832 7,693 Accrued contract losses, restructuring charges, and other liabilities 125,719 281,873 ----------- ----------- 571,216 1,026,280 Long-term Obligations 168,097 962,797 Other Non-current Liabilities: Liability for postretirement benefits 31,990 34,187 Accrued pension costs 15,465 40,812 Other 7,855 12,495 ----------- ----------- 55,310 87,494 Liabilities Subject to Compromise 1,193,554 -- Liabilites of discontinued Beloit operation, including liabilities subject to compromise of $494,806 742,265 -- Minority Interests 6,522 43,838 Commitments and Contingencies (Notes 9 and 21) -- -- Shareholders' Equity (Deficit): Common stock, $1 par value (51,668,939 and 51,668,939 shares issued, respectively) 51,669 51,669 Capital in excess of par value 572,573 586,509 Retained earnings (deficit) (1,468,938) 216,065 Accumulated comprehensive (loss) (79,960) (60,289) Less: Stock employee compensation trust (1,433,147 and 1,433,147 shares, respectively) at market (1,612) (13,525) Treasury stock (3,865,101 and 4,465,101 shares, respectively) at cost (98,883) (113,579) ----------- ----------- (1,025,151) 666,850 ----------- ----------- $ 1,711,813 $ 2,787,259 =========== ===========
See accompanying notes to consolidated financial statements.
Harnischfeger Industries, Inc. (Debtor-in-Possession as of June 7, 1999) Consolidated Statement of Cash Flow - -------------------------------------------------------------------------------- In thousands Years Ended October 31, - ------------------------------------------------------ ------------------------------------------- 1999 1998 1997 - ------------------------------------------------------- -------------- ------------ ------------- Operating Activities: Net income (loss) $ (1,680,268) $(18,533) $ 125,281 Add (deduct) - items not affecting cash: (Income) loss from and net (gain) loss on disposal of discontinued operations 1,327,180 (155,876) (25,063) Restructuring charges 11,997 65,000 -- Reorganization items 14,615 -- -- Charge related to executive change 18,498 -- -- Minority interest, net of dividends paid 957 (54,981) 6,130 Depreciation and amortization 50,540 86,760 87,461 Increase (decrease) in income taxes, net of change in valuation allowance 204,067 (201,771) 54,579 Other - net 5,834 (17,735) 1,449 Changes in Working Capital, exclusive of acquisitions and divestitures and net of liabilities subject to compromise: Decrease (increase) in accounts receivable - net 11,075 51,590 (195,551) Decrease (increase) in inventories 21,129 (68,773) (53,633) (Increase) decrease in other current assets (18,881) 11,958 (23,637) Increase (decrease) in trade accounts payable 40,412 (97,331) 119,671 Increase (decrease) in employee compensation and benefits 6,424 (36,462) (26,987) (Increase) decrease in advance payments and progress billings 8,588 39,950 (55,281) (Decrease) in accrued contract losses and other liabilities (11,599) (32,892) (106,995) -------------- ------------ ------------- Net cash provided by (used by) continuing operations 10,568 (429,096) (92,576) -------------- ------------ ------------- Investment and Other Transactions: Acquisitions, net of cash acquired -- (40,192) (5,325) Proceeds from sale of Material Handling -- 341,000 -- Proceeds from sale of J&L Fiber Systems -- 109,445 -- Net proceeds from sale of non-core Dobson Park businesses -- 9,323 16,829 Property, plant and equipment acquired (26,610) (133,925) (126,401) Property, plant and equipment retired 12,318 16,893 31,291 Deposit related to APP letters of credit and other (16,434) (12,700) (746) -------------- ------------ ------------- Net cash (used by) provided by investment and other transactions (30,726) 289,844 (84,352) -------------- ------------ ------------- Financing Activities: Dividends paid (4,592) (18,556) (19,151) Exercise of stock options -- 1,318 7,164 Purchase of treasury stock -- (33,154) (40,720) Financing fees related to DIP Facility (15,000) -- -- Borrowings under DIP Facility 167,000 -- -- Borrowings under long-term obligations prior to bankruptcy filing 125,000 -- -- Issuance of long-term obligations -- 292,300 261,411 Redemption of long-term obligations -- (11,763) (198,117) Payments on long-term obligations (2,113) -- -- Increase (decrease) in short-term notes payable 18,910 (87,333) 161,644 -------------- ------------ ------------- Net cash provided by financing activities 289,205 142,812 172,231 -------------- ------------ ------------- Effect of Exchange Rate Changes on Cash and Cash Equivalents (93) (2,931) (2,856) Cash Used in Discontinued Operations (241,513) - - -------------- ------------ ------------- Increase (decrease) in Cash and Cash Equivalents 27,441 629 (7,553) Cash and Cash Equivalents at Beginning of Year 30,012 29,383 36,936 -------------- ------------ ------------- Cash and Cash Equivalents at End of Year $ 57,453 $ 30,012 $ 29,383 ============== ============ =============
See accompanying notes to consolidated financial statements.
Harnischfeger Industries, Inc. (Debtor-in-Possession as of June 7, 1999) Consolidated Statement of Shareholders' Equity (Deficit) Compre- Accumulated Capital in hensive Retained Comprehensive Common Excess of Income Earnings Income Treasury In thousands Stock Par Value (Loss) (Deficit) (Loss) SECT Stock Total - ----------------------------------------------------------------------------------------------------------------------------- Balance at October 31, 1996 $ 51,407 $ 615,089 $ 148,175 $ (37,584) $ (61,360) $ (42,242) $673,485 Comprehensive Income (Loss): Net income -- -- $ 125,281 125,281 -- -- -- 125,281 Other Comprehensive Income (loss): Currency translation adjustment -- -- (3,856) -- (3,856) -- -- (3,856) Total Comprehensive income (loss) $ 121,425 ========== Dividends paid ($.40 per share) -- -- (19,729) -- -- -- (19,729) Dividends on shares held by SECT -- 578 -- -- -- -- 578 Exercise of 301,072 stock options 200 4,984 -- -- 1,980 -- 7,164 209,373 shares purchased by employee and director benefit plans -- 4,582 -- -- -- 3,888 8,470 1,062,457 shares acquired as treasury stock -- -- -- -- -- (44,808) (44,808) Adjust SECT shares to market value -- (2,950) -- -- 2,950 -- -- Amortization of unearned compensation on restricted stock -- 3,075 -- -- -- -- 3,075 -------- --------- --------- --------- ---------- ------- ------- Balance at October 31, 1997 $ 51,607 $ 625,358 $ 253,727 $ (41,440) $ (56,430) $(83,162) $749,660 Comprehensive (Loss): Net loss -- -- $ (18,533) (18,533) -- -- -- (18,533) Other Comprehensive Loss: Currency translation adjustment -- -- (18,849) -- (18,849) -- -- (18,849) --------- Total Comprehensive loss $ (37,382) ========== Exercise of 61,767 stock options 62 1,256 -- -- -- -- 1,318 Dividends paid ($.40 per share) -- -- (19,129) -- -- -- (19,129) Dividends on shares held by SECT -- 573 -- -- -- -- 573 Adjust SECT shares to market value -- (42,905) -- -- 42,905 -- -- 146,401 shares purchased by employee and director benefit plans -- 1,527 -- -- -- 4,108 5,635 1,338,554 shares acquired as treasury stock -- -- -- -- -- (33,154) (33,154) Rabbi Trust shares -- -- -- -- -- (1,371) (1,371) Amortization of unearned compensation on restricted stock -- 700 -- -- -- -- 700 ------- --------- --------- --------- --------- --------- -------- Balance at October 31, 1998 $51,669 $ 586,509 $ 216,065 $ (60,289) $ (13,525) $(113,579) $666,850
See accompanying notes to consolidated financial statements.
Compre- Accumulated Capital in hensive Retained Comprehensive Common Excess of Income Earnings Income Treasury In thousands Stock Par Value (Loss) (Deficit) (Loss) SECT Stock Total - ---------------------------------------------------------------------------------------------------------------------------------- Balance at October 31, 1998 $ 51,669 $ 586,509 $ 216,065 $ (60,289) $(13,525) $(113,579) $ 666,850 Comprehensive Income (Loss): Net loss -- -- $(1,680,268) (1,680,268) -- -- -- (1,680,268) Other Comprehensive loss: Change in additional minimum pension liability -- -- (6,365) -- (6,365) -- -- (6,365) Currency translation adjustment -- -- (13,306) -- (13,306) -- -- (13,306) ------------ Total Comprehensive Income (Loss) $(1,699,939) ============= Dividends paid ($.10 per share) -- -- (4,735) -- -- -- (4,735) Dividends on shares held by SECT -- 143 -- -- -- -- 143 600,000 shares purchased by employee and director benefit plans -- (10,035) -- -- -- 15,582 5,547 Adjust SECT shares to market value -- (11,913) -- -- 11,913 -- -- Adjust Rabbi Trust shares -- -- -- -- -- (886) (886) Unearned compensation expense on executive contract buyout -- 7,462 -- -- -- -- 7,462 Amortization of unearned compensation on restricted stock -- 407 -- -- -- -- 407 -------- --------- ----------- --------- --------- ---------- ----------- Balance at October 31, 1999 $ 51,669 $ 572,573 $(1,468,938) $ (79,960) $ (1,612) $ (98,883) $(1,025,151) ======== ========= =========== ========= ======== ========== ===========
See accompanying notes to consolidated financial statements. Harnischfeger Industries, Inc. (Debtor-in-Possession as of June 7, 1999) Notes to Consolidated Financial Statements October 31, 1999 - -------------------------------------------------------------------------------- 1. Reorganization under Chapter 11 On June 7, 1999, Harnischfeger Industries, Inc. (the "Company") and substantially all of its domestic operating subsidiaries (collectively, the "Debtors") filed voluntary petitions for reorganization under Chapter 11 of the U.S. Bankruptcy Code (the "Bankruptcy Code") in the United States Bankruptcy Court for the District of Delaware (the "Bankruptcy Court") and orders for relief were entered. The Debtors include the Company's principal domestic operating subsidiaries, Beloit Corporation ("Beloit"), Joy Mining Machinery ("Joy"), and P&H Mining Equipment ("P&H"). The Company's Pulp and Paper Machinery segment owned by Beloit and its subsidiaries (the "Beloit Segment") is being presented as a discontinued operation as is more fully discussed in Note 3 - Discontinued Operations. The Debtors' Chapter 11 cases are jointly administered for procedural purposes only under case number 99-2171. The issue of substantive consolidation of the Debtors has not been addressed. Unless Debtors are substantively consolidated under a confirmed plan of reorganization, payment of prepetition claims of each Debtor may substantially differ from payment of prepetition claims of other Debtors. The Debtors are currently operating their businesses as debtors-in-possession pursuant to the Bankruptcy Code. Pursuant to the Bankruptcy Code, actions to collect prepetition indebtedness of the Debtors and other contractual obligations of the Debtors generally may not be enforced. In addition, under the Bankruptcy Code, the Debtors may assume or reject executory contracts and unexpired leases. Additional prepetition claims may arise from such rejections, and from the determination by the Bankruptcy Court (or as agreed by the parties in interest) to allow claims for contingencies and other disputed amounts. From time to time since the Chapter 11 filing, the Bankruptcy Court has approved motions allowing the Company to reject certain business contracts that were deemed burdensome or of no value to the Company. As of February 11, 2000, the Debtors had not completed their review of all their prepetition executory contracts and leases for assumption or rejection. See also Note 9 - Liabilities Subject to Compromise. The Debtors received approval from the Bankruptcy Court to pay or otherwise honor certain of their prepetition obligations, including employee wages and product warranties. In addition, the Bankruptcy Court authorized the Debtors to maintain their employee benefit programs. Funds of qualified pension plans and savings plans are in trusts and protected under federal regulations. All required contributions are current in the respective plans. The Company has the exclusive right, until June 8, 2000, subject to meeting certain milestones regarding delivery to the Official Committee of Unsecured Creditors of a business plan, plan of reorganization term sheet and certain portions of a disclosure statement prior to that time, to file a plan of reorganization. Such period may be extended at the discretion of the Bankruptcy Court. Subject to certain exceptions set forth in the Bankruptcy Code, acceptance of a plan of reorganization requires approval of the Bankruptcy Court and the affirmative vote (i.e. more than 50% of the number and at least 66-2/3% of the dollar amount, both with regard to claims actually voted) of each class of creditors and equity holders whose claims are impaired by the plan. Alternatively, absent the requisite approvals, the Company may seek Bankruptcy Court approval of its reorganization plan under "cramdown" provisions of the Bankruptcy Code, assuming certain tests are met. If the Company fails to submit a plan of reorganization within the exclusivity period prescribed or any extensions thereof, any creditor or equity holder will be free to file a plan of reorganization with the Bankruptcy Court and solicit acceptances thereof. February 29, 2000 was set as the last date creditors may file proofs of claim under the Bankruptcy Code. There may be differences between the amounts recorded in the Company's schedules and financial statements and the amounts claimed by the Company's creditors. Litigation may be required to resolve such disputes. Under the Bankruptcy Code, postpetition liabilities and prepetition liabilities (i.e., liabilities subject to compromise) must be satisfied before shareholders can receive any distribution. The ultimate recovery of shareholders, if any, will not be determined until the end of the case when the fair value of the Company's assets is compared to the liabilities and claims against the Company. There can be no assurance as to what value, if any, will be ascribed to the common stock in the bankruptcy proceeding. The Company will incur significant costs associated with the reorganization. The amount of these expenses, which are being expensed as incurred, is expected to significantly affect future results. See Note 6 - Reorganization Items. Currently, it is not possible to predict the length of time the Company will operate under the protection of Chapter 11, the outcome of the Chapter 11 proceedings in general, or the effect of the proceedings on the business of the Company or on the interest of the various creditors and security holders. 2. Significant Accounting Policies Basis of Presentation: The accompanying Consolidated Financial Statements have been prepared on a going concern basis which contemplate continuity of operations, realization of assets, and liquidation of liabilities in the ordinary course of business and do not reflect adjustments that might result if the Debtors are unable to continue as going concerns. As a result of the Debtors' Chapter 11 filings, such matters are subject to significant uncertainty. The Debtors intend to file a plan of reorganization with the Bankruptcy Court. Continuing on a going concern basis is dependent upon, among other things, the Debtors' formulation of an acceptable plan of reorganization, the success of future business operations, and the generation of sufficient cash from operations and financing sources to meet the Debtors' obligations. Other than recording the estimated loss on the disposal of the Beloit discontinued operations, the Consolidated Financial Statements do not reflect: (a) the realizable value of assets on a liquidation basis or their availability to satisfy liabilities; (b) aggregate prepetition liability amounts that may be allowed for claims or contingencies, or their status or priority; (c) the effect of any changes to the Debtors' capital structure or in the Debtors' business operations as the result of an approved plan of reorganization; or (d) adjustments to the carrying value of assets (including goodwill and other intangibles) or liability amounts that may be necessary as the result of actions by the Bankruptcy Court. The Company's financial statements as of October 31, 1999 have been presented in conformity with the AICPA's Statement of Position 90-7, "Financial Reporting By Entities In Reorganization Under the Bankruptcy Code," issued November 19, 1990 ("SOP 90-7"). The statement requires a segregation of liabilities subject to compromise by the Bankruptcy Court as of the bankruptcy filing date and identification of all transactions and events that are directly associated with the reorganization of the Company. Principles of Consolidation: The Consolidated Financial Statements include the accounts of all majority-owned subsidiaries. All significant intercompany balances and transactions have been eliminated in consolidation. Use of Estimates: The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. Ultimate realization of assets and settlement of liabilities in the future could differ from those estimates. Inventories: Inventories are stated at the lower of cost or market value. Cost is determined by the last-in, first-out (LIFO) method for substantially all domestic inventories and by the first-in, first-out (FIFO) method for the inventories of foreign subsidiaries. Revenue Recognition: Revenue is recognized generally upon shipment. Revenue on long-term contracts of at least 6 months in duration is recorded using the percentage-of-completion method for financial reporting purposes. Sales of other products and services are recorded as products are shipped or services are rendered. Property, Plant and Equipment: Property, plant and equipment are stated at historical cost. Expenditures for major renewals and improvements are capitalized, while maintenance and repairs, which do not significantly improve the related asset or extend its useful life are charged to expense as incurred. For financial reporting purposes, plant and equipment is depreciated primarily by the straight-line method over the estimated useful lives of the assets which generally range from 5 to 20 years for improvements, from 33 to 50 years for buildings and from 3 to 15 years for machinery and equipment. Depreciation expense for 1999, 1998 and 1997 was $26.6 million, $28.2 million and $26.3 million, respectively. Depreciation claimed for income tax purposes is computed by accelerated methods. Cash Equivalents: The Company considers all highly liquid debt instruments with a maturity of three months or less at the date of purchase to be cash equivalents. Foreign Exchange Contracts: Exchange transaction gains or losses incurred on forward foreign exchange contracts are reflected in income except where the forward contract is designated as a hedge of a firm foreign currency commitment. In this case the gain or loss is deferred and included in the measurement of the related foreign currency transaction when it occurs, unless it is estimated that deferral would result in a permanent loss in which case it is recognized immediately. Foreign Currency Translation: Exchange gains or losses incurred on transactions conducted by one of the Company's operations in a currency other than its functional currency are normally reflected in income. An exception is made where the transaction is a long-term intercompany loan that is not expected to be repaid in the foreseeable future. In this case the transaction gain or loss is included in shareholder's equity as an element of Comprehensive Income (Loss). Assets and liabilities of international operations that have a functional currency that is not the US dollar are translated into US dollars at year-end exchange rates. Any gain or loss arising on this translation is included in shareholders equity as an element of Comprehensive Income (Loss). Assets and liabilities of operations which have the US dollar as their functional currency (but which maintain their accounting records in local currency) are re-measured into US dollars at year-end exchange rates, except for non-monetary items for which historical rates are used. Exchange gains or losses arising on re-measurement are recognized in income. Pre-tax foreign exchange gains (losses) included in operating income (loss) were $1.7 million, ($2.0 million), and ($0.7 million) in 1999, 1998 and 1997, respectively. Goodwill and Intangible Assets: Goodwill represents the excess of the purchase price over the fair value of identifiable net assets of acquired companies and is amortized on a straight-line basis over periods ranging up to 40 years. The Company periodically reevaluates the carrying value and estimated life of goodwill, using undiscounted cash flows, whenever significant events or changes occur which might impair recovery of recorded assets. The Company writes down recorded costs of assets to fair value, based on discounted cash flows or market values, when recorded costs, prior to impairment, are higher. Management believes that there is no further impairment of the remaining goodwill included in the Company's Consolidated Balance Sheet at October 31, 1999. The Company has filed for Bankruptcy reorganization under Chapter 11 as described under Note 2 - Significant Accounting Policies - Basis of Presentation, which could cause management to reassess its estimate of the realizability of goodwill or its amortization period. Factors used for this assessment in the future would include management's estimate of each of the mining segments continuing ability to generate positive cash flow and income from operations, as well as the strategic significance of various assets to the Company's business objectives. Other intangible assets, primarily comprising computer software, are amortized over the shorter of their legal or economic useful lives ranging from 3 to 12-1/2 years. Accumulated amortization was $83.1 million and $100.7 million at October 31, 1999 and 1998, respectively. Other Non-current Assets: Other non-current assets in 1999 include primarily prepaid pension and financing costs and a money market deposit which is subject to restrictions over its use. In 1998, non-current assets primarily comprised the investment in Princeton Paper Company and prepaid pension costs. Income Taxes: Deferred income taxes are recognized for the tax consequences of temporary differences by applying enacted statutory tax rates applicable to future years to differences between the financial statement carrying amounts and the tax bases of existing assets and liabilities, and for tax basis carryforwards. A valuation allowance is provided for deferred tax assets where it is considered more likely than not that the Company will not realize the benefit of such assets. (See Note 12 - Income Taxes.) Research and Development Expenses: Research and development costs are expensed as incurred. Such costs incurred in the development of new products or significant improvements to existing products amounted to $11.1 million, $18.0 million, and $15.7 million in 1999, 1998 and 1997, respectively. Earnings Per Share: Income (loss) per share is computed in accordance with Statement of Financial Accounting Standards ("SFAS") No. 128, "Earnings per Share." Basic income (loss) per common share is based upon the weighted average number of common shares outstanding during each year. Diluted income (loss) per common share is calculated based upon the sum of the weighted average number of shares outstanding and the weighted average numbers of potential dilutive common shares outstanding. There are no differences in the income used to compute the Company's basic and diluted income (loss) per share. Comprehensive Income: In 1999, the Company adopted SFAS No. 130, "Reporting Comprehensive Income." This Statement establishes rules for the reporting of comprehensive income and its components. Comprehensive income consists of net income (loss), foreign currency translation effects, and charges for additional minimum pension liabilities and is presented in the Consolidated Statement of Shareholders' Equity (Deficit). Disclosures about Segments of an Enterprise and Related Information: During 1999, the Company adopted SFAS No. 131, "Disclosures about Segments of an Enterprise and Related Information," which establishes standards for reporting information about operating segments in annual financial statements and interim financial reports. It also establishes standards for related disclosures about products and services, geographic areas, and major customers. The Company's continuing operations are divided into two segments, surface mining equipment and underground mining equipment, based on the Company's organizational structure for each of these products and services. Pensions and Other Postretirement Benefits: In 1999, the Company adopted SFAS No. 132, "Employers' Disclosures about Pensions and Other Postretirement Benefits." This statement revises employers' disclosures about pension and other postretirement benefit plans and standardizes the disclosure requirements for pensions and other postretirement benefits to the extent practicable. It does not change the measurement or recognition of those plans. Future Accounting Changes: In June 1998, the Financial Accounting Standards Board (FASB) issued SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities" ("FAS 133"). FAS 133 (as amended by FAS 137) is effective for all fiscal quarters of all fiscal years beginning after June 15, 2000 (November 1, 2000 for the Company). FAS 133 requires that all derivative instruments be recorded on the balance sheet at their fair value. Changes in the fair value of derivatives are recorded each period in current earnings or other comprehensive income, depending on whether the derivative is part of a hedge transaction and the type of hedge transaction. For fair-value hedge transactions in which the Company is hedging changes in an asset's, liability's or firm commitment's fair value, changes in the fair value of the derivative instrument will generally be offset in the income statement by changes in the fair value of the hedged item. For cash-flow hedge transactions, in which the Company is hedging the variability of cash flows related to a variable rate asset, liability or forecasted transaction, changes in the fair value of the derivative instrument will be reported in other comprehensive income. The gains and losses on the derivative instrument that are reported in other comprehensive income will be reclassified as earnings in the periods in which earnings are impacted by the variability of the cash flows of the hedged item. The ineffective portion of all hedges will be recognized in current period earnings. The Company has not yet determined the impact that the adoption of FAS 133 will have on its earnings or consolidated balance sheet. Reclassifications: Reclassifications have been made to the financial statements of prior periods to conform to the classifications of the current period. 3. Discontinued Operations Beloit Segment In light of continuing losses at Beloit and following an evaluation of the prospects of reorganizing the Pulp and Paper Machinery segment, on October 8, 1999, the Company announced its plan to dispose of the segment. Subsequently, Beloit notified certain of its foreign subsidiaries that they could no longer expect funding of their operations to be provided by either Beloit or the Company. Certain of the notified subsidiaries have since filed for or were placed into receivership or other applicable forms of judicial supervision in their respective countries. On November 7, 1999, the Bankruptcy Court approved procedures and an implementation schedule for the divestiture plan (the "Court Sales Procedures"). Two sales agreements were approved under the Court Sales Procedures on February 1, 2000 and three sales agreements were approved under the Court Sales Procedures on February 8, 2000. These agreements have been entered into by Beloit with respect to the sale of a majority of its businesses and operating assets. Closing on certain of these transactions is subject to regulatory approval and the completion of information satisfactory to the applicable buyer concerning certain representations and warranties by Beloit. The Company expects that closings on all of these sales agreements will occur by the end of the second quarter of fiscal 2000. The Company has classified this segment as a discontinued operation in its Consolidated Financial Statements as of October 31, 1999 and has, accordingly, restated its consolidated statements of operations for prior periods. The Company has not restated its consolidated balance sheets or consolidated statements of cash flow for prior periods. Revenues for this segment were $684.0 million, $851.4 million, and $1,300.0 million in 1999, 1998, and 1997, respectively. Income (loss) from discontinued operations was ($798.2 million), ($188.8 million), and $45.3 million in 1999, 1998 and 1997, respectively. The loss from discontinued operations of $798.2 million includes (i) allocated interest expense of approximately $30.0 million based on Beloit's portion of the consolidated debt, (ii) restructuring charges of $78.7 million in the third quarter and $3.6 million in the fourth quarter, (iii) additional estimated losses on APP contracts of $87.0 million in the second quarter and $163.5 million in the third quarter, (iv) additional expenses of $143.1 million in the third quarter reflecting the effects of changes in other accounting estimates and (v) reorganization expenses of $136.1 million in the third quarter associated with the closing of a pulp and paper mill and the related rejection of a 15-year operating lease. The Company did not record an income tax benefit with respect to the 1999 loss. See Note 12 - Income Taxes. The elements of the 1999 loss from discontinued operations are discussed below. |X| The restructuring charges primarily related to a strategic reorganization of Beloit. This reorganization rationalized certain product offerings from a full breadth of product lines to more specific offerings. As part of the restructuring, outsourcing was expected to increase significantly. The charge consisted of facility closure charges including estimated amounts for reductions in assets to net realizable values of $74.1 million and accruals for closing and disposal costs of $8.2 million related to closing certain manufacturing facilities, engineering offices and research and development centers. In connection with these restructuring charges, the Company expected to reduce headcount at Beloit by at least 600 employees. These actions included staff reductions in manufacturing, engineering, marketing, product development and administrative support functions. |X| The additional estimated losses on customer contracts primarily relate to the Company's efforts to mitigate damages with respect to the APP matter more fully discussed below and to improve short-term liquidity. Beloit's Asian subsidiaries had sought to sell two papermaking machines to alternative customers. The Company recorded an $87.0 million reserve in the second quarter against the decrease in realizable value of certain paper machines for Asian customers, primarily the second two paper machines ordered by APP. The Company recorded an additional $147.7 million reserve in the third quarter to reflect the Company's determination that the foreseeable market conditions for this type of large paper machine did not support valuing these machines at greater than estimated liquidation values. The Company also recorded a $15.8 million charge in the third quarter for changes in estimates of costs associated with the first two machines sold to APP. |X| The additional estimated losses on customer contracts and other expenses reflecting changes in other accounting estimates relate to the Company's provisions for excess and obsolete inventory, doubtful accounts receivable, and anticipated losses on contracts. These changes in estimates were based on the Company's best estimates of costs to complete contracts, customer demand for new machines, rebuilds and services, costs of financing, material and labor costs, and overall levels of customer satisfaction with machine performance. The need for these changes in estimates arose as a result of the Chapter 11 filing and a combination of adverse factors impacting the Company during the third quarter, including reductions in product line offerings and material supply delays caused by prepetition liquidity limitations and postpetition resupply timing difficulties. The third quarter charges were originally classified in the consolidated statement of operations as follows: In thousands --------------------------------------------------- Charged to product development, selling, and administrative expenses: Allowance for doubtful accounts $ 35,900 ---------- Charged to cost of sales: Warranties and other 32,400 Excess and obsolete inventory 25,000 Losses on customer contracts 49,800 --------------- 107,200 --------------- $ 143,100 =============== |X| Reorganization expenses of $136.1 million relate to Princeton Paper Company, LLC, ("Princeton Paper"), a subsidiary of Beloit and one of the Debtors, who had, until July 1999, operated a pulp and paper mill located in Fitchburg, Massachusetts (the "Mill"). Beloit originally became responsible for the operations of Princeton Paper and the Mill in 1997 through settlement of a dispute with the former owner of the Mill and the holders of bonds which had been issued to finance the Mill. Under that settlement, Princeton Paper committed to make lease payments under a fifteen-year operating lease of the Mill. Beloit guaranteed those obligations. On July 8, 1999, the Company obtained authority from the Bankruptcy Court for Princeton Paper to fully cease operating, and shortly thereafter the Mill was shut down. Subsequently, the Company rejected the lease and settlement agreement, pursuant to the Bankruptcy Code. The Company has recorded a charge of $82.1 million relating to the decision to close Princeton Paper including a charge of $54.0 million relating to the rejection of the lease. The characterization and treatment of the lease in the bankruptcy case could affect Beloit's ultimate liability for the lease payments. Beloit has provided $54 million as an estimate of the claims which may be allowed by the Bankruptcy Court. Cash flow used by Beloit in operating activities during fiscal 1999 was $222.2 million. The principal sources of funding for Beloit was provided by its operations, credit facilities of its subsidiaries and Harnischfeger Industries, Inc. Between the Chapter 11 filing on June 7, 1999 and October 31, 1999, the cash used by Beloit was $116.0 million and was provided primarily through the DIP Facility. Beloit and the other Debtors are jointly and severally liable under the DIP Facility. Between October 31, 1999 and January 31, 2000, Beloit has used additional cash of approximately $40.0 million. During 1999, the Company recorded an estimated loss of $529.0 million on the disposal of the Beloit Segment. The amount by which the ultimate realization of the divestiture plan and any Beloit contingencies differ from the estimated loss recognized during fiscal 1999 will be reported as an adjustment to the loss on disposal of discontinued operations in the future period during which the amount is ultimately determined. The Company did not record an income tax benefit associated with this estimated loss. See Note 12 - Income Taxes. This estimated loss is comprised of the following: In thousands - ------------------------------------------------------------------------------- Estimated loss on the disposal of the businesses and assets $(472,118) Accrued estimated operating losses and facility wind-down costs (43,304) Accured post-petition letters of credit, guarantees and sureties (12,500) Accrued post-closing environmental costs (7,000) Accrued employee termination costs (12,000) Gain on curtailment of defined benefit pension plans 17,922 ------------ Net estimated loss on the disposal of discontinued operations $(529,000) ============ The elements of the estimated loss on the disposal of the segment are discussed below. |X| The estimated loss on the disposal of the Beloit businesses and assets of $472.1 million anticipates that there will be approximately $243.2 million in sales proceeds from the five sales agreements approved under the Court Sales Procedures and an additional $34.4 million in proceeds, based primarily on appraisals, from the disposal of the remaining 13 domestic and 18 international operations that will be sold or liquidated by the end of the wind-down process. |X| The accrual for estimated operating losses and wind-down costs represents approximately $28.3 million in estimated operating losses from October 31, 1999 until the facilities are sold or operations otherwise cease and approximately $15.0 million for the wind-down costs for facilities that will be sold or liquidated. |X| The accrual for estimated additional costs under post-petition letters of credit, guarantees and sureties of $12.5 million represents estimated additional customer contract claims as a result of the divestiture plan. |X| The accrual for estimated employee termination costs reflects estimated severance and related benefits costs with respect to approximately 1,071 employees, the majority of whom received applicable notifications during January 2000. |X| The accrual for estimated post-closing environmental costs of $7.0 million relate to (i) cost estimates for the removal of asbestos and hazardous wastes at certain facilities being sold or closed and (ii) increased estimated costs associated with the completion of certain remediation activities at one of Beloit's domestic manufacturing facilities assuming the activities will be performed by a buyer or subcontracted to a third-party. |X| The gain on the curtailment of defined benefit plans of $17.9 million reflects the elimination of future years of service accruals. At October 31, 1999, Beloit was contingently liable to banks, financial institutions, and others for approximately $20.0 million for outstanding letters of credit and bank guarantees. This amount related to letters of credit or other guarantees issued by non-US banks for non-US Beloit subsidiaries. See Note 21 - Commitments, Contingencies and Off-Balance Sheet Risks Beloit may also guarantee performance of its equipment at levels specified in sales contracts without the requirement of a letter of credit. The assets and liabilities of discontinued operations are comprised of the following as of October 31, 1999: In thousands - ---------------------------------------------------------------------------- Assets: Cash and cash equivalents $ 19,290 Accounts receivable - net 153,761 Inventories 110,770 Other current assets 18,662 Property, plant and equipment - net 311,424 Other non-current assets 39,691 Goodwill and other intangibles 96,520 Allowance for estimated loss on disposition (472,118) ------------- Total assets, representing estimated disposition cash proceeds $ 278,000 ============= Liabilities: Post-petition liabilities: Trade accounts payable $ (57,111) Employee compensation and benefits, net of curtialment gain (14,605) Accrued contract losses, restructuring costs and other (76,859) Funded debt and capitalized lease obligations (24,080) Operating losses and facility wind-down costs (43,304) Post-petition letters of credit, guarantees and sureties (12,500) Employee termination costs (12,000) Post-closing environmental costs (7,000) ------------- Total post-petition liabilities (247,459) ------------- Pre-petition liabilities: Trade accounts payable (145,955) Funded debt (14,128) Advance payments and progress billings (125,696) Accrued warranties (34,054) Princeton Paper lease (54,000) APP claims (46,000) Pension and other (53,437) Minority interest (21,536) ------------- Total pre-petition liabilities (494,806) ------------- Total liabilities, including liabilities subject to compromise $ (742,265) ============= As of October 31, 1999, there were approximately $766.0 million in net intercompany liabilities owed by certain legal entities comprising the Beloit Segment to certain non-Beloit affiliated legal entities included in the Consolidated Financial Statements. Additionally, there are substantial intercompany accounts between certain legal entities within the Beloit Segment. Many of the legal entities comprising the Beloit Segment and possessing intercompany accounts are Debtors under the Chapter 11 filing and several others, subsequent to October 31, 1999, have been placed in receivership or other applicable form of judicial supervision in their respective countries. A substantial portion of the intercompany accounts arose prior to the Chapter 11 filing. In light of the Chapter 11 filing, receiverships and other applicable forms of judicial supervision, the realizability of these accounts may be uncertain. All intercompany accounts, including Beloit intracompany accounts, have been eliminated in the Consolidated Financial Statements in accordance with generally accepted accounting principles. While such intercompany obligations eliminate in the preparation of consolidated financial statements, they remain obligations on a separate legal entity basis. Other Beloit Matters: o The Potlatch lawsuit, filed originally in 1995, related to a 1989 purchase of pulp line washers supplied by Beloit for less than $15.0 million. In June 1997, a Lewiston, Idaho jury awarded Potlatch $95.0 million in damages in the case which, together with fees, costs and interest to April 2, 1999, approximated $120.0 million. On April 2, 1999 the Supreme Court of Idaho vacated the judgement of the Idaho District Court in the Potlatch lawsuit and remanded the case for a new trial. This litigation has been stayed as a result of the bankruptcy filings. Potlatch filed a motion with the Bankruptcy Court to lift the stay. The Company opposed this motion and the motion was denied. o In fiscal 1996 and 1997, Beloit's Asian subsidiaries received orders for four fine papermaking machines from Asia Pulp & Paper Co. Ltd. ("APP") for a total of approximately $600.0 million. The first two machines were substantially paid for and installed at APP facilities in Indonesia. Beloit sold approximately $44.0 million of receivables from APP on these first two machines to a financial institution. The machines are currently in the start-up/optimization phase and are required to meet certain contractual performance tests. The contracts provide for potential liquidated damages, including performance damages, in certain circumstances. Beloit has had discussions with APP on certain claims and back charges on the first two machines. The two remaining machines were substantially manufactured by Beloit. Beloit received a $46.0 million down payment from APP and issued letters of credit in the amount of the down payment. In addition, the Company repurchased various notes receivable from APP in December 1998 and February 1999 of $2.8 million and $16.2 million, respectively, which had previously been sold to a financial institution. On December 15, 1998, Beloit's Asian subsidiaries declared APP in default on the contracts for the two remaining machines. Consequently, on December 16, 1998, Beloit's Asian subsidiaries filed for arbitration in Singapore for the full payment from APP for the second two machines plus at least $125.0 million in damages and delay costs. On December 16, 1998, APP filed a notice of arbitration in Singapore against Beloit's Asian subsidiaries seeking a full refund of approximately $46.0 million paid to Beloit's Asian subsidiaries for the second two machines. APP also seeks recovery of other damages it alleges were caused by Beloit's Asian subsidiaries' claimed breaches. The $46.0 million is included in liabilities subject to compromise. See Note 9 - Liabilities Subject to Compromise. In addition, APP seeks a declaration in the arbitration that it has no liability under certain promissory notes. A hearing on the merits began on January 31, 2000 and is expected to continue for approximately four weeks. A decision of the arbitration panel is expected in March or April, 2000. APP subsequently filed an additional notice of arbitration in Singapore against Beloit seeking the same relief on the grounds that Beloit was a party to the Beloit Asian subsidiaries' contracts with APP and was also a guarantor of the Beloit Asian subsidiaries' performance of those contracts. The arbitration against Beloit was stayed by agreement of the parties after the Chapter 11 proceedings were filed. Since then, APP has not sought to pursue this arbitration. Also, APP has filed for and received an injunction from the Singapore courts that prohibits Beloit from acting on the notes receivable from APP except in the Singapore arbitration. Beloit and its Asian subsidiaries will vigorously defend against all of APP's assertions. APP has attempted to draw on approximately $15.9 million of existing letters of credit issued by Banca Nazionale del Lavaro ("BNL") in connection with the down payments on the contracts for the second two machines. The Company filed for and received a preliminary injunction that prohibits BNL from making payment under the draw notice. The final disposition of the Company's request for a permanent injunction remains pending with the United States District Court for the Eastern District of Wisconsin, but has been stayed pending the outcome of this Singapore arbitration with APP. The Company has placed funds on deposit with BNL to provide for payment under the letters of credit should the permanent injunction not be granted. To mitigate APP's damages and to improve short-term liquidity, Beloit's Asian subsidiaries have sought to sell the assets associated with these two machines to alternative customers. Material Handling Segment On March 30, 1998, the Company completed the sale of approximately 80% of the common stock of the Company's P&H Material Handling ("Material Handling") segment to Chartwell Investments, Inc. in a leveraged recapitalization transaction. As such, the accompanying financial statements have been reclassified to reflect Material Handling as a discontinued operation. The Company retained approximately 20% of the outstanding common stock and 11% of the outstanding voting securities of Material Handling and holds one director seat in the new company. In addition, the Company has licensed Material Handling to use the "P&H" trademark on existing Material Handling-produced products on a worldwide basis for periods specified in the agreement for a royalty fee payable over a ten year period. The Material Handling segment recorded revenues of $130.5 million in 1998 (prior to the divestiture) and $353.4 million in 1997. Income (loss) from discontinued operations included income of $4.4 million in 1998 and $25.1 million in 1997 derived from this segment. The Company reported a $151.5 million after-tax gain on the sale of this discontinued operation in the second quarter of fiscal 1998. Proceeds consisted of $341.0 million in cash and preferred stock, originally valued at $4.8 million with a 12.25% payment-in-kind dividend; $7.2 million in common stock was not reflected in the Company's balance sheet or gain calculations due to the nature of the leveraged recapitalization transaction. Material Handling recently issued additional shares of common stock, reducing the company's holding to 15.6% of the outstanding common stock. In view of continuing operating losses by Material Handling, the Company reduced to zero the $5.4 million carrying value of its investment in this business during the third quarter of 1999. 4. Changes in Estimates The Company's provisions for excess and obsolete inventory, warranties and doubtful accounts receivable are based on the Company's best estimates of customer demand for new machines, rebuilds and services, costs of financing, material and labor costs, and overall levels of customer satisfaction with machine performance. The Chapter 11 filing in the third quarter impacted operating results in several ways. Supplier shipments in the latter part of the year were lower than expected resulting in lost sales and production inefficiencies. The decision was made to discontinue several equipment models that were either not required by customers or that no longer provided sufficient margins to be attractive. Collection difficulties increased as some customers delayed paying outstanding receivables due to their own operating difficulties and their concerns about the Company's financial condition and continued ability to fulfill commitments. The charges during the third quarter were as follows: In thousands ----------------------------------------------------------- Charged to product development, selling, and administrative expenses: Allowance for doubtful accounts $ 5,300 --------------- Charged to cost of sales: Warranties and other 25,000 Excess and obsolete inventory 38,200 --------------- 63,200 --------------- $ 68,500 =============== 5. Strategic and Financing Initiatives The Company incurred $7.7 million of charges related to certain consulting and legal costs associated with strategic financing and business alternatives investigated prior to the Chapter 11 filing. 6. Reorganization Items Reorganization expenses are comprised of items of income, expense and loss that were realized or incurred by the Company as a result of its decision to reorganize under Chapter 11 of the Bankruptcy Code. During fiscal 1999, reorganization expenses related to continuing operations were as follows: In thousands ------------------------------------------------------------- Professional fees directly related to the filing $ 14,457 Rejected equipment leases 2,322 Amortization of DIP financing costs 3,125 Accrued retention plan costs 730 Interest earned on DIP proceeds (330) ---------- $ 20,304 ========== The cash payments made during fiscal 1999 with respect to the professional fees listed above were $2.6 million. 7. Charge Related to Executive Changes In connection with certain management organizational changes that occurred during the third quarter, a charge to earnings of $19.1 million was made. The charge was primarily associated with supplemental retirement, restricted stock, and long-term compensation plan obligations. This charge consisted of $0.6 million paid prior to the Chapter 11 filing, adjustments of $10.0 million reducing the carrying value of the applicable plan assets and an accrued liability of $8.5 million which has been classified in the consolidated balance sheet as part of the liabilities subject to compromise. 8. Restructuring Charges During 1999, restructuring charges of $12.0 million were recorded for rationalization of certain of Joy's original equipment manufacturing capacity and the reorganization and reduction of its operating structure on a global basis. Costs of $7.3 million were charged in the third quarter, primarily for the impairment of certain assets related to a facility rationalization announced in January 2000. In addition, charges amounting to $4.7 million (third quarter $0.9 million; fourth quarter $3.8 million) were made for severance of approximately 240 employees. Additional future cash charges of approximately $12.9 million in connection with continuing cost reduction initiatives will commence during fiscal 2000. Details of these restructuring charges are as follows: In thousands ------------------------------------------------------------------ Original Reserve 10/31/99 Reserve Utilized Reserve ------------ -------------- ------------ Employee severance $ 4,727 $ 718 $ 4,009 Facility closures 7,270 - 7,270 ------------ -------------- ------------ Total $11,997 $ 718 $11,279 ============ ============== ============ 9. Liabilities Subject to Compromise The principal categories of claims classified as liabilities subject to compromise under reorganization proceedings are identified below. All amounts below may be subject to future adjustment depending on Bankruptcy Court action, further developments with respect to disputed claims, or other events. Additional prepetition claims may arise from rejection of additional executory contracts or unexpired leases by the Company. Under a confirmed plan of reorganization, all prepetition claims may be paid and discharged at amounts substantially less than their allowed amounts. The issue of substantive consolidation of the Debtors has not been addressed. Unless Debtors are substantively consolidated under a confirmed plan of reorganization, payment of prepetition claims of each Debtor may substantially differ from payment of prepetition claims of other Debtors. Recorded liabilities: On a consolidated basis, recorded liabilities subject to compromise under Chapter 11 proceedings as of October 31, 1999 consisted of the following:
In thousands - ------------------------------------------------------------------------------------------------------------- Continuing Discontinued Operations Operations Total ----------------- ---------------- ---------- Trade accounts payable $ 95,830 $145,955 $ 241,785 Accrued interest expense, as of June 6, 1999 17,315 15 17,330 Accrued executive changes expense 8,518 - 8,518 Put obligation to preferred shareholders of subsidiary 5,457 - 5,457 8.9% Debentures, due 2022 75,000 - 75,000 8.7% Debentures, due 2022 75,000 - 75,000 7 1/4% Debentures, due 2025 (net of discount of $1,222) 148,778 - 148,778 6 7/8% Debentures, due 2027 (net of discount of $102) 149,898 - 149,898 Senior Notes, Series A through D, at - - - interest rates of between 8.9% and - - - 9.1%, due 1999 to 2006 69,546 - 69,546 Revolving credit facility 500,000 - 500,000 IRC lease (Princeton Paper) - 54,000 54,000 APP claims - 46,000 46,000 Industrial Revenue Bonds, at interest rates of between 5.9% and 8.8%, due 1999 to 2017 18,615 14,128 32,743 Notes Payable 24,479 24,479 Other 5,118 - 5,118 Advance payments and progress billing - 125,696 125,696 Accrued warranties - 34,054 34,054 Minority interest - 21,536 21,536 Pension and other - 53,422 53,422 ------------ ---------------- --------------- $ 1,193,554 $ 494,806 $ 1,688,360 ============ ================ ===============
As a result of the bankruptcy filing, principal and interest payments may not be made on prepetition debt without Bankruptcy Court approval or until a reorganization plan defining the repayment terms has been approved. The total interest on prepetition debt that was not paid or charged to earnings for the period from June 7, 1999 to October 31, 1999 was $31.2 million. Such interest is not being accrued since it is not probable that it will be treated as an allowed claim. The Bankruptcy Code generally disallows the payment of interest that accrues postpetition with respect to unsecured claims. Contingent liabilities: Contingent liabilities as of the Chapter 11 filing date are also subject to compromise. At October 31, 1999, the Company was contingently liable to banks, financial institutions and others for approximately $311.2 million for outstanding letters of credit, bank guarantees and surety bonds securing performance of sales contracts and other guarantees in the ordinary course of business. Of the $311.2 million, approximately $168.7 was issued by the Company on behalf of Beloit mattters. Of the total 1999 amount, approximately $213.9 million were issued by Debtor entities prior to the bankruptcy filing and $48.8 million were issued under the DIP Facility. Additionally, there were $48.5 million of outstanding letters of credit or other guarantees issued by non-US banks for non-US subsidiaries. Approximately $12.5 million has been accrued as part of the loss on discontinued Beloit operations. The Company is a party to litigation matters and claims that are normal in the course of its operations. Generally, litigation related to "claims", as defined by the Bankruptcy Code, is stayed. Also, as a normal part of their operations, the Company's subsidiaries undertake certain contractual obligations, warranties and guarantees in connection with the sale of products or services. Although the outcome of these matters cannot be predicted with certainty and favorable or unfavorable resolution may affect the results of operations on a quarter-to-quarter basis, management believes that such matters will not have a materially adverse effect on the Company's consolidated financial position. Beloit has on occasion entered into arrangements to participate in the ownership or operation of pulp or papermaking facilities in order to satisfy contractual undertakings or resolve disputes. One of the claims against Beloit involves a lawsuit brought by Potlatch Corporation ("Potlatch") which alleges pulp line washers supplied by Beloit failed to perform satisfactorily. See Note 3 - Discontinued Operations. This matter is stayed by the automatic stay imposed by the Bankruptcy Code. The Company and certain of its present and former senior executives have been named as defendants in a class action, captioned In re: Harnischfeger Industries, Inc. Securities Litigation, in the United States District Court for the Eastern District of Wisconsin. This action seeks damages in an unspecified amount on behalf of an alleged class of purchasers of the Company's common stock, based principally on allegations that the Company's disclosures with respect to the Indonesian contracts of Beloit discussed in Note 3 - Discontinued Operations violated the federal securities laws. The Company has sought to extend the stay imposed by the Bankruptcy Code to stay this litigation. Because the Company's motion has not yet been resolved, this litigation is currently stayed. The Company and certain of its current and former directors have been named defendants in a purported class action, entitled Brickell Partners, Ltd., Plaintiff vs. Jeffery T. Grade et. al., in the Court of Chancery of the State of Delaware. This action seeks damages of an unspecified amount on behalf of shareholders based on allegations that the defendants failed to explore all reasonable alternatives to maximize shareholder value. The Company is also involved in a number of proceedings and potential proceedings relating to environmental matters. Although it is difficult to estimate the potential exposure to the Company related to these environmental matters, the Company believes that the resolution of these matters will not have a materially adverse effect on its consolidated financial position. 10. Borrowings and Credit Facilities Borrowings at October 31, consisted of the following: In thousands 1999 1998 - ----------------------------------------------------------- ---------------- Domestic: DIP Facility $ 167,000 $ - 8.9% Debentures due 2022 - 75,000 8.7% Debentures due 2022 - 75,000 7.25% Debentures due 2025 (net of discount of $1,222) - 148,767 6.875% Debentures due 2027 (net of discount of $102) - 149,894 Senior Notes, Series A through D, at interest rates of between 8.9% and 9.1%, due 1999 to 2006 - 69,546 Revolving Credit Facility - 375,000 Industrial Revenue Bonds - 32,820 Short term notes payable - 41,610 Other 227 380 Foreign: Australian Term Loan, due 2000 57,734 56,965 Short term notes payable and bank overdrafts 86,539 51,937 Other 1,165 42,261 -------------- ---------------- 312,665 1,119,180 Less: Amounts due within one year (144,568) (156,383) -------------- ---------------- Long-term Obligations $ 168,097 $ 962,797 ============== ================ The outstanding balance on the date of filing of the domestic borrowings noted above in 1998 have been classified as liabilities subject to compromise in 1999 (see Note 9 - Liabilities Subject to Compromise). DIP Facility On July 8, 1999 the Bankruptcy Court approved a two-year, $750 million Revolving Credit, Term Loan and Guaranty Agreement underwritten by The Chase Manhattan Bank (the "DIP Facility") consisting of three tranches: (i) Tranche A is a $350 million revolving credit facility with sublimits for import documentary letters of credit of $20 million and standby letters of credit of $300 million; (ii) Tranche B is a $200 million term loan facility; and (iii) Tranche C is a $200 million standby letter of credit facility. Proceeds from the DIP Facility may be used to fund postpetition working capital and for other general corporate purposes during the term of the DIP Facility and to pay up to $35 million of prepetition claims of critical vendors. The Company is permitted to make loans and issue letters of credit in an aggregate amount not to exceed $240 million to foreign subsidiaries for specified limited purposes, including up to $90 million for working capital needs of foreign subsidiaries and $110 million of loans and $110 million of letters of credit for support or repayment of existing credit facilities. The Company may use up to $40 million (of the $240 million) to issue stand-by letters of credit to support foreign business opportunities. Beginning August 1, 1999, the DIP Facility imposes monthly minimum EBITDA tests and quarterly limits on capital expenditures. At October 31, 1999, $167 million in direct borrowings had been drawn under the DIP Facility and classified as a long-term obligation and letters of credit in the face amount of $30.3 million had been issued under the DIP Facility. The Debtors are jointly and severally liable under the DIP Facility. The DIP Facility benefits from superpriority administrative claim status as provided for under the Bankruptcy Code. Under the Bankruptcy Code, a superpriority claim is senior to unsecured prepetition claims and all other administrative expenses incurred in the Chapter 11 case. The Tranche A and B direct borrowings under the DIP Facility are priced at LIBOR + 2.75% per annum on the outstanding borrowings. Letters of Credit are priced at 2.75% per annum (plus a fronting fee of 0.25% to the Agent) on the outstanding face amount of each Letter of Credit. In addition, the Company pays a commitment fee of 0.50% per annum on the unused amount of the commitment payable monthly in arrears. The DIP Facility matures on the earlier of the substantial consummation of a plan of reorganization or June 6, 2001. In proceedings filed with the Bankruptcy Court, the Company agreed with the Official Committee of Unsecured Creditors appointed by the U.S. Trustee (the "Creditors' Committee") and with MFS Municipal Income Trust and MFS Series Trust III (collectively, the "MFS Funds"), holders of certain debt issued by Joy, to a number of restrictions regarding transactions with foreign subsidiaries and Beloit: |X| The Company agreed to give at least five days prior written notice to the Creditors' Committee and to the MFS Funds of the Debtors' intention to (a) make loans or advances to, or investments in, any foreign subsidiary for working capital purposes in an aggregate amount in excess of $90 million; (b) make loans or advances to, or investments in, any foreign subsidiary to repay the existing indebtedness or cause letters of credit to be issued in favor of a creditor of a foreign subsidiary in an aggregate amount, cumulatively, in excess of $30 million; or (c) make postpetition loans or advances to, or investments in, Beloit or any of Beloit's subsidiaries in excess of $115 million. In September 1999, the Company notified the Creditor's Committee and MFS Funds that it intended to exceed the $115 million amount. The Company subsequently agreed, with the approval of the Bankruptcy Court, to provide the Creditors Committee with weekly cash requirement forecasts for Beloit, to restrict funding of Beloit to forecasted amounts, to provide the Creditors Committee access to information about the Beloit divestiture and liquidation process, and to consult with the Creditors Committee regarding the Beloit divestiture and liquidation process. |X| In addition, the Company agreed to give notice to the Creditors' Committee and to the MFS Funds with respect to any liens created by or on a foreign subsidiary or on any of its assets to secure any indebtedness. |X| The Company agreed to notify the MFS Funds of any reduction in the net book value of Joy of ten percent or more from $364 million after which MFS would be entitled to receive periodic financial statements for Joy. As of October 31, 1999, MFS Funds is entitled to receive periodic financial statements for Joy. Without appropriate waivers from The Chase Manhattan Bank, completion of the sale of Beloit would violate certain negative covenants in the DIP Facility dealing with liens, asset sales and fundamental changes in business. In addition, minimum EBITDA tests in the DIP Facility did not anticipate the discontinuance of the Pulp and Paper Machinery segment. In light of the Company's plan in October 1999 to dispose of this segment, the minimum EBITDA tests were no longer consistent with the Company's continuing operations. As of January 31, 2000, the Company and The Chase Manhattan Bank entered into a Waiver and Amendment Letter which waives compliance with certain negative covenants of the DIP Facility as they relate to the sale of the assets of Beloit and amends the EBITDA tests in the DIP Facility to levels that are appropriate for the Company's continuing businesses. The Waiver and Amendment Letter also waives the provisions of the DIP Facility which otherwise would require conversion of revolving borrowings to term loans. Continuation of unfavorable business conditions or other events could require the Company to seek further modifications or waivers of certain covenants of the DIP Facility. In such event, there is no certainty that the Company would obtain such modifications or waivers to avoid default under the DIP Facility. In light of the decision to dispose of the Beloit Segment, the Company and The Chase Manhattan Bank began negotiations to restructure the DIP Facility to further align the provisions of the DIP Facility with the Company's continuing businesses. There can be no assurance that such negotiations will result in modifications to the DIP Facility. The principal sources of liquidity for the Company's operating requirements have been cash flows from operations and borrowings under the DIP Facility. While the Company expects that such sources will provide sufficient working capital to operate its businesses, there can be no assurances that such sources will prove to be sufficient. Foreign Credit Facilities One of the Company's Australian subsidiaries maintains a committed three-year A$90.0 million (US $57.7 million) term loan facility with a group of four banks at a floating interest rate expressed in relation to Australian dollar denominated Bank Bills of Exchange. As of October 31, 1999, the loan was fully drawn. As a result of the Company's filing for Chapter 11 bankruptcy protection, the subsidiary is in default of the loan conditions and a notice of default has been issued by the banks. This situation renders the loan repayable on demand. The balance outstanding is classified as a current liability in 1999. As of October 31, 1999, short-term bank credit lines of foreign subsidiaries amounted to $106.6 million. Outstanding borrowings against these were $86.5 million at a weighted-average interest rate of 7.35%. There were no compensating balance requirements under these lines of credit. Of the amount borrowed, approximately $31.3 million was in default as of October 31, 1999 either as result of the Company having commenced bankruptcy proceedings in the US or due to breaches of loan covenants by the local subsidiary. This has rendered the loans concerned repayable on demand. 11. Acquisitions On March 19, 1998, the Company completed the acquisition of Horsburgh & Scott ("H&S") for a purchase price of $40.2 million. H&S is a manufacturer of gears and gear cases, and is also involved in the distribution of parts and service to the mining industry. The acquisition was accounted for as a purchase transaction, with the purchase price allocated to the fair value of specific assets acquired and liabilities assumed. Resultant goodwill of $31.7 million is being amortized over 40 years. 12. Income Taxes The consolidated provision (benefit) for income taxes included in the consolidated statement of operations for the years ended October 31 consisted of the following: In thousands ----------------------------------------------------------------------- 1999 1998 1997 ---- ---- ---- Current provision (benefit): Federal $ - $ 2,081 $(5,048) State 230 4,633 1,618 Foreign 7,836 5,998 24,691 ------- -------- ------- Total current 8,066 12,712 21,261 ------- -------- ------- Deferred provision (benefit): Federal 101,824 (108,564) 44,784 State and foreign 112,410 (17,193) (236) -------- -------- ------- Total deferred 214,234 (125,757) 44,548 -------- -------- ------- Total consolidated income tax provision (benefit) $222,300 $(113,045) $65,809 ======== ========= ======= The income tax provision (benefit) included in the consolidated statement of operations for the years ended October 31 consisted of the following: In thousands ------------------------------------------------------------------------- 1999 1998 1997 ---- ---- ---- Continuing operations $220,448 $(24,608) $36,519 Income (loss) from and net gain (loss) on disposal of discontinued operations 1,852 (88,437) 37,956 Extraordinary loss - Retirement of debt - - (8,666) -------- --------- ------- $222,300 $(113,045) $65,809 ======== ========= ======= The components of income (loss) for the Company's domestic and foreign operations for the years ended October 31 were as follows: In thousands ----------------------------------------------------------------------- 1999 1998 1997 ---- ---- ---- Domestic income (loss) $ (83,462) $ (25,284) $ 47,813 Foreign income (loss) (48,221) 16,077 58,716 --------- --------- -------- Pre-tax income (loss) from continuing operations $(131,683) $ (9,207) $106,529 ========= ========= ======== A reconciliation between the income tax provision (benefit) recognized in the Company's consolidated statement of operations and the income tax provision (benefit) computed by applying the statutory federal income tax rate to the income (loss) from continuing operations for the years ended October 31 were as follows: In thousands ----------------------------------------------------------------------- 1999 1998 1997 ---- ---- ---- Income tax computed at federal statutory tax rate $(46,089) $ (3,223) $ 37,285 Goodwill amortization not deductible for tax purposes 968 3,290 3,109 Differences in foreign and U.S. tax rates 17,726 (1,896) 17,972 Difference in Foreign Sales Corporation and U.S. tax rate - (2,738) (1,337) State income taxes, net of federal tax impact 150 878 1,507 General business and foreign tax credits utilized (1,500) (1,500) (30,954) Resolution of various tax audits - (10,600) - Benefit related to capital transaction - (15,410) - Other items - net 1,088 6,591 8,937 Valuation allowance 248,105 - - -------- -------- ------- $ 220,448 $(24,608) $ 36,519 ========= ======== ======== Temporary differences and carryforwards, which gave rise to the net deferred tax asset at October 31 are as follows: In thousands ----------------------------------------------------------------------- 1999 1998 ---- ---- Inventories $ (1,863) $ (7,021) Reserves not currently deductible 9,327 62,041 Depreciation and amortization in excess of book expense (21,716) (31,422) Employee benefit related items 25,119 30,507 Tax credit carryforwards 43,627 41,718 Tax loss carryforwards 464,792 147,845 Other - net (131,965) (77,663) Valuation allowance (387,321) (47,038) -------- --------- Net deferred tax asset $ - $118,967 ========= ======== The net deferred tax asset is included in the Consolidated Balance Sheet at October 31 in the following captions: In thousands ------------------------------------------------------------- 1999 1998 ---- ---- Prepaid income taxes $ - $ 74,186 Deferred income taxes - 44,781 ----- --------- $ - $ 118,967 ----- --------- At October 31, 1998, the Company had general business tax credits of $10.6 million expiring in 2007 through 2013, foreign tax credit carryforwards of $22.8 million expiring in 2002 through 2003 and alternative minimum tax credit carryforwards of $8.7 million which do not expire. In addition, tax loss carryforwards consisted of federal carryforwards of $308.3 million expiring in 2018, tax benefits related to foreign carryforwards of $26.2 million with various expiration dates and tax benefits related to state carryforwards of $60.8 million with various expiration dates. The Company estimates for the year ended October 31, 1999, it will generate additional general business credits of $1.5 million expiring in 2014, foreign tax credits of $1.4 million expiring in 2004 and tax loss carryforwards consisting of federal carryforwards of $700.0 million expiring in 2019, tax benefits related to foreign carryforwards of $45.0 million with various expiration dates and tax benefits related to state carryforwards of $40.0 million with various expiration dates. The carryforwards will be available for the reduction of future income tax liabilities of the Company and its subsidiaries. A valuation allowance has been recorded against all of these carryforwards because utilization is uncertain. If certain substantial changes in the Company's ownership should occur, there could be an annual limitation on the amount of the federal carryforwards which the Company may be able to utilize. The Company believes that realization of net operating loss and tax credit benefits in the near term is unlikely. Should the Company's plan of reorganization result in a significantly modified capital structure, SOP 90-7 would require the Company to apply fresh start accounting. Under fresh start accounting, realization of net operating loss and tax credit benefits first reduces any reorganization goodwill until exhausted and thereafter is reported as additional paid in capital. U.S. income taxes, net of foreign taxes paid or payable, have been provided on the undistributed profits of foreign subsidiaries, except in those instances where such profits are expected to be permanently reinvested. Such unremitted earnings of subsidiaries which have been or are intended to be permanently reinvested were $221.4 million at October 31, 1999. If for some reason not presently contemplated, such profits were to be remitted or otherwise become subject to U.S. income tax, the Company expects to incur tax at substantially less than the U.S. income tax rate as a result of net operating loss carryforwards and foreign tax credits that would be available. Income taxes paid were $1.1 million, $45.0 million and $11.8 million for fiscal 1999, 1998 and 1997, respectively. 13. Accounts Receivable Accounts receivable at October 31 consisted of the following (1998 amounts have not been restated for the Beloit discontinued operation): In thousands ---------------------------------------------------------- 1999 1998 --------------- ---------------- Trade receivables $ 181,355 $ 337,003 Unbilled receivables 33,195 365,212 Allowance for doubtful accounts (11,720) (9,889) --------------- ---------------- $ 202,830 $ 692,326 =============== ================ 14. Inventories Consolidated inventories at October 31 consisted of the following (1998 amounts have not been restated for the Beloit discontinued operation): In thousands - -------------------------------------------------------------------------------- 1999 1998 ------------- ------------- Finished goods $ 205,959 $ 366,346 Work in process and purchased parts 256,697 198,765 Raw materials 34,271 96,920 ------------- ------------- 496,927 662,031 Less excess of current cost over stated LIFO value (49,272) (51,553) ------------- ------------- $ 447,655 $ 610,478 ============= ============= Inventories valued using the LIFO method represented approximately 71% and 66% of consolidated inventories at October 31, 1999 and October 31, 1998, respectively. 15. Interest Expense - Net Net interest expense for the twelve months ended October 31 consists of the following: In thousands - --------------------------------------------------------------------------- 1999 1998 1997 ------------- -------------- ----------- Interest income $ 2,283 $ 3,763 $ 1,554 Interest expense (31,148) (74,363) (71,813) ------------- -------------- ------------ Interest expense - net $(28,865) $(70,600) $(70,259) ============= ============== =========== Net interest expense does not include contractual interest expense of $31.2 million for fiscal 1999 relative to prepetition obligations. Such interest is not being accrued since it is not probable that it will be treated as an allowed claim. The Bankruptcy Code generally disallows the payment of the interest that accrues post petition with respect to unsecured claims. Cash paid for interest in 1999, 1998 and 1997 was $22.0 million, $86.3 million and $76.4 million, respectively. 16. Earnings Per Share The following table sets forth the reconciliation of the numerators and denominators used to calculate the basic and diluted earnings per share:
- --------------------------------------------------------------------------------------------------------- In thousands except per share amounts October 31, - --------------------------------------------------------------------------------------------------------- 1999 1998(1) 1997(1) Basic Earnings (Loss): ----------- ------------ ----------- Income (loss) from continuing operations $ (353,088) $ 14,366 $ 67,881 Income (loss) from discontinued operations (798,180) (184,399) 70,399 Net gain (loss) on disposal of discontinued operations (529,000) 151,500 -- Extraordinary loss on retirement of debt -- -- (12,999) ----------- ----------- ----------- Net income (loss) $(1,680,268) $ (18,533) $ 125,281 =========== =========== =========== Basic weighted average common shares outstanding 46,329 46,445 47,827 =========== =========== =========== Basic Earnings (Loss) Per Share: Income (loss) from continuing operations $ (7.62) $ 0.31 $ 1.42 Income (loss) from and net gain (loss) on disposal of discontinued operations (28.65) (0.71) 1.47 Extraordinary loss on retirement of debt -- -- (0.27) ----------- ----------- ----------- Net income (loss) $ (36.27) $ (0.40) $ 2.62 =========== =========== =========== Diluted Earnings (Loss): Income (loss) from continuing operations $ (353,088) $ 14,366 $ 67,881 Income (loss) from discontinued operations (798,180) (184,399) 70,399 Net gain (loss) on disposal discontinued operations (529,000) 151,500 -- Extraordinary loss on retirement of debt -- -- (12,999) ----------- ----------- ----------- Net income (loss) $(1,680,268) $ (18,533) $ 125,281 =========== =========== =========== Basic weighted average common shares outstanding 46,329 46,445 47,827 Assumed exercise of stock options -- -- 434 ----------- ----------- ----------- Diluted weighted average common shares outstanding 46,329 46,445 48,261 ========== =========== =========== Diluted Earnings (Loss) Per Share: Income (loss) from continuing operations $ (7.62) $ 0.31 $ 1.41 Income (loss) from and net gain (loss) on disposal of discontinued operations (28.65) (0.71) 1.45 Extraordinary loss on retirement of debt -- -- (0.27) ----------- ----------- ----------- Net income (loss) $ (36.27) $ (0.40) $ 2.59 =========== =========== ===========
- ------------- (1) Amounts for 1998 and 1997 have been restated to reflect the Beloit discontinued operation. Options to purchase approximately 1,522,891 and 2,111,030 shares of common stock were outstanding at October 31, 1999 and 1998, respectively, but were not included in the computation of diluted earnings per share because the additional shares would reduce the (loss) per share amount, and therefore, the effect would be anti-dilutive. 17. Pensions and Other Employee Benefits The Company and its subsidiaries have a number of defined benefit, defined contribution and government mandated pension plans covering substantially all employees. Benefits from these plans are based on factors which include various combinations of years of service, fixed monetary amounts per year of service, employee compensation during the last years of employment and the recipient's social security benefit. The Company's funding policy with respect to its qualified plans is to contribute annually not less than the minimum required by applicable law and regulation nor more than the amount which can be deducted for income tax purposes. The Company also has a nonqualified senior executive supplemental pension plan which is based on credited years of service and compensation during the last years of employment. Certain foreign plans, which supplement or are coordinated with government plans, many of which require funding through mandatory government retirement or insurance company plans, have pension funds or balance sheet accruals which approximate the actuarially computed value of accumulated plan benefits as of October 31, 1999 and 1998. The Company recorded additional minimum pension liabilities of $7.1 million and $42.0 million in 1999 and 1998, respectively, to recognize the unfunded accumulated benefit obligations of certain plans. Corresponding amounts are required to be recognized as intangible assets to the extent of the unrecognized prior service cost and the unrecognized net transition obligation on an individual plan basis. Any excess of the minimum pension liability above the intangible asset is recorded as a separate component and reduction in shareholders' equity. Intangible pension assets of $0.7 million and $42.0 million were recognized in 1999 and 1998, respectively. The balance of $6.4 million in 1999 was charged to shareholders' equity. Total pension expense for all defined contribution and defined benefit plans was $4.5 million, $13.2 million and $13.4 million in 1999, 1998 and 1997, respectively. Net periodic pension costs for U.S. plans and plans of subsidiaries outside the United States included the following components:
In thousands - ---------------------------------------------------------------------------------------------------------------------- US Defined Non-US Defined U.S. Nonqualified Benefit Plans Benefit Plans Benefit Plans ------------------------------ ------------------------------ ----------------------------- Components of Net 1999 1998 1997 1999 1998 1997 1999 1998 1997 Periodic Benefit Cost ---- ---- ---- ---- ---- ---- ---- ---- ---- Service cost $ 14,561 $ 14,794 $ 13,780 $ 7,502 $ 9,952 $ 9,416 $ 520 $ 439 $ 406 Interest cost 35,735 34,613 31,991 27,708 29,403 29,653 792 1,022 1,078 Expected return on assets (42,693) (40,531) (36,290) (42,999) (41,244) (38,007) - - - Amortization of: Transition obligation(asset) 582 580 580 (749) (753) (752) 46 73 73 Prior service cost 4,085 3,048 2,524 219 203 199 60 96 96 Actuarial (gain) loss 276 331 64 81 133 (1,149) 509 455 500 -------- ------- ------ ------ ------ -------- ------ ----- ----- Periodic benefit cost before 12,546 12,835 12,649 (8,238) (2,306) (640) 1,927 2,085 2,153 curtailment and termination charges (credits) Curtailment and termination charges (credits): Special termination benefit charge (credit) 1,150 793 - - - 42 - - - Curtailment charge (credit) (17,922) (311) - - - - - - - Settlement charge (credit) - - - - - - (3,214) - - -------- -------- -------- -------- --------- -------- -------- ------ ------ Total net periodic benefit cost (4,226) 13,317 12,649 (8,238) (2,306) (598) (1,287) 2,085 2,153 (Charges) credits allocated to discontinued operations 10,856 (7,096) (5,671) 1,791 1,097 1,348 - - - Total net periodic -------- -------- ------- ------- ------- -------- ------- ------ ------ benefit cost of continuing operations $ 6,630 $ 6,221 $ 6,978 $ (6,447) $ (1,209) $ 750 $(1,287) $ 2,085 $ 2,153 ======== ======== ======== ======== ========= ======== ======== ======= =======
ABOVE TABLE CONTINUED: --------------------------------- In thousands Total ------------------------------------------------------------ Components of Net 1999 1998 1997 Periodic Benefit Cost ----- ---- ---- Service cost $ 22,583 $ 25,185 $ 23,602 Interest cost 64,235 65,038 62,722 Expected return on assets (85,692) (81,775) (74,297) Amortization of: Transition obligation(asset) (121) (100) (99) Prior service cost 4,364 3,347 2,819 Actuarial (gain) loss 866 919 (585) --------- -------- -------- Periodic benefit cost before 6,235 12,614 14,162 curtailment and termination charges (credits) Curtailment and termination charges (credits): Special termination benefit charge (credit) 1,150 793 42 Curtailment charge (credit) (17,922) (311) - Settlement charge (credit) (3,214) - - ---------- -------- -------- Total net periodic benefit cost (13,751) 13,096 14,204 (Charges) credits allocated to discontinued operations 12,647 (5,999) (4,323) -------- -------- --------- Total net periodic benefit cost of continuing operations $ (1,104) $ 7,097 $ 9,881 ========= ======== ======== Changes in the projected benefit obligations and pension plan assets relating to the Company's defined benefit pension plans, together with a summary of the amounts recognized in the Consolidated Balance Sheet as of October 31 are set forth in the following table:
US Defined Non-US Defined U.S. Nonqualified In thousands Benefit Plans Benefit Plans Benefit Plans Total ----------------------------------------------------------------------------------------------------------------------------- 1999 1998 1999 1998 1999 1998 1999 1998 ---- ---- ---- ---- ---- ---- ---- ---- Change in Benefit Obligation Net benefit obligation at beginning of year $ 510,659 $ 453,008 $ 430,478 $ 402,049 $ 15,978 $ 15,320 $ 957,115 $ 870,377 Service cost 14,561 14,794 7,502 9,952 520 439 22,583 25,185 Interest cost 35,735 34,613 27,708 29,403 792 1,022 64,235 65,038 Plan participants' contributions -- -- 2,752 3,084 -- -- 2,752 3,084 Plan amendments -- 4,275 (10,163) -- -- -- (10,163) 4,275 Actuarial (gain)loss (30,278) 27,326 (5,633) 26,581 (948) 11 (36,859) 53,918 Currency Fluctuations -- -- (7,744) 6,755 -- -- (7,744) 6,755 Acquisitions/Divestitures -- -- -- (25,055) (4,804) -- (4,804) (25,055) Curtailments (33,937) (483) -- -- -- -- (33,937) (483) Special termination benefits 1,150 -- -- -- -- -- 1,150 -- Gross benefits paid (27,603) (22,874) (24,953) (22,291) (567) (815) (53,123) (45,980) --------- ---------- --------- --------- ---------- -------- ---------- --------- Net benefit obligation at end of year $ 470,287 $ 510,659 $ 419,947 $ 430,478 $ 10,971 $ 15,977 $ 901,205 $ 957,114 ========= ========= ========= ========= ========= ========= ========= ========= Change in Plan Assets Fair value of plan assets at beginning of year $ 458,990 $ 445,285 $ 426,725 $ 428,832 $ -- $ -- $ 885,715 $ 874,117 Actual return on plan assets 57,394 35,329 67,736 41,783 -- -- 125,130 77,112 Currency Fluctuations -- -- (7,910) 84 -- -- (7,910) 84 Employer contributions 2,273 45 7,694 1,236 567 815 10,534 2,096 Plan participants' contributions -- -- 2,752 3,084 -- -- 2,752 3,084 Acquisitions/Divestitures -- 1,206 -- (26,002) -- -- -- (24,796) Gross benefits paid (27,603) (22,874) (24,953) (22,291) (567) (815) (53,123) (45,980) --------- --------- --------- --------- ---------- --------- --------- --------- Fair value of plan assets at end of year $ 491,054 $ 458,991 $ 472,044 $ 426,726 $ -- $ -- $ 963,098 $ 885,717 ========= ========= ========= ========= ========== ========== ========= ========= Funding Status, Realized and Unrealized Amounts Funded status at end of year $ 20,767 $ (51,668) $ 52,096 $ (3,753) $ (10,971) $ (15,977) $ 61,892 $ (71,398) Unrecognized net actuarial (gain)loss (28,140) 13,680 (4,632) 29,562 5,715 8,356 (27,057) 51,598 Unrecognized prior service cost 22,124 44,764 3,831 2,327 478 861 26,433 47,952 Unrecognized net transition obligation(asset) 501 1,442 (5,451) (6,220) 92 220 (4,858) (4,558) --------- -------- ---------- --------- --------- --------- --------- --------- Net amount recognized at end of year $ 15,252 $ 8,218 $ 45,844 $ 21,916 $ (4,686) $ (6,540) $ 56,410 $ 23,594 ========= ========= ========= ========= ========= ========== ========= ========= Amounts recognized in the Consolidated Balance Sheet consist of: Prepaid benefit cost $ 4,971 $ 19,305 $ 37,084 $ 28,037 $ 155 $ 260 $ 42,210 $ 47,602 Accrued benefit liability -- (11,087) (5,821) (6,121) (4,841) (6,800) (10,662) (24,008) Additional minimum liability (2,211) (37,679) (943) (529) (3,932) (3,781) (7,086) (41,989) Intangible asset -- 37,679 150 529 570 3,781 720 41,989 Accumulated other comprehensive income 2,211 - 793 - 3,362 - 6,366 - --------- --------- --------- -------- --------- -------- -------- --------- 4,971 8,218 31,263 21,916 (4,686) (6,540) 31,548 23,594 Discontinued Operations 10,281 -- 14,581 -- -- -- 24,862 -- --------- --------- --------- -------- --------- -------- -------- --------- Net amount recognized at end of year $ 15,252 $ 8,218 $ 45,844 $ 21,916 $ (4,686) $ (6,540) $ 56,410 $ 23,594 ========= ========= ========= ========= ========= ========= ========= =========
Pension plan assets consist primarily of trust funds with diversified portfolios of primarily equity and fixed income investments. The projected benefit obligations, accumulated benefits obligations and fair value of plan assets for underfunded and overfunded plans have been combined for disclosure purposes. The projected benefit obligation, accumulated benefit obligation, and fair value of assets for pension plans with the accumulated benefit obligations in excess of plan assets are $25.2 million, $22.7 million and $6.5 million, respectively, as of October 31, 1999, and $265.8 million, $257.9 million and $223.6 million, respectively, as of October 31, 1998. The principal assumptions used in determining the funding status and net periodic benefit cost of the Company's pension plans are set forth in the following table. The assumptions for non-U.S. plans were developed on a basis consistent with that for U.S. plans, adjusted to reflect prevailing economic conditions and interest rate environments.
-------------------------------------------------------------------------- US Qualified Non-U.S. Defined Benefit Plans Defined Benefit Plans 1999 1998 1997 1999 1998 1997 ---- ---- ---- ---- ---- ---- Discount rate 7.00 7.50 8.00 6.0% - 15.0% 6.0% - 15.0% 8.0% - 14.0% Expected return on plan assets 10.00 10.00 10.00 10.25% - 16.0% 10.25% - 16.0% 10.0% - 15.0% Rate of compensation increase 4.00 4.50 5.00 3.5% - 12.0% 3.5% - 12.0% 5.0% - 11.0%
ABOVE TABLE CONTINUED -------------------------------------------------- U.S. Nonqualified Defined Benefit Plans 1999 1998 1997 ---- ---- ---- Discount rate 7.00% 7.50% 8.00% Expected return on plan assets 10.00% 10.00% 10.00% Rate of compensation increase 4.00% 4.50% 5.00% The discontinuance of Beloit's operations will result in a curtailment of several of the Company's Defined Benefit Pension Plans due to the termination of employees' services earlier than originally expected. In accordance with SFAS No. 88, "Employers' Accounting for Settlements and Curtailments of Defined Benefit Pension Plans and for Termination Benefits", the Company has recognized a gain of $17.9 million representing the decrease in the projected benefit obligations of the plans affected by the curtailment. The gain has been included in the loss from discontinued operations in the 1999 Consolidated Statement of Operations. The Company has a profit sharing plan which covers substantially all domestic employees except certain employees covered by collective bargaining agreements and employees of subsidiaries with separate defined contribution plans. Payments to the plan are based on the Company's EVA performance. Profit sharing expense was $5.0 million in 1999, $0 in 1998 and $6.0 million in 1997. 18. Postretirement Benefits Other Than Pensions In 1993, the Board of Directors of the Company approved a general approach that culminated in the elimination of all Company contributions towards postretirement health care benefits. Increases in costs paid by the Company were capped for certain plans beginning in 1994 extending through 1998 and Company contributions were eliminated as of January 1, 1999 for most employee groups, excluding Joy and specific discontinued operation groups. For Joy, based upon existing plan terms, future eligible retirees will participate in a premium cost-sharing arrangement which is based upon age as of March 1, 1993 and position at the time of retirement. Active employees under age 45 as of March 1, 1993 and any new hires after April 1, 1993 will be required to pay 100% of the applicable premium. The components of the net periodic benefit cost associated with the Company's post-retirement benefit plans (other than pensions), all of which relate to operations in the US, are as follows: In thousands October 31, --------------------------------------------------------------------------- 1999 1998 1997 ---- ---- ---- Components of net periodic benefit cost Service cost $ 192 $ 173 $ 163 Interest cost 3,112 3,849 4,743 Amortization of: Prior service cost - (11,903) (12,810) Actuarial (gain)loss 3,217 (6,736) (2,943) ------- -------- --------- 6,521 (14,617) (10,847) Costs allocated to discontinued operations 1,180 - - ------- --------- --------- Total net periodic benefit cost (credit) of continuing operations $ 5,341 $(14,617) $ (10,847) ------- --------- --------- ------- --------- --------- The following table sets forth the benefit obligations, plan assets, funded status and amounts recognized in the Company's Consolidated Balance Sheet as of October 31: In thousands ----------------------------------------------------------------- -------- 1999 1998 ----------------------- Change in Benefit Obligation Net benefit obligation at beginning of year $ 50,730 $ 58,765 Service cost 192 173 Interest cost 3,112 3,849 Actuarial (gain)loss (2,404) 6,176 Gross benefits paid (8,922) (18,233) -------- -------- Net benefit obligation at end of year $ 42,708 $ 50,730 ======== ======== Change in Plan Assets Fair value of plan assets at beginning of year $ - $ - Actual return on plan assets 8,922 18,233 Gross benefits paid (8,922) (18,233) -------- -------- Fair value of plan assets at end of year $ - $ - ======== ======== Funding Status, Recognized and Unrecognized Amounts Funded status at end of year (42,708) (50,730) Unrecognized net actuarial (gain)loss 5,419 11,040 ------- -------- Net amount recognized at end of year $(37,289) $(39,690) ========= ========= Amounts recognized in the Consolidated Balance Sheet consist of: Accrued benefit liability - short term portion $ (5,299) $ (5,503) - long term portion (31,990) (34,187) --------- --------- Net amount recognized at end of year $(37,289) $(39,690) ========= ========= For measurement purposes, an assumed annual rate of increase in the per capita cost of covered health care benefits ranged from 5.2 % to 7.0% (1998 5.3% to 8.0%). These rates were assumed to decrease gradually to 5.0% for most participants by 2001 and remain at that level thereafter. The health care cost trend rate assumption has an effect on the amounts reported. A one percentage point increase in the assumed health care cost trend rates each year would increase the accumulated postretirement benefit obligation as of October 31, 1999 by $3.7 million and the aggregate service cost and interest cost components of the net periodic postretirement benefit cost for the year by $0.2 million. Postretirement life insurance benefits have a minimal effect on the total benefit obligation. 19. Shareholders' Equity and Stock Options The Company's authorized common stock amounts to 150,000,000 shares. A Preferred Stock Purchase Right is attached to each share of common stock which entitles a shareholder to exercise certain rights in the event a person or group acquires or seeks to acquire 15% or more of the outstanding common stock of the Company. In September 1997 the Company announced that the board of directors had authorized the purchase of up to ten million shares of the Company's common stock. No shares were purchased under this program since October 31, 1998. In May, 1998, the Emerging Issues Task Force ("EITF") issued EITF 97-14 which addresses the accounting for deferred compensation arrangements where amounts earned by an employee are invested in the employers' stock and placed in a "rabbi trust". The Company adopted the provisions of EITF 97-14 in September 1998. In September 1998, 621,149 shares in the Company's Deferred Compensation Trust were distributed, including 479,302 shares distributed to the Company to fund withholding tax liabilities. Shares not distributed and remaining in the Company's Deferred Compensation Trust relate primarily to the Directors Stock Compensation Plan and are classified as treasury stock at cost and recorded as a contra equity account. Consistent with the EITF, since the Directors Stock Compensation Plan permits diversification of the trust assets, the Company marks to market the value of the trust assets and records a corresponding charge (credit) to compensation costs to reflect the change in the fair value of the amount owed to the participants in the plan. In 1997, the Company established a new long-term incentive compensation plan which covered a limited number of key senior executives of the Company. The plan, which replaced traditional stock options for those participants, consisted of awards up to an aggregate of 1,200,000 shares based upon achievement of pre-established stock price improvement factors. The Company has a Stock Incentive Plan that was approved by shareholders in 1996 and which superceded the Incentive Stock Plans of 1978 and 1988. The 1996 plan provides for the granting, up to April 9, 2006, of qualified and non-qualified options, stock appreciation rights, restricted stock and performance units to key employees for not more than 2,000,000 shares of common stock. Non-qualified options covering 3,000 shares were granted under the 1996 plan in 1999. Certain information regarding stock options is as follows: Weighted Average Number Option Exercise of Shares Price Per Share -------------- ------------------ Outstanding at October 31, 1996 1,498,334 $29.11 Granted 30,000 43.29 Exercised (301,072) 23.80 Cancelled or expired (67,491) 30.37 Outstanding at October 31, 1997 1,159,771 30.78 Granted 1,133,302 17.73 Exercised (61,767) 21.33 Cancelled or expired (120,276) 34.52 Outstanding at October 31, 1998 2,111,030 23.84 Granted 3,000 9.41 Exercised - - Cancelled or expired (591,139) 30.14 Outstanding at October 31, 1999 1,522,891 21.36 Exercisable at October 31, 1999 1,174,141 20.05 Since the inception of the 1978 and 1988 Incentive Stock Plans and the 1996 Stock Incentive Plan, options for the purchase of 5,296,707 shares have been granted at option exercise prices ranging from $6.75 to $47.00 per share. At October 31, 1999, 1,522,891 of the options were outstanding, 1,962,842 had been exercised and 1,810,974 had expired. Generally the options become exercisable in cumulative installments of one fourth of the shares in each year beginning six months from the date of the grant. The weighted average contractual life of options outstanding at October 31, 1999 is 7.61 years with exercise prices ranging from $6.85 to $44.50 per share. Following a "Dutch auction" self-tender offer in 1993, the Company purchased for cash 2,500,000 shares of common stock, or approximately 9% of shares of common stock outstanding at that time, at $19 5/8 per share, in conjunction with the establishment of the Harnischfeger Industries, Inc. Stock Employee Compensation Trust ("SECT"). Concurrent with the purchase, the Company sold 2,547,771 shares of common stock held in treasury to the SECT, amounting to $50.0 million at $19 5/8 per share. The purchase of the treasury shares reduced shareholders' equity. The sale of the treasury shares to the SECT had no impact on such equity. Subject to certain limitations, shares in the SECT may be used to fund future employee benefit obligations under plans that currently require shares of Company common stock. Shares owned by the SECT are accounted for as treasury stock until issued to existing benefit plans; they are reflected as a reduction to shareholders' equity. Shares owned by the SECT are valued at the closing market price each period, with corresponding changes in the SECT balance reflected in capital in excess of par value. Shares in the SECT are not considered outstanding for computing earnings per share. 20. Operating Leases The Company leases certain plant, office and warehouse space as well as machinery, vehicles, data processing and other equipment. Certain of the leases have renewal options at reduced rates and provisions requiring the Company to pay maintenance, property taxes and insurance. Generally, all rental payments are fixed. The Company's assets and obligations under capital lease arrangements are not significant. Total rental expense under operating leases, excluding maintenance, taxes and insurance, was $18.8 million, $15.3 million, and $17.0 million in 1999, 1998 and 1997, respectively. At October 31, 1999, the future payments for all operating leases with remaining lease terms in excess of one year, and excluding maintenance, taxes and insurance were as follows: In thousands ------------------------------------------ 2000 $ 11,703 2001 7,581 2002 5,273 2003 4,203 2004 1,329 2005 and thereafter 1,125 21. Commitments, Contingencies and Off-Balance-Sheet Risks At October 31, 1999, the Company was contingently liable to banks, financial institutions and others for approximately $311.2 million (1998 - $479.0 million) for outstanding letters of credit, bank guarantees and surety bonds securing performance of sales contracts and other guarantees in the ordinary course of business. Of the 1999 amount, approximately $213.9 million were issued by Debtor entities prior to the Bankruptcy filing and $48.8 million were issued under the DIP Facility. Additionally, there were $48.5 million of outstanding letters of credit or other guarantees issued by non-US banks for non-US subsidiaries. Of the $311.2 million, approximately $168.7 million was issued by the Company on behalf of Beloit matters. Approximately $12.5 million has been accrued as part of the loss on discontinued Beloit operations. The Company has entered into various forward foreign exchange contracts with major international financial institutions for the purpose of hedging its risk of loss associated with changes in foreign exchange rates. These contracts involve off balance sheet market and credit risk. As of October 31, 1999 the nominal or face value of forward foreign exchange contracts to which the Company was a party, in absolute US dollar equivalent terms, was $210.2 million. Forward exchange contracts are entered into to protect the value of committed future foreign currency receipts and disbursements and consequently any market related loss on the forward contract will be offset by changes in the value of the hedged item. As a result, the Company is not exposed to net market risk associated with these instruments. The Company is exposed to credit-related losses in the event of non-performance by counterparties to its forward exchange contracts, but it does not expect any counterparties to fail to meet their obligations. A contract is generally subject to credit risk only when it has a positive fair value and the maximum exposure is the amount of the positive fair value. There is a concentration of these contracts held with The Chase Manhattan Bank which is currently the only US institution willing to transact new forward foreign exchange contracts with the Company. 22. Disclosure About Fair Value of Financial Instruments The following methods and assumptions were used to estimate the fair value of each class of financial instruments for which it is practicable to estimate that value: Cash and Cash Equivalents: The carrying value approximates fair value because of the short maturity of those instruments. DIP Facility: The carrying value of the DIP Facility approximates fair value as the facility bears a floating rate of interest expressed in relation to LIBOR. Consequently, the cost of this instrument always approximates the market cost of borrowing for an equivalent maturity and risk class. Other Borrowings: The carrying value of the Company's other borrowings approximates fair value because of the predominantly short-term nature of these instruments and because predominantly all the instruments bear interest at floating rates. Liabilities Subject to Compromise: The liabilities subject to compromise under Chapter 11 proceedings are not actively traded on any financial market, nor, given their nature, is there a reliable financial model available for determining their fair value. Consequently it is considered impracticable and inappropriate to estimate the fair value of these financial instruments. (See Note 9 - Liabilities Subject to Compromise.) Forward Exchange Contracts: The fair value of forward exchange contracts represents the estimated amounts the Company would receive (pay) to terminate such contracts at the reporting date based on foreign exchange market prices at that date. The estimated fair values of the Company's financial instruments at October 31, 1999 and 1998 are as follows: In thousands ----------------------------------------------------------------------- 1999 Carrying Value Fair Value -------------- ---------- Cash and Cash Equivalents $ 57,453 $ 57,453 DIP Facility 167,000 167,000 Other borrowings 145,665 145,665 Forward Exchange Contracts - 819 1998 Carrying Value Fair Value -------------- ---------- Cash and Cash Equivalents $ 30,012 $ 30,012 Long Term Obligations 1,001,573 1,042,130 Other borrowings 117,607 117,607 Forward Exchange Contracts - (4,818) The fair value of the Company's forward exchange contracts at October 31, 1999 is analyzed in the following table of dollar equivalent terms: In thousands ----------------------------------------------------------------------- Maturing in 2000 Maturing in 2001 Buy Sell Buy Sell Austrian schilling (81) - - - Austrialian dollar (55) - - - Canadian dollar 11 - - - German mark (112) 11 - - French franc (17) 11 - - British pound 806 (438) - - Japanese Yen 75 (64) - - US dollar (195) 879 17 (29) As part of ongoing control procedures, the Company monitors concentrations of credit risk associated with financial institutions with which it conducts business. Credit risk is minimal as credit exposure limits are established to avoid a concentration with any single financial institution. The Company also monitors the creditworthiness of its customers to which it grants credit terms in the normal course of business. The Company's customers are, almost exclusively, in the mining industry but the Company's concentrations of credit risk associated with its trade receivables are considered minimal due to the broad customer base and the generally sound financial standing of its major customers. Bad debts have not been significant in the Company's mining businesses. The Company often requires and receives letters of credit or bank guarantees as collateral for its credit sales, especially when the customer is located outside the United States and other developed markets. The credit and other risks associated with long-term contracts (including the APP contract) of the Company's Beloit discontinued operations are discussed in Note 3 - Discontinued Operations. 23. Transactions With Affiliated Companies On March 30, 1998, the Company completed the sale of approximately 80% of the common stock of the Company's P&H Material Handling ("Material Handling") segment to Chartwell Investments, Inc. in a leveraged recapitalization transaction. The Company retained approximately 20% of the outstanding common stock and 11% of the outstanding voting securities. See Note 3 - Discontinued Operations. Transactions with related parties for the years ending October 31 were as follows: In thousands 1999 1998 1997 ------------- ----------- ----------- ---------- Purchases $ 3,601 $ 1,303 $ 32 Receivables - - 139 Payables 905 138 5 The Company believes that its transactions with all related parties were competitive with alternate sources of supply for each party involved. 24. Segment Information Business Segment Information At October 31, 1999, the Company had two reportable segments, Surface Mining Equipment and Underground Mining Machinery. The accounting policies of the segments are the same as those described in Note 2 - Significant Accounting Policies. Operating income (loss) of segments do not include interest income or expense and provision (benefit) for income taxes. There are no intersegment sales. Identifiable assets are those used in the Company's operations in each segment. Corporate assets consist primarily of property, deferred financing costs, pension assets and cash.
In thousands - ------------------------------------------------------------------------------------------------------- Net Operating Depreciation and Capital Identifiable Sales Income (Loss) Amortization Expenditures Assets ---------- ----------- ---------- ---------- ------------ 1999 ---- Surface Mining $ 498,343 $ 33,976 (1) $ 17,238 $ 8,971 $ 412,681 Underground Mining 615,803 (65,893)(1) 28,829 17,564 930,588 ---------- ---------- ---------- ---------- ---------- Total continuing operations 1,114,146 (31,917) 46,067 26,535 1,343,269 Discontinued operations -- -- -- -- 278,000 Strategic and financing initiatives -- (7,716) -- -- -- Reorganization item -- (20,304) -- -- -- Charge related to executive changes -- (19,098) -- -- -- Corporate -- (23,783)(2) 4,473 75 90,544 ---------- ---------- ---------- ---------- ---------- Consolidated Total $1,114,146 $ (102,818) $ 50,540 $ 26,610 $1,711,813 ========== ========== ========== ========== ========== 1998 ---- Surface Mining $ 443,330 $ 31,416 $ 16,717 $ 15,123 $ 396,962 Underground Mining 768,977 50,568 26,298 38,336 1,010,231 ---------- ---------- ---------- ---------- ---------- Total continuing operations 1,212,307 81,984 43,015 53,459 1,407,193 Discontinued operations -- -- 42,371 80,289 1,326,722 Corporate -- (20,591) 1,374 177 53,344 ---------- ---------- ---------- ---------- ---------- Consolidated total $1,212,307 $ 61,393 $ 86,760 $ 133,925 $2,787,259 ========== ========== ========== ========== ========== 1997 ---- Surface Mining $ 489,789 $ 60,459 $ 13,880 $ 17,299 $ 344,939 Underground Mining 977,552 141,344 27,351 43,705 1,052,191 ---------- ---------- ---------- ---------- ---------- Total continuing operations 1,467,341 201,803 41,231 61,004 1,397,130 Discontinued operations -- -- 45,122 53,616 1,473,323 Corporate -- (25,015) 1,108 11,781 54,082 ---------- ---------- ---------- ---------- ---------- Consolidated total $1,467,341 $ 176,788 $ 87,461 $ 126,401 $2,924,535 ========== ========== ========== ========== ==========
- -------------------------------------------------------------------------------- (1) After restructuring charge of $12.0 million for Underground Mining Machinery (see Note 8) and additional third quarter expenses of $63.5 million for Underground Mining Machinery and $5.0 million for Surface Mining Machinery (see Note 4). (2) After a $5.4 million charge related to the Material Handling preferred stock (see Note 3). Geographical Segment Information
In thousands - ------------------------------------------------------------------------------------------------------- Sales to Total Interarea Unaffiliated Operating Identifiable Sales Sales Customers Income (Loss) Assets --------------- -------------- --------------- --------------- --------------- 1999 ---- United States $ 767,843 $(133,597) $ 634,246 $ 3,310 $1,321,514 Europe 85,045 (19,377) 65,668 (129) 342,845 Other Foreign 473,784 (59,552) 414,232 (176) 311,527 Interarea Eliminations (212,526) 212,526 - (34,922) (632,617) --------------- -------------- --------------- --------------- --------------- $1,114,146 $ - $1,114,146 $ (31,917) $1,343,269 ========== ========= ========== ========= ========== 1998 ---- United States $ 847,074 $(208,366) $ 638,708 $ 30,617 $1,230,448 Europe 136,934 (15,364) 121,570 22,752 373,154 Other Foreign 538,885 (86,856) 452,029 27,843 333,400 Interarea Eliminations (310,586) 310,586 - 772 (529,809) --------------- -------------- --------------- --------------- --------------- $1,212,307 $ - $1,212,307 $ 81,984 $1,407,193 ========== ========= ========== ======== ========== 1997 ---- United States $ 890,600 $(204,444) $ 686,156 $ 139,592 $ 758,846 Europe 429,398 (147,680) 281,718 74,517 421,327 Other Foreign 503,010 (3,543) 499,467 51,573 327,621 Interarea Eliminations (355,667) 355,667 - (63,879) (110,664) --------------- -------------- --------------- --------------- --------------- $1,467,341 $ - $1,467,341 $ 201,803 $1,397,130 ========== ========= ========== ========= ==========
25. Receivables Facilities As of October 31, 1999 and 1998, receivables amounting to $78.9 million and $144.8 million which had been transferred to various financial institutions with limited recourse remained outstanding. The 1999 amounts all related to discontinued operations at October 31, 1999. Under the terms of SFAS No. 125 - "Accounting for Transfers and Servicing of Financial Assets and Extinguishment of Liabilities", these transfers were accounted for as sales and no portions of these receivables are reflected in the Company's consolidated balance sheets. On February 26, 1999, the Company established two facilities under which receivables were sold to two newly formed subsidiaries which in turn sold an interest in such receivables to The Chase Manhattan Bank, as administrative agent, and certain other purchasers. The receivables companies were not among the Company's subsidiaries that filed petitions for reorganization under Chapter 11 of the Bankruptcy Code. As of the date of this report, no amounts were outstanding under these facilities. 26. Condensed Combined Financial Statements The following condensed combined financial statements are presented in accordance with SOP 90-7: CONDENSED COMBINED CONSOLIDATING STATEMENT OF OPERATIONS Year ended October 31, 1999
Entities in Entities Not in Reorganization Reorganization Combined In thousands Proceedings Proceedings Eliminations Consolidated - -------------------------------------------------------------------------------------------------------------------- Revenues Net sales $ 774,221 $ 552,451 $ (212,526) $ 1,114,146 Other income (10,959) (17,649) 32,517 3,909 ------------- ------------ ------------- -------------- 763,262 534,802 (180,009) 1,118,055 Cost of sales 625,650 474,761 (177,605) 922,806 Product development, selling and administrative expenses 173,826 65,126 - 238,952 Strategic and financing initiatives 7,716 - - 7,716 Reorganization items 20,304 - - 20,304 Restructuring charges - 11,997 - 11,997 Charge related to executive changes 19,098 - - 19,098 ------------- ------------ ------------- -------------- Operating loss (83,332) (17,082) (2,404) (102,818) Interest expense-net (excludes contractual interest expense of $31,230 for 1999) (19,092) (9,773) - (28,865) ------------- ------------ ------------- -------------- Income (Loss) before provision for income taxes and minority interest (102,424) (26,855) (2,404) (131,683) Provision for income taxes (204,985) (15,463) - (220,448) Minority interest - - (957) (957) Equity in income (loss) of subsidiaries (1,397,768) 804 1,396,964 - ------------- ------------ ------------- -------------- Income(Loss) from continuing operations (1,705,177) (41,514) 1,393,603 (353,088) Income (Loss) from discontinued operations, net of applicable income taxes (742,307) (55,873) - (798,180) Loss on disposal of discontinued operations (529,000) - - (529,000) ------------- ------------ ------------- -------------- Net Income(Loss) $ (2,976,484) $ (97,387) $1,393,603 $ (1,680,268) ============= ============ ============= ==============
CONDENSED COMBINED CONSOLIDATING BALANCE SHEET
As of October 31, 1999 ------------------------------------------------------------- Entities in Entities Not in Reorganization Reorganization Combined In thousands Proceedings Proceedings Eliminations Consolidated - ---------------------------------- -------------- --------------- ------------- ------------- Assets Current Assets Cash and cash equivalents $ 30,175 $ 27,278 $ - $ 57,453 Accounts receivable-net 127,990 82,005 (7,165) 202,830 Intercompany receivables 1,649,370 306,314 (1,955,684) - Inventories 274,624 199,730 (26,699) 447,655 Other current assets 13,790 36,660 (3) 50,447 Prepaid income taxes (4,170) 4,170 - - ----------- ---------- ----------- ---------- 2,091,779 656,157 (1,989,551) 758,385 Assets of discontinued Beloit operations 278,000 - - 278,000 Property, Plant and Equipment- Net 143,860 66,887 - 210,747 Intangible Assets 163,348 242,126 (9,590) 395,884 Deferred Income Taxes (572) - 572 - Investment in Subsidiaries 1,312,782 833,097 (2,145,879) - Other Assets 65,543 2,914 340 68,797 ----------- ----------- ----------- ----------- Total Assets $ 4,054,740 $ 1,801,181 $(4,144,108) $ 1,711,813 =========== =========== =========== ===========
CONDENSED COMBINED CONSOLIDATING BALANCE SHEET
As of October 31, 1999 -------------------------------------------------------------------- Entities in Entities Not in In thousands Reorganization Reorganization Combined Proceedings Proceedings Eliminations Consolidated - --------------------------------------------------- -------------------------------------------------------------------- Liabilities and Shareholders' Equity Current Liabilities: Short-term notes payable, including current portion of long-term obligations $ 6 $ 144,562 $ - $ 144,568 Trade accounts payable 25,822 44,190 - 70,012 Intercompany accounts payable 1,575,756 379,928 (1,955,684) - Employee compensation and benefits 34,523 9,356 - 43,879 Advance payments and progress billings 17,801 27,539 - 45,340 Accrued warranties 26,336 13,530 - 39,866 Accrued contract losses, restructuring costs and other 179,632 58,475 (10,556) 227,551 ----------- ---------- ----------- ----------- 1,859,876 677,580 (1,966,240) 571,216 ----------- ---------- ----------- ----------- Long-Term Obligations 167,220 959 (82) 168,097 Liability for Postretirement Benefits and Accrued Pension Costs 52,613 3,216 (8,374) 47,455 Deferred Income Taxes (2,397) 2,353 44 - Other Liabilities 7,780 75 - 7,855 Liabilities Subject to Compromise 1,193,554 - - 1,193,554 Liabilities of Discontinued Operations, including liabilities subject to compromise of $494,806 543,494 198,771 - 742,265 Minority Interest - - 6,522 6,522 Shareholders' Equity (Deficit) Common stock 55,482 693,993 (697,806) 51,669 Capital in excess of par value of shares 2,027,380 77,854 (1,532,661) 572,573 Retained earnings (1,656,836) 182,232 5,666 (1,468,938) Cumulative translation adjustments (92,931) (35,852) 48,823 (79,960) Less: Stock Employee Compensation Trust (1,612) - - (1,612) Treasury stock (98,883) - - (98,883) ----------- ---------- ----------- ----------- 232,600 918,227 (2,175,978) (1,025,151) ----------- ---------- ----------- ----------- $ 4,054,740 $1,801,181 $(4,144,108) $ 1,711,813 =========== ========== =========== ===========
COMBINED CONSOLIDATING STATEMENT OF CASH FLOW
Year ended October 31, 1999 In thousands ------------------------------------------------------------------------------------------------------------------------ Entities in Entities not in Reorganization Reorganization Combined Proceedings Proceedings Consolidated ------------------ -------------- --------------- Net cash (used by) continuing operations $ 10,857 $ (289) $ 10,568 Investment and Other Transactions: Property, plant and equipment acquired (17,117) (9,493) (26,610) Property, plant and equipment retired 2,313 10,005 12,318 Deposit related to APP letters of credit and other (16,434) - (16,434) ------------------ -------------- --------------- Net cash (used by) provided by investment and other transactions (31,238) 512 (30,726) ------------------ -------------- --------------- Financing Activities: Dividends paid (4,592) - (4,592) Financing fees related to DIP Facility (15,000) - (15,000) Borrowings under long-term obligations prior to filing 125,000 - 125,000 Borrowings under DIP facility 167,000 - 167,000 Payments on long-term obligations (25) (2,088) (2,113) Increase (decrease) in short-term notes payable- net (21,610) 40,520 18,910 ------------------ -------------- --------------- Net cash provided by financing activities 250,773 38,432 289,205 ------------------ -------------- --------------- - Effect of Exchange Rate Changes on Cash and Cash Equivalents - (93) (93) ------------------ -------------- --------------- Cash used in Discontinued Operations (180,909) (60,604) (241,513) Increase (Decrease) in Cash and Cash Equivalents 49,483 (22,042) 27,441 Cash and Cash Equivalents at Beginning of Period 4,327 25,685 30,012 ------------------ -------------- --------------- Cash and Cash Equivalents at End of Period $ 53,810 $ 3,643 $ 57,453 ================== ============== ===============
- ------------------------------------------------------------------------------ SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of St. Francis, Wisconsin, on the 11th day of February 2000. HARNISCHFEGER INDUSTRIES, INC. ------------------------------ (Registrant) /s/ KENNETH A. HILTZ ------------------------------ Kenneth A. Hiltz Senior Vice President and Chief Financial Officer Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities indicated on February 11, 2000. Signature Title /s/ ROBERT HOFFMAN Chairman and Director ----------------------------- Robert Hoffman /s/ JOHN NILS HANSON Vice Chairman, Director, President ----------------------------- and Chief Executive Officer John Nils Hanson /s/ KENNETH A. HILTZ Senior Vice President and ----------------------------- Chief Financial Officer Kenneth A. Hiltz /s/ HERBERT S. COHEN Vice President and Controller ----------------------------- Herbert S. Cohen (1) Director ----------------------------- Donna M. Alvarado (1) Director ----------------------------- John D. Correnti (1) Director ----------------------------- Harry L. Davis (1) Director ----------------------------- Robert M. Gerrity (1) Director ----------------------------- Jean-Pierre Labruyere (1) Director ----------------------------- L. Donald LaTorre (1) Director ----------------------------- Stephen M. Peck (1) Director ----------------------------- Leonard E. Redon (1) John Nils Hanson, by signing his name hereto, does hereby sign and execute this report on behalf of each of the above-named Directors of Harnischfeger Industries, Inc. pursuant to powers of attorney executed by each of such Directors and filed with the Securities and Exchange Commission as an exhibit to this report. February 11, 2000 By: /s/ JOHN NILS HANSON ---------------------------------------- John Nils Hanson, Attorney-in-fact REPORT OF INDEPENDENT ACCOUNTANTS ON FINANCIAL STATEMENT SCHEDULE To the Board of Directors of Harnischfeger Industries, Inc. Our audits of the consolidated financial statements referred to in our report dated February 11, 2000 appearing in this Annual Report on Form 10-K of Harnischfeger Industries, Inc. also included an audit of the financial statement schedule listed in Item 14(a)(2) of this Form 10-K. As noted in our report, the company filed for Chapter 11 Bankruptcy protection on June 7, 1999, which raises substantial doubt about its ability to continue as a going concern. In our opinion, this financial statement schedule presents fairly, in all material respects, the information set forth therein when read in conjunction with the related consolidated financial statements. /S/PRICEWATERHOUSECOOPERS LLP PricewaterhouseCoopers LLP Milwaukee, Wisconsin February 11, 2000
HARNISCHFEGER INDUSTRIES, INC. SCHEDULE II VALUATION AND QUALIFYING ACCOUNTS (In thousands) Balance at Additions Additions Currency Balance Beginning by Charged Translation Discontinued at End Classification of Year Acquisiton to Expense Deductions(1) Effects Operations of Year - -------------------------------------------------------------------------------------------------------------------------------- Allowance Deducted in Balance Sheet from Accounts Receivable: For the year ended October 31, 1999 Doubtful accounts $ 9,889 $ -- $ 8,602 $(1,710) $ 12 $(5,073) $11,720 ======= ============ ======= ======= ======= ======= ======= For the year ended October 31, 1998 Doubtful accounts $ 8,319 $ 350 $ 4,311 $(1,374) $ (22) $(1,695) $ 9,889 ======= ============ ======= ======= ======= ======= ======= For the year ended October 31, 1997 Doubtful accounts $ 8,612 $ 158 $ 2,604 $(3,006) $ (291) $ 242 $ 8,319 - ----------------------------------- ======= ============ ======= ======= ======= ======= =======
(1) Represents write-off of bad debts, net of recoveries.
Allowance Deducted in Balance Sheet from Deferred Tax Assets: Balance at Additions Additions Balance Beginning by Charged at End of Year Acquisiton to Expense of Year ------------- ------------- ------------ ------------ For the year ended October 31, 1999 $ 47,038 $ - $ 340,263 $387,321 ============= ============= ============ ============ For the year ended October 31, 1998 $ 34,895 $ 12,143 $ - $ 47,038 ============= ============= ============ ============ For the year ended October 31, 1997 $ 44,968 $(10,073) $ - $ 34,895 ============= ============= ============ ============
EXHIBIT 3(b) 11-22-99 B Y L A W S OF HARNISCHFEGER INDUSTRIES, INC. ARTICLE I OFFICES The initial registered office of the corporation required by the Delaware General Corporation Law shall be 100 West Tenth Street, City of Wilmington, County of New Castle, State of Delaware, and the address of the registered office may be changed from time to time by the Board of Directors. The principal business office of the corporation shall be located in the City of St. Francis, County of Milwaukee, State of Wisconsin. The corporation may have such other offices, either within or without the State of Wisconsin, as the Board of Directors may designate or as the business of the corporation may require from time to time. The registered office of the corporation required by the Wisconsin Business Corporation Law may be, but need not be, the same as its place of business in the State of Wisconsin, and the address of the registered office may be changed from time to time by the Board of Directors. ARTICLE II STOCKHOLDERS SECTION 1. Annual Meeting. The annual meeting of stockholders shall be held at a time and on a date designated by resolution adopted by the Board of Directors for the purpose of electing directors and for the transaction of such other business as may come before the meeting. If the day fixed for the annual meeting shall be a legal holiday in the state where the meeting is to be held, such meeting shall be held on the next succeeding business day. If the election of directors shall not be held on the day designated herein for the annual meeting of the stockholders, or at any adjournment thereof, the Board of Directors shall cause the election to be held at a special meeting of the stockholders as soon thereafter as is convenient. SECTION 2. Special Meeting. Special meetings of the stockholders, for any purpose or purposes, unless otherwise prescribed by statute, may be called by the Chief Executive Officer or by the Board of Directors. SECTION 3. Place of Meeting. The Board of Directors may designate any place, either within or without the State of Delaware, as the place of meeting for any annual meeting or for any special meeting called by the Board of Directors. If no designation is made, or if a special meeting be otherwise called, the place of meeting shall be the principal business office of the corporation in the State of Wisconsin. SECTION 4. Notice of Meeting. Written notice stating the place, day and hour of the meeting and, in the case of a special meeting, the purpose or purposes for which the meeting is called, shall be delivered not less than ten days nor more than sixty days before the date of the meeting, either personally or by mail, by or at the direction of the Chief Executive Officer, or the Secretary, or the officer or persons calling the meeting, to each stockholder of record entitled to vote at such meeting. If mailed, such notice shall be deemed to be given when deposited in the United States mail, addressed to the stockholder at the stockholder's address as it appears on the records of the corporation, with postage thereon prepaid. Any previously scheduled meeting of the stockholders may be postponed, and any special meeting of the stockholders may be cancelled, by resolution of the Board of Directors upon public notice given prior to the date previously scheduled for such meeting of stockholders. SECTION 5. Fixing of Record Date. For the purpose of determining stockholders entitled to notice of or to vote at any meeting of stockholders or any adjournment thereof, or entitled to receive payment of any dividend, or in order to make a determination of stockholders for any other proper purpose, the Board of Directors of the corporation may fix in advance a date as the record date for any such determination of stockholders, such date in any case to be not more than sixty days and, in case of a meeting of stockholders, not less than ten days prior to the date on which the particular action, requiring such determination of stockholders, is to be taken. If no record date is fixed for the determination of stockholders entitled to notice of or to vote at a meeting of stockholders, or stockholders entitled to receive payment of a dividend, the close of business on the date next preceding the date on which notice of the meeting is mailed or the date on which the resolution of the Board of Directors declaring such dividend is adopted, as the case may be, shall be the record date for such determination of stockholders. When a determination of stockholders entitled to vote at any meeting of stockholders has been made as provided in this section, such determination shall apply to any adjournment thereof; provided, however, that the Board of Directors may fix a new record date for the adjourned meeting. SECTION 6. Voting Lists. The officer or agent having charge of the stock ledger of the corporation shall make, at least ten days before each meeting of stockholders, a complete list of the stockholders entitled to vote at such meeting, or any adjournment thereof, arranged in alphabetical order, with the address of and the number of shares held by each; which list, for a period of ten days prior to such meeting, shall be kept at the place where the meeting is to be held, or at another place within the city where the meeting is to be held, which other place shall be specified in the notice of meeting and the list shall be subject to inspection by any stockholder for any purpose germane to the meeting, at any time during usual business hours. Such list shall also be produced and kept open at the time and place of the meeting and shall be subject to the inspection of any stockholder during the whole time of the meeting. The original stock ledger shall be prima facie evidence as to who are the stockholders entitled to examine such list or ledger or to vote at any meeting of stockholders. Failure to comply with the requirements of this section will not affect the validity of any action taken at such meeting. SECTION 7. Quorum. A majority of the shares entitled to vote, represented in person or by proxy, shall constitute a quorum at a meeting of stockholders. If a quorum is present, the affirmative vote of a majority of the shares represented at the meeting and entitled to vote on the subject matter shall be the act of the stockholders, unless the vote of a greater number or voting by classes is required by Delaware law, the Articles of Incorporation, or these Bylaws. If less than a majority of the outstanding shares are represented at a meeting, a majority of the shares so represented may adjourn the meeting from time to time without further notice. Any stockholders' meeting, annual or special, whether or not a quorum is present, may be adjourned from time to time by the Chairman of the meeting without further notice. At such adjourned meeting at which a quorum shall be present or represented, any business may be transacted which might have been transacted at the meeting as originally called. SECTION 8. Proxies. At all meetings of stockholders, a stockholder may vote by proxy executed in writing by the stockholder or by the stockholder's duly authorized attorney in fact. Such proxy shall be filed with the Secretary of the corporation before or at the time of the meeting. No proxy shall be valid after three years from the date of its execution, unless otherwise provided in the proxy. SECTION 9. Voting of Shares. Each outstanding share, regardless of class, shall be entitled to one vote on each matter submitted to a vote at a meeting of stockholders, except to the extent that the voting rights of any class or classes are enlarged, limited or denied by the Articles of Incorporation or in the manner therein provided. SECTION 10. Voting of Shares by Certain Holders. Neither treasury shares nor shares of the corporation held by another corporation, if a majority of the shares entitled to vote in the election of directors of such other corporation is held, directly or indirectly, by the corporation, shall be entitled to vote or to be counted for quorum purposes. Nothing in this paragraph shall be construed as limiting the right of the corporation to vote its own stock held by it in a fiduciary capacity. Shares standing in the name of another corporation, domestic or foreign, may be voted in the name of such corporation by its President or such other officer as the President may appoint or pursuant to any proxy executed in the name of such corporation by its President or such other officer as the President may appoint in the absence of express written notice filed with the Secretary that such President or other officer has no authority to vote such shares. Shares held by an administrator, executor, guardian, conservator, trustee in bankruptcy, receiver or assignee for creditors may be voted by such administrator, executor, guardian, conservator, trustee in bankruptcy, receiver or assignee for creditors, either in person or by proxy, without a transfer of such shares into the name of such administrator, executor, guardian, conservator, trustee in bankruptcy, receiver or assignee for creditors. Shares standing in the name of a fiduciary may be voted by such fiduciary, either in person or by proxy. A stockholder whose shares are pledged shall be entitled to vote such shares unless in the transfer by the pledgor on the books of the corporation the pledgor has expressly empowered the pledgee to vote thereon, in which case only the pledgee, or the pledgee's proxy, may represent such stock and vote thereon. SECTION 11. Stockholder Proposals. No proposal for a stockholder vote shall be submitted by a stockholder (a "Stockholder Proposal") to the corporation's stockholders unless the stockholder submitting such proposal (the "Proponent") shall have filed a written notice setting forth with particularity (i) the names and business addresses of the Proponent and all Persons acting in concert with the Proponent (ii) the name and address of the Proponent and the Persons identified in clause (i), as they appear on the corporation's books (if they so appear), (iii) the class and number of shares of the corporation beneficially owned by the Proponent and the Persons identified in clause (i); (iv) a description of the Stockholder Proposal containing all material information relating thereto; and (v) whether the Proponent or any Person identified in clause (i) intends to solicit proxies from holders of a majority of shares of the corporation entitled to vote on the Stockholder Proposal. The Proponent shall also submit such other information as the Board of Directors reasonably determines is necessary or appropriate to enable the Board of Directors and stockholders to consider the Stockholder Proposal. As used in this Section, the term "Person" means any individual, partnership, firm, corporation, association, trust, unincorporated organization or other entity. The presiding officer at any stockholders' meeting may determine that any Stockholder Proposal was not made in accordance with the procedures prescribed in these Bylaws or is otherwise not in accordance with law, and if it is so determined, such officer shall so declare at the meeting and the Stockholder Proposal shall be disregarded. The notice required by these Bylaws to be delivered by the Proponent shall be delivered to the Secretary at the principal executive office of the corporation (i) not less than ninety (90) days before nor more than one hundred twenty (120) days before the first anniversary of the preceding date of the previous year's annual meeting of stockholders if such Stockholder Proposal is to be submitted at an annual stockholders' meeting (provided, however, that in the event that the date of the annual meeting is more than thirty (30) days before or more than sixty (60) days after such anniversary date, notice by the stockholder to be timely must be so delivered not earlier than the close of business on the one hundred twentieth (120th) day prior to such annual meeting and not later than the close of business on the later of the ninetieth (90th) day prior to such annual meeting or the tenth (10th) day following the day on which public announcement of the date of such annual meeting is first made by the corporation) and (ii) no later than the close of business on the fifteenth (15th) day following the day on which notice of the date of a special meeting of stockholders was given if the Stockholder Proposal is to be submitted at a special stockholders' meeting (provided, however, if notice of the date of the special meeting of stockholders was given less than twenty (20) days before the date of the special meeting of stockholders, the notice required by these Bylaws to be given by the Proponent shall be delivered no later than the close of business on the fifth (5th) day following the day on which notice of the special stockholder's meeting was given). In no event shall the public announcement of an adjournment of an annual or special meeting commence a new time period forthe giving of a stockholder's notice as described above. SECTION 12. Inspectors of Election; Opening and Closing the Polls. The Board of Directors by resolution shall appoint one or more inspectors, which inspector or inspectors may include individuals who serve the corporation in other capacities, including without limitation, as officers, employees, agents or representatives, to act at the meetings of stockholders and make a written report thereof. One or more persons may be designated as alternate inspectors to replace any inspector who fails to act. If no inspector or alternate has been appointed to act or is able to act at a meeting of stockholders, the Chairman of the meeting shall appoint one or more inspectors to act at the meeting. Each inspector, before discharging his or her duties, shall take and sign an oath faithfully to execute the duties of inspector with strict impartiality and according to the best of his or her ability. The inspector shall have the duties prescribed by law. The Chairman of the meeting shall fix and announce at the meeting the date and time of the opening and closing of the polls for each matter upon which the stockholders will vote at a meeting. SECTION 13. Stockholder Consent Procedures. (a) Record Date for Action by Written Consent. In order that the corporation may determine the stockholders entitled to consent to corporate action in writing without a meeting, the Board of Directors may fix a record date, which record date shall not precede the date upon which the resolution fixing the record date is adopted by the Board of Directors, and which date shall not be more than 10 days after the date upon which the resolution fixing the record date is adopted by the Board of Directors. Any stockholder of record seeking to have the stockholders authorize or take corporate action by written consent shall, by written notice to the Secretary, request the Board of Directors to fix a record date. The Board of Directors shall promptly, but in all events within 10 days after the date on which such a request is received, adopt a resolution fixing the record date. If no record date has been fixed by the Board of Directors within 10 days after the date on which such a request is received, the record date for determining stockholders entitled to consent to corporate action in writing without a meeting, when no prior action by the Board of Directors is required by applicable law, shall be the first date on which a signed written consent setting forth the action taken or proposed to be taken is delivered to the corporation by delivery to its registered office in Delaware, its principal place of business or to any officer or agent of the corporation having custody of the book in which proceedings of meetings of stockholders are recorded. Delivery made to the corporation's registered office shall be by hand or by certified or registered mail, return receipt requested. If no record date has been fixed by the Board of Directors and prior action by the Board of Directors is required by applicable law, the record date for determining stockholders entitled to consent to corporate action in writing without a meeting shall be at the close of business on the date on which the Board of Directors adopts the resolution taking such prior action. (b) Inspectors of Written Consent. In the event of the delivery, in the manner provided by Section 13(a), to the corporation of the requisite written consent or consents to take corporate action and/or any related revocation or revocations, the corporation shall engage nationally recognized independent inspectors of elections for the purpose of promptly performing a ministerial review of the validity of the consents and revocations. For the purpose of permitting the inspectors to perform such review, no action by written consent without a meeting shall be effective until such date as the independent inspectors certify to the corporation that the consents delivered to the corporation in accordance with Section 13(a) represent at least the minimum number of votes that would be necessary to take the corporate action. Nothing contained in this paragraph shall in any way be construed to suggest or imply that the Board of Directors or any stockholder shall not be entitled to test the validity of any consent or revocation thereof, whether before or after such certification by the independent inspectors, or to take any other action (including, without limitation, the commencement, prosecution or defense of any litigation with respect thereto, and the seeking of injunctive relief in such litigation). (c) Effectiveness of Written Consent. Every written consent shall bear the signature of each stockholder who signs the consent and no written consent shall be effective to take the corporate action referred to therein unless, within 60 days of the date the earliest dated written consent was received in accordance with Section 13(a), a written consent or consents signed by a sufficient number of holders to take such action are delivered to the Corporation in the manner prescribed in Section 13(a). ARTICLE III BOARD OF DIRECTORS SECTION 1. General Powers. The business and affairs of the corporation shall be managed by its Board of Directors. SECTION 2. Number. Tenure and Qualifications. The number of directors of the corporation shall be ten. Two of the three classes of Directors established by the corporation's Certificate of Incorporation shall consist of three members and the third class shall consist of four members. Each director shall hold office for the term provided in the Certificate of Incorporation and until such director's successor shall have been elected and qualified, or until such director's earlier death or resignation. No director shall be or be deemed to be removed from office prior to the expiration of such director's term in office by virtue of a reduction in the number of directors. Directors need not be residents of the State of Delaware or stockholders of the corporation. SECTION 3. Annual Meetings. An annual meeting of the Board of Directors shall be held without other notice than this Bylaw immediately after, and at the same place as, the Annual Meeting of Stockholders. SECTION 4. Special Meetings. Special meetings of the Board of Directors may be called by or at the request of the Chairman or any two directors. The person or persons authorized to call special meetings of the Board of Directors may fix any place, either within or without the State of Delaware, as the place for holding any special meeting of the Board of Directors called by them. SECTION 5. Notice. Notice of any special meeting shall be given at least 48 hours previous thereto by written notice delivered personally or mailed to each director at such director's business address, or by telegram. If mailed, such notice shall be deemed to be given when deposited in the United States mail so addressed, with postage thereon prepaid. If notice be given by telegram, such notice shall be deemed to be given when the telegram is delivered to the telegraph company. Any director may waive notice of any meeting. The attendance of a director at a meeting shall constitute a waiver of notice of such meeting, except where a director attends a meeting and objects thereat to the transaction of any business because of the meeting is not lawfully called or convened. Neither the business to be transacted at, nor the purpose of, any regular or special meeting of the Board of Directors need be specified in the notice or waiver of notice of such meeting. SECTION 6. Quorum. A majority of the number of directors fixed by Section 2 of this Article III shall constitute a quorum for the transaction of business at any meeting of the Board of Directors, but if less than such majority is present at a meeting, a majority of the directors present may adjourn the meeting from time to time without further notice. SECTION 7. Manner of Acting. The act of the majority of the directors present at a meeting at which a quorum is present shall be the act of the Board of Directors. SECTION 8. Nomination of Directors; Vacancies. Candidates for director shall be nominated either (i) by the Board of Directors or a committee appointed by the Board of Directors or (ii) by nomination at any stockholders' meeting by or on behalf of any stockholder entitled to vote at such meeting provided that written notice of such stockholder's intent to make such nomination or nominations has been given, either by personal delivery or by United States mail, postage prepaid, to the secretary of the corporation not later than (1) with respect to an election to be held at an annual meeting of stockholders, ninety (90) days in advance of such meeting, and (2) with respect to an election to be held at a special meeting of stockholders for the election of directors, the close of business on the tenth (10th) day following the date on which notice of such meeting is first given to stockholders. Each such notice shall set forth: (a) the name and address of the stockholder who intends to make the nomination and of the person or persons to be nominated; (b) a representation that the stockholder is a holder of record of stock of the corporation entitled to vote at such meeting and intends to appear in person or by proxy at the meeting to nominate the person or persons specified in the notice; (c) a description of all arrangements or understandings between the stockholder and each nominee and any other person or persons (naming such person or persons) pursuant to which the nomination or nominations are to be made by the stockholder; (d) such other information regarding each nominee proposed by such stockholder as would be required to be included in a proxy statement filed pursuant to the proxy rules of the Securities and Exchange Commission had the nominee been nominated, or intended to be nominated, by the Board of Directors; and (e) the consent of each nominee to serve as a director of the corporation if so elected. The presiding officer of the meeting may refuse to acknowledge the nomination of any person not made in compliance with the foregoing procedure. Any vacancy occurring in the Board of Directors, including a vacancy created by an increase in the number of directors, may be filled for the remainder of the unexpired term by the affirmative vote of a majority of the directors then in office although less than a quorum. SECTION 9. Action by Directors Without a Meeting. Any action required to be taken at a meeting of directors, or at a meeting of a committee of directors, or any other action which may be taken at a meeting, may be taken without a meeting if a consent in writing setting forth the action so taken shall be signed by all of the directors or members of the committee thereof entitled to vote with respect to the subject matter thereof and such consent shall have the same force and effect as a unanimous vote. SECTION 10. Participation in a Meeting by Telephone. Members of the Board of Directors or any committee of directors may participate in a meeting of such Board or committee by means of conference telephone or similar communication equipment by means of which all persons participating in the meeting can hear each other, and participating in a meeting pursuant to this section 10 shall constitute presence in person at such meeting. SECTION 11. Compensation. The Board of Directors, by majority vote of the directors then in office and irrespective of any personal interest of any of its members, shall have authority to establish reasonable compensation of all directors for services to the corporation as directors, officers or otherwise, or to delegate such authority to an appropriate committee. The Board of Directors also shall have authority to provide for reasonable pensions, disability or death benefits, and other benefits or payments, to directors, officers and employees and to their estates, families, dependents and beneficiaries on account of prior services rendered by such directors, officers and employees to the corporation. The Board of Directors may be paid their expenses, if any, of attendance at each such meeting of the Board. SECTION 12. Presumption of Assent. A director of the corporation who is present at a meeting of the Board of Directors at which action on any corporate matter is taken shall be presumed to have assented to the action taken unless such director's dissent is entered in the minutes of the meeting or unless such director files a written dissent to such action with the person acting as the Secretary of the meeting before the adjournment thereof or forwards such dissent by registered mail to the Secretary of the corporation immediately after the adjournment of the meeting. Such right to dissent shall not apply to a director who voted in favor of such action. SECTION 13. Validity of Contracts. No contract or other transaction entered into by the corporation shall be affected by the fact that a director or officer of the corporation is in any way interested in or connected with any party to such contract or transaction, or is a party to such contract or transaction, even though in the case of a director the vote of the director having such interest or connection shall have been necessary to obligate the corporation upon such contract or transaction; provided, however, that in any such case (i) the material facts of such interest are known or disclosed to the directors or stockholders and the contract or transaction is authorized or approved in good faith by the stockholders or by the Board of Directors or a committee thereof through the affirmative vote of a majority of the disinterested directors (even though not a quorum), or (ii) the contract or transaction is fair to the corporation as of the time it is authorized, approved or ratified by the stockholders, or by the Board of Directors, or by a committee thereof. SECTION 14. Indemnification and Insurance. Each person who was or is made a party or is threatened to be made a party to or is involved in any action, suit, arbitration, mediation or proceeding, whether civil, criminal, administrative or investigative, whether domestic or foreign (hereinafter a "proceeding"), by reason of the fact that he or she, or a person of whom he or she is the legal representative, is or was a director or officer of the corporation or is or was serving at the request of the corporation as a director, officer, employee or agent of another corporation or of a partnership, joint venture, trust or other enterprise, including service with respect to employee benefit plans, whether the basis of such proceeding is alleged action or inaction in an official capacity as a director, officer, employee or agent or in any other capacity while serving as a director, officer, employee or agent, shall be indemnified and held harmless by the corporation to the fullest extent not prohibited by the General Corporation Law of the State of Delaware, as the same exists or may hereafter be amended (but, in the case of any such amendment, with respect to alleged action or inaction occurring prior to such amendment, only to the extent that such amendment permits the corporation to provide broader indemnification rights than said law permitted the corporation to provide prior to such amendment), against all expense, liability and loss (including without limitation attorneys' fees and expenses, judgments, fines, ERISA excise taxes or penalties and amounts paid or to be paid in settlement) reasonably incurred or suffered by such person in connection therewith. Such indemnification as to such alleged action or inaction shall continue as to a person who has ceased after such alleged action or inaction to be a director, officer, employee or agent and shall inure to the benefit of his or her heirs, executors and administrators; provided, however, that, except as provided in the following paragraph, the corporation shall indemnify any such person seeking indemnification in connection with a proceeding (or part thereof) initiated by such person only if such proceeding (or part thereof) was authorized by the Board unless such proceeding (or part thereof) is a counter claim, cross-claim, third party claim or appeal brought by such person in any proceeding. The right to indemnification conferred in this Section shall be a contract right and shall include the right to be paid by the corporation the expenses incurred in defending any such proceeding in advance of its final disposition; provided, however, that, if the General Corporation law of the State of Delaware requires, the payment of such expenses incurred by a director or officer in his or her capacity as a director or officer (and not in any other capacity in which service was or is rendered by such person while a director or officer, including, without limitation, service to an employee benefit plan) in advance of the final disposition of a proceeding, shall be made only upon delivery to the corporation of an undertaking, by or on behalf of such director or officer, to repay all amounts so advanced if it shall ultimately be determined by final judicial decision from which there is no further appeal that such director or officer is not entitled to be indemnified for such expenses under this Section or otherwise. The corporation may, by action of the Board, provide indemnification to an employee or agent of the corporation or to a director, trustee, officer, employee or agent of another corporation or of a partnership, joint venture, trust or other enterprise of which the corporation owns fifty percent or more with the same scope and effect as the foregoing indemnification of directors and officers or such lesser scope and effect as shall be determined by action of the Board. If a claim under the preceding paragraph is not paid in full by the corporation within thirty days after a written claim has been received by the corporation, the claimant may at any time thereafter bring suit against the corporation to recover the unpaid amount of the claim and, if successful in whole or in part in any such claim or suit, or in a claim or suit brought by the corporation to recover an advancement of expenses under this paragraph, the claimant shall be entitled to be paid also the expense of prosecuting or defending any such claim or suit. It shall be a defense to any such action (other than an action brought to enforce a claim for expenses incurred in defending any proceeding in advance of its final disposition where the required undertaking, if any is required, has been tendered to the corporation) that the claimant has not met the applicable standard of conduct which make it permissible under the General Corporation Law of the State of Delaware for the corporation to indemnify the claimant for the amount claimed, but the burden of proving such defense shall be on the corporation. Neither the failure of the corporation (including its Board of Directors, independent legal counsel, or its stockholders) to have made a determination prior to the commencement of such action that indemnification of the claimant is proper in the circumstances because he or she has met the applicable standard of conduct set forth in the General Corporation Law of the State of Delaware, nor an actual determination by the corporation (including its Board of Directors, independent legal counsel, or its stockholders) that the claimant has not met such applicable standard of conduct set forth in the General Corporation Law of the State of Delaware, shall be a defense to the action or create a presumption that the claimant has not met the applicable standard of conduct. In any suit brought by such person to enforce a right to indemnification or to an advancement of expenses hereunder, or by the corporation to recover an advancement of expenses hereunder, the burden of proving that such person is not entitled to be indemnified, or to have or retain such advancement of expenses, shall be on the corporation. The right to indemnification and the payment of expenses incurred in defending a proceeding in advance of its final disposition conferred in this Section shall not be exclusive of any other right which any person may have or hereafter acquire under any statute, provision of the Certificate of Incorporation, By-law, agreement, vote of stockholders or disinterested directors or otherwise. The corporation may maintain insurance, at its expense, to protect itself and any director, officer, employee or agent of the corporation or another corporation, partnership, joint venture, trust or other enterprise against any such expense, liability or loss, whether or not the corporation would have the power to indemnify such person against such expense, liability or loss under the General Corporation Law of the State of Delaware. In the event that any of the provisions of this Section 14 (including any provision within a single section, paragraph or sentence) is held by a court of competent jurisdiction to be invalid, void or otherwise unenforceable, the remaining provisions are severable and shall remain enforceable to the full extent permitted by law. SECTION 15. Committees of Directors. The Board of Directors may, by resolution passed by a majority of the whole Board, designate one or more committees, each committee to consist of one or more of the directors of the corporation. The Board may designate one or more directors as alternate committee members, who may replace any absent or disqualified member at any committee meeting. In the absence or disqualification of a committee member, the member or members present at any meeting and not disqualified from voting, whether such member or members constitute a quorum, may unanimously appoint another director to act at the meeting in place of the absent or disqualified member. Any such committee shall have and may exercise all the powers and authority of the Board of Directors in the management of the business and affairs of the corporation, and may authorize the seal of the corporation to be affixed to all papers which may require it; but no such committee shall have the power or authority in reference to amending the Certificate of Incorporation (except that a committee may, to the extent authorized in the resolution(s) providing for the issuance of shares of stock adopted by the Board, fix any of the preferences or rights of such shares relating to dividends, redemption, dissolution, any distribution of assets of the corporation or the conversion into, or the exchange of such shares for, shares of any other class or classes or any other series of the same or any other class or classes of stock of the corporation), adopting an agreement of merger or consolidation, recommending to the stockholders the sale, lease or exchange of all or substantially all of the corporation's property and assets, recommending to the stockholders a dissolution of the corporation or a revocation of a dissolution, or amending the Bylaws of the corporation; and, unless the resolution expressly so provides, no such committee shall have the power or authority to declare a dividend or to authorize the issuance of stock, or to adopt a certificate of ownership and merger. SECTION 16. Special Meetings of Non-Management Directors. Notwithstanding anything to the contrary contained in these Bylaws, a special meeting between all stockholders of the corporation and the non-management members of the Board of Directors may be called at any time by stockholders holding, of record or benefically, not less than one-quarter of all the shares unconditionally entitled to vote in elections of directors. Stockholders may request a meeting by delivering a request to the Corporate Governance Committee of the Board of Directors setting forth in writing with particularity (i) the names and addresses of the stockholders requesting the meeting and of their respective representatives; (ii) a representation and evidence of ownership from each such stockholder regarding the class and number of shares of stock of the corporation owned by each such stockholder; and (iii) a description of the business purpose of the meeting containing all material information relating thereto. Such stockholders shall also submit such other information as the Corporate Governance Committee of the Board of Directors may reasonably request, including, without limitation, additional evidence of ownership. The Corporate Governance Committee of the Board of Directors shall be entitled to establish reasonable procedures relating to the conduct of such meeting including, without limitation, the day, time and place of such meeting and who shall be entitled to attend such meeting in addition to the stockholders and non-management members of the Board of Directors. The Chairman of the Corporate Governance Committee of the Board of Directors shall serve as chairman of the meeting. Such meeting shall be held at the expense of the corporation within 45 days after the later of the receipt of the request therefor by the Corporate Governance Committee or the receipt of any information reasonably requested by such committee as set forth above. The directors at any such meeting may, by resolution passed by a majority of such directors, make recommendations to the entire Board of Directors. No meeting called pursuant to this Section 16 shall be required to be held at any time within six months of any other meeting called pursuant to this Section 16 or within three months of any annual or special meeting of stockholders. ARTICLE IV OFFICERS SECTION 1. Number. The officers of the corporation shall be a Chairman of the Board (who must be a member of the Board of Directors and who may be a current or former employee of the corporation), a Chief Executive Officer, a President, one or more Vice Presidents (the number thereof to be determined by the Board of Directors), a Secretary, a Treasurer and a Controller, each of whom shall be elected by the Board of Directors. The Board of Directors may also elect a Vice Chairman of the Board, a Chief Operating Officer and one or more Group Presidents and may designate one or more of the Vice Presidents as Executive Vice Presidents or Senior Vice Presidents. Such other officers and assistant officers and agents as may be deemed necessary may be elected or appointed by the Board of Directors. Any two or more offices may be held by the same person, except the offices of President and Secretary, and the offices of President and Vice President. The Corporate Governance Committee of the Board of Directors shall consider at least annually whether or not the Chairman of the Board should be a past or present employee of the corporation and shall make a recommendation to the Board of Directors based thereon. The Chairman of the Corporate Governance Committee will be the lead member of the non-management directors for purposes of executive sessions of the Board of Directors when management is not present and for directing communications between non-management directors and stockholders, including with respect to the matters set forth in Article XIII hereof and for such other purposes as the Board of Directors may determine. SECTION 2. Election and Term of Office. The officers of the corporation shall be elected annually by the Board of Directors at the first meeting of the Board of Directors held after each annual meeting of the stockholders. If the election of officers shall not be held at such meeting, such election shall be held as soon thereafter as convenient. Each officer shall hold office until such officer's successor shall have been duly elected or until such officer's death or until such officer shall resign or shall have been removed in the manner hereinafter provided. SECTION 3. Removal. Any officer or agent elected or appointed by the Board of Directors may be removed by the Board of Directors whenever in its judgment the best interests of the corporation would be served thereby, but such removal shall be without prejudice to the contract rights, if any, of the person so removed. Election or appointment shall not of itself create contract rights. SECTION 4. Vacancies. A vacancy in any office because of death, resignation, removal, disqualification or otherwise, may be filled by the Board of Directors for the unexpired portion of the term. SECTION 5. Chairman of the Board. The Chairman of the Board shall preside at all meetings of the Board of Directors and stockholders. SECTION 6. Vice Chairman of the Board. The Vice Chairman of the Board shall preside at all meetings of the Board of Directors and stockholders in the absence of the Chairman of the Board. SECTION 7. Chief Executive Officer. The Chief Executive Officer shall be the principal executive officer of the corporation and, subject to the control of the Board of Directors, shall supervise and control all of the business and affairs of the corporation, and establish current and long-range objectives, plans and policies. The Chief Executive Officer shall have authority, subject to such rules as may be prescribed by the Board of Directors, to appoint such agents and employees of the corporation as the Chief Executive Officer shall deem necessary, to prescribe their powers, duties and compensation, and to delegate authority to them. Such agents and employees shall hold office at the discretion of the Chief Executive Officer. The Chief Executive Officer shall have authority to sign, execute and acknowledge, on behalf of the corporation, all deeds, mortgages, bonds, stock certificates, contracts, leases, reports and all other documents or instruments necessary or proper to be executed in the course of the corporation's regular business or which shall be authorized by resolution of the Board of Directors; and, except as otherwise provided by law or the Board of Directors, the Chief Executive Officer may authorize the President, an Executive Vice President, Senior Vice President, or other officer or agent of the corporation to sign, execute and acknowledge such documents or instruments in the Chief Executive Officer's place and stead. In general, the Chief Executive Officer shall perform all duties incident to the office of Chief Executive Officer and such other duties as may be prescribed by the Board of Directors from time to time. In the absence of the Chairman of the Board and, if any, the Vice Chairman of the Board, the Chief Executive Officer shall, when present, preside at all meetings of the stockholders and the Board of Directors. SECTION 8. President. The President shall direct, administer and coordinate the activities of the corporation in accordance with policies, goals and objectives established by the Chief Executive Officer and the Board of Directors. The President shall also assist the Chief Executive Officer in the development of corporate policies and goals. In the absence of both the Chairman of the Board, the Vice Chairman of the Board, if any, and the Chief Executive Officer, the President shall, when present, preside at all meetings of the stockholders and the Board of Directors. SECTION 9. The Chief Operating Officer, Group Presidents and the Vice Presidents. In the absence of the President or in the event of the President's death, inability or refusal to act, the Chief Operating Officer, the Group Presidents and the Executive Vice Presidents in the order designated at the time of their election, or, in the absence of any designation, then in the order of their election (or in the event there be no Chief Operating Officer, Group Presidents or Executive Vice Presidents or they are incapable of acting, the Senior Vice Presidents in the order designated at the time of their election, or, in the absence of any designation, then in the order of their election) shall perform the duties of the President, and when so acting shall have all the powers of and be subject to all the restrictions upon the President. The Board of Directors may designate certain Vice Presidents as being in charge of designated divisions, plants, or functions of the corporation's business and add appropriate description to their title. Any Chief Operating Officer, Group President or Vice President may sign, with the Secretary or an Assistant Secretary, certificates for shares of the corporation; and shall perform such other duties as from time to time may be assigned to such Chief Operating Officer, Group President or Vice President by the Chief Executive Officer or by the Board of Directors. SECTION 10. The Secretary. The Secretary shall: (a) keep the minutes of the stockholders' and of the Board of Directors' meetings in one or more books provided for that purpose; (b) see that all notices are duly given in accordance with the provisions of these Bylaws or as required by law; (c) be custodian of the corporate records and of the seal of the corporation and see that the seal of the corporation is affixed to all documents, the execution of which on behalf of the corporation under its seal is duly authorized; (d) keep or cause to be kept a register of the post office address of each stockholder which shall be furnished to the Secretary by such stockholder; (e) sign with the Chief Executive Officer, President, or any Vice President, certificates for shares of the corporation, the issuance of which shall have been authorized by resolution of the Board of Directors; (f) have general charge of the stock transfer books of the corporation; and (g) in general, perform all duties incident to the office of Secretary and such other duties as from time to time may be assigned to the Secretary by the Chief Executive Officer or by the Board of Directors. SECTION 11. The Treasurer. The Treasurer shall give a bond for the faithful discharge of the Treasurer's duties in such sum and with such surety or sureties as the Board of Directors shall determine. The Treasurer shall: (a) have charge and custody of and be responsible for all funds and securities of the corporation; receive and give receipts for monies due and payable to the corporation from any source whatsoever, and deposit all such monies in the name of the corporation in such banks, trust companies or other depositories as shall be selected in accordance with the provisions of Article VI of these Bylaws; and (b) in general, perform all of the duties incident to the office of Treasurer and such other duties as from time to time may be assigned to the Treasurer by the Chief Executive Officer or by the Board of Directors. SECTION 12. The Controller. The Controller shall: (a) keep, or cause to be kept, correct and complete books and records of account, including full and accurate accounts of receipts and disbursements in books belonging to the corporation; and (b) in general, perform all duties incident to the office of Controller and such other duties as from time to time may be assigned to the Controller by the Chief Executive Officer or by the Board of Directors. SECTION 13. Assistant Secretaries and Assistant Treasurers. The Assistant Secretaries may sign with the President, or any Vice President, certificates for shares of the corporation, the issuance of which shall have been authorized by a resolution of the Board of Directors. Assistant Treasurers shall respectively give bonds for the faithful discharge of their duties in such sums and with such sureties as the Board of Directors shall determine. The Assistant Secretaries and Assistant Treasurers, in general, shall perform such duties as shall be assigned to them by the Secretary or the Treasurer, respectively, or by the Chief Executive Officer or the Board of Directors. SECTION 14. Salaries. The salaries of the officers shall be fixed from time to time by the Board of Directors and no officer shall be prevented from receiving such salary by reason of the fact that such officer is also a director of the corporation. ARTICLE V APPOINTED EXECUTIVES SECTION 1. Vice Presidents. The Chief Executive Officer may appoint, from time to time, as the Chief Executive Officer may see fit, and fix the compensation of, one or more Vice Presidents whose title will include words describing the function of such Vice President's office and the group, division or other unit of the Company in which such Vice President's office is located. Each of such appointed Vice Presidents shall hold office during the pleasure of the Chief Executive Officer, shall perform such duties as the Chief Executive Officer may assign, and shall exercise the authority set forth in the Chief Executive Officer's letter appointing such Vice President. SECTION 2. Assistants. The Chief Executive Officer may appoint, from time to time, as the Chief Executive Officer may see fit, and fix the compensation of, one or more Assistants to the Chairman, one or more Assistants to the President, and one or more Assistants to the Vice Presidents, each of whom shall hold office during the pleasure of the Chief Executive Officer, and shall perform such duties as the Chief Executive Officer may assign. ARTICLE VI CONTRACTS, LOANS, CHECKS AND DEPOSITS SECTION 1. Contracts. The Board of Directors may authorize any officer or officers, agent or agents, to enter into any contract or execute and deliver any instrument in the name of and on behalf of the corporation, and such authority may be general or confined to specific instances. SECTION 2. Loans. No loans shall be contracted on behalf of the corporation and no evidences of indebtedness shall be issued in its name unless authorized by a resolution of the Board of Directors. Such authority may be general or confined to specific instances. SECTION 3. Checks, Drafts, etc. All checks, drafts or other orders for the payment of money, notes or other evidences of indebtedness issued in the name of the corporation, shall be signed by such officer or officers, agent or agents, of the corporation and in such manner as shall from time to time be determined by resolution of the Board of Directors. SECTION 4. Deposits. All funds of the corporation not otherwise employed shall be deposited from time to time to the credit of the corporation in such banks, trust companies or other depositories as the Board of Directors may select. ARTICLE VII CERTIFICATE FOR SHARES AND THEIR TRANSFER SECTION 1. Certificates for Shares. Certificates representing shares of the corporation shall be in such form as shall be determined by the Board of Directors. Such certificates shall be signed by the Chief Executive Officer, President, or any Vice President and by the Treasurer or an Assistant Treasurer, or the Secretary or an Assistant Secretary. Any or all of the signatures on the certificate may be a facsimile. In case any officer, transfer agent, or registrar who has signed or whose facsimile signature has been placed upon a certificate shall have ceased to be such officer, transfer agent, or registrar before such certificate is issued, it may be issued by the corporation with the same effect as if such person were such officer, transfer agent, or registrar at the date of issue. All certificates for shares shall be consecutively numbered or otherwise identified. The name and address of the person to whom the shares represented thereby are issued, with the number of shares and date of issue, shall be entered on the stock ledger of the corporation. All certificates surrendered to the corporation for transfer shall be canceled and no new certificate shall be issued until the former certificate for a like number of shares shall have been surrendered and canceled, except that in the case of a lost, destroyed or mutilated certificate, a new one may be issued therefor upon such terms and indemnity to the corporation as the Board of Directors may prescribe. SECTION 2. Transfer of Shares. Transfer of shares of the corporation shall be made only on the stock ledger of the corporation by the holder of record thereof or by such person's legal representative, who shall, if so required, furnish proper evidence of authority to transfer, or by such person's attorney thereunto authorized by power of attorney duly executed and filed with the Secretary of the corporation, and on surrender for cancellation of the certificate for such shares. The person in whose name shares stand on the books of the corporation shall be deemed by the corporation to be the owner thereof for all purposes. ARTICLE VIII FISCAL YEAR The fiscal year of the corporation shall begin on the first day of November and end on the thirty-first day of October in each year. ARTICLE IX DIVIDENDS The Board of Directors may from time to time declare, and the corporation may pay, dividends on its outstanding shares in the manner and upon the terms and conditions provided by law and by the Articles of Incorporation. ARTICLE X SEAL The Board of Directors shall provide a corporate seal which shall be circular in form and shall have inscribed thereon the name of the corporation and the state of incorporation and the words "Corporate Seal". ARTICLE XI WAIVER OF NOTICE Whenever any notice is required to be given to any stockholder or director of the corporation under the provisions of these Bylaws or under the provisions of the Articles of Incorporation or under the provisions of the Delaware General Corporation Law, a waiver thereof in writing, signed at any time by the person or persons entitled to such notice of the meeting, shall be deemed equivalent to the giving of such notice. ARTICLE XII AMENDMENTS These Bylaws may be amended or repealed and new Bylaws may be adopted by the Board of Directors at any regular or special meeting thereof only with the affirmative vote of at least 80% of the total number of Directors. ARTICLE XIII SIGNIFICANT TRANSACTIONS The affirmative vote or consent of the holders of a majority of all shares of stock of the corporation unconditionally entitled to vote in elections of directors, considered for the purpose of this Article XIII as one class, shall be required for the adoption, approval or authorization of any significant transaction (as hereinafter defined). A proxy statement responsive to the requirements of the Securities Exchange Act of 1934, as amended, shall be mailed to stockholders of the corporation for purpose of soliciting stockholder approval of such significant transaction and shall contain at the front thereof, in a prominent place, any recommendation as to the advisability (or inadvisability) of the significant transaction which the directors may choose to make and an opinion of a reputable investment banking firm as to the fairness (or not) of the terms of such significant transaction from the point of view of the stockholders of the corporation (such investment banking firm to be selected by a majority of the directors and to be paid a reasonable fee for their services by the corporation upon receipt of such opinion). As used in this Article XIII, the term "significant transaction" shall include any sale, merger, joint venture or similar transaction of the corporation or any of its subsidiaries of a size in excess of 25% of the assets of the corporation and its subsidiaries, taken as a whole, as determined in good faith by the Board. The provisions of this Article XIII shall not be applicable to any transaction between the corporation and any of its subsidiaries or between any subsidiaries of the corporation. EXHIBIT 10(e) HARNISCHFEGER INDUSTRIES, INC. SUPPLEMENTAL RETIREMENT PLAN (as amended and restated June 3, 1999) SECTION 1: Introduction 1.1 The Plan and its Effective Date. The Harnischfeger Industries, Inc. Supplemental Retirement and Stock Funding Plan (the "Supplemental Plan") is the amendment and restatement effective as of October 1, 1990 of the plan that was originally established by Harnischfeger Industries, Inc., a Delaware corporation (the "Company"), effective March 1, 1987 as the Harnischfeger Industries, Inc. Supplemental Retirement Plan. 1.2 Purpose. The Company maintains a Harnischfeger Salaried Employees' Retirement Plan (the "Retirement Plan") which is intended to meet the requirements of a "qualified plan" under the Internal Revenue Code of 1986, as amended (the "Code"). While the Code and the Employee Retirement Income Security Act of 1974, as amended (the "Act"), place limitations on the benefits which may be paid from a qualified plan, the Code and the Act permit the payment under a non-qualified supplemental retirement plan of the benefits which may not be paid under the qualified plan because of such limitations. The purpose of this Supplemental Plan is to provide benefits which may not be provided under the Retirement Plan because of limitations imposed by the Code or the Act, including those relating to nondiscrimination and maximum benefit limitations, elections to defer compensation made by the participants, and the granting of past (or deemed) service credits. SECTION 2: Participation and Benefits 2.1 Eligibility for Benefits Related to Retirement Plan. Subject to the conditions and limitations hereof, if a participant in the Retirement Plan (i) has been granted credit for prior service or elected to defer compensation which may not be taken into account under the Retirement Plan because of applicable nondiscrimination or other rules, (ii) has accrued a vested pension benefit under the Retirement Plan (or would have accrued a vested benefit if his prior service were taken into account), and such benefit has been limited as a result of the maximum benefit limitations imposed by Sections 401(a)(17) and 415 of the Code, or (iii) has been granted credit for additional years of service (based upon a multitude of actual years of service) by the Committee, it its sole discretion, which may not be taken into account under the Retirement Plan, he shall be a participant ("Participant") in this Supplemental Plan and shall be entitled to receive under this Supplemental Plan the portion of his benefits under the Retirement Plan, determined without regard to the limitations on the inclusions of prior (or deemed) service or deferred compensation or the maximum benefit limitations therein, which exceeds the benefits payable to him under the Retirement Plan after applying such limitations. If a Participant was employed by another "Harnischfeger Company", as defined in the Retirement Plan, and such other company also maintains a qualified plan covering the Participant, the benefits hereunder and under such other plan shall be limited so as to not be duplicative and the Participant's benefits hereunder and under such other plan shall be paid by the Company and such other Harnischfeger Company in such proportions as the Company shall determine. The term "Company" as hereinafter used shall be deemed to include a reference to each such other Harnischfeger Company. 2.2 Payment of Benefits. Payments of benefits under this Supplemental Plan shall be paid to a Participant, or in the event of his death to his beneficiary, at the same time and in the same manner as his pension benefits under the Retirement Plan. 2.3 Funding. Benefits payable under this Supplemental Plan to a Participant or his beneficiary shall be paid directly by the Company or at its discretion through the Harnischfeger Industries Deferred Compensation Trust ("Rabbi Trust"), a grantor trust established by the Company. Prior to a "Change in Control" of the Company (as defined below), the Company shall not be required (but may do so in its discretion) to place assets in the Rabbi Trust that may be used to provide any benefits under this Supplemental Plan. Notwithstanding the above, the Company intends for this Supplemental Plan to constitute an unfunded, unsecured promise to pay future benefits. 2.4 Change in Control. The term "Change in Control" shall mean a Change in Control of the Company as defined in the Rabbi Trust. SECTION 3: General Provisions 3.1 Committee. This Supplemental Plan shall be administered by a committee of two or more directors constituted to comply with the Non-Employee Director requirements of Rule 16b-3 promulgated pursuant to the Securities Exchange Act of 1934 as amended and Securities Exchange Commission interpretations thereunder (the "Committee"), disregarding any changes in the members of the Committee following a Change in Control. The Company shall pay the cost of administration of the Supplemental Plan. The Committee shall have the power, right and duty to interpret the provisions of the Supplemental Plan and may from time to time adopt rules with respect to the administration of the Supplemental Plan and the determination and distribution of benefits under the Supplemental Plan, and may amend any and all rules previously established. Any decision made by the Committee in good faith in connection with its administration of or responsibilities under the Supplemental Plan, including the interpretation of any provision of the Supplemental Plan, the application of any rule established under the Supplemental Plan, any determination as to the officers eligible to participate in the Supplemental Plan, the amount allocated to each and the manner, conditions and terms of payment of such amount, shall be conclusive on all persons. 3.2 Beneficiary. A Participant's "beneficiary" under this Supplemental Plan means any person who becomes entitled to benefits under the Retirement Plan because of the Participant's death; provided that, if a Participant dies while his benefits under this Supplemental Plan are payable to him in installments, his beneficiary under this Supplemental Plan shall be either (i) the person or persons designated by him by signing and filing with the Committee a form furnished by the Committee, or (ii) if the Participant failed to designate a beneficiary in (i) above, or if the beneficiary designated in (i) above dies before the date of the Participant's death, the Participant's estate. 3.3 Discretion. Notwithstanding any provisions in this Supplemental Plan to the contrary, the Committee shall have the discretion to allow any benefits to be paid that would otherwise be forfeited. 3.4 Employment Rights. Establishment of the Supplemental Plan shall not be construed to give any participant the right to be retained in the Company's service or to any benefits not specifically provided by the Supplemental Plan. 3.5 Interests Not Transferable. Except as to withholding of any tax under the laws of the United States or any state, the interests of the Participants and their beneficiaries under the Supplemental Plan are not subject to the claims of their creditors and may not be voluntarily or involuntarily transferred, assigned, alienated or encumbered, provided, however, that the Committee shall have discretion to waive this restriction, in whole or in part. No Participant shall have any right to any benefit payments hereunder prior to his termination of employment with the Company. 3.6 Payment with Respect to Incapacitated Participants or Beneficiaries. If any person entitled to benefits under the Supplemental Plan is under a legal disability or in the Committee's opinion is incapacitated in any way so as to be unable to manage his financial affairs, the Committee may direct the payment of all or a portion of such benefits to such person's legal representative or to a relative or friend of such person for such person's benefit, or the Committee may direct the application of such benefits for the benefit of such person in any manner which the Committee may elect that is consistent with the Supplemental Plan. Any payments made in accordance with the foregoing provisions of this section shall be a full and complete discharge of any liability for such payments. 3.7 Limitation of Liability. To the extent permitted by law, no person (including the Company, its Board of Directors, the Committee, any present or former member of the Company's Board of Directors or the Committee, and any present or former officer of the Company) shall be personally liable for any act done or omitted to be done in good faith in the administration of the Supplemental Plan. 3.8 Controlling Law. The laws of Wisconsin shall be controlling in all matters relating to the Supplemental Plan. 3.9 Gender and Number. Where the context admits, words in the masculine gender shall include the feminine and neuter genders, the plural shall include the singular and the singular shall include the plural. 3.10 Successor to the Company. The term "Company" as used in the Supplemental Plan shall include any successor to the Company by reason of merger, consolidation, the purchase of all or substantially all of the Company's assets or otherwise. 3.11 Withholding for Taxes. Notwithstanding any other provision of this Supplemental Plan, the Committee may on behalf of the Participant withhold or direct the Trustee to withhold from any payment to be made under this Supplemental Plan, whether in the form of cash or shares of stock, such amount or amounts as may be required for purposes of complying with appropriate federal, state or foreign tax withholding provisions. Subject to the discretion of the Committee, no distribution will be made to the Participant until all tax withholding obligations have been satisfied. SECTION 4: Amendment and Termination 4.1 Amendment and Termination. The Committee reserves the right to amend the Supplemental Plan from time to time or to terminate the Supplemental Plan at any time, provided that no amendment of the Supplemental Plan nor the termination of the Supplemental Plan may cause the reduction, forfeiture or cessation of any benefits that were accrued as of the date of such amendment or termination and which would otherwise be payable under this Supplemental Plan, but for such amendment or termination. * * * * * EXHIBIT 10(p) October 20, 1999 Subject: Key Employee Retention Plan You are a valued employee whose contributions are key to our emergence from Chapter 11 and to the continued growth and success of our Company. In recognition of that fact, you have been included in the Key Employee Retention Plan. The components of that plan include: Emergence bonus You will receive an emergence bonus of an additional 85% of your present base salary for your continuing contributions to the success of our business, payable upon emergence from bankruptcy. You must continue to be employed at emergence to receive the emergence bonus. Emergence is defined as the earlier of the consummation of a plan of reorganization or the consummated sale or substantially complete liquidation of Harnischfeger Industries. Severance Benefits In the event you are involuntarily terminated, other than for cause, you will receive severance pay equal to two year's base salary, payable over 24 months, with mitigation after 12 months. You will also receive benefit continuation for 24 months, or until you become eligible for coverage through another employer, whichever occurs first, provided you continue to make the required employee contributions. Finally, you will receive outplacement assistance for 24 months, or until you are employed elsewhere, whichever occurs first. You will be required to sign a customary release in order to receive these benefits. To receive these benefit you must also, at the time of your termination, waive your prepetition claim for severance benefits under the Long Term Compensation Plan for Key Executives. Change-of-Control If during the 24 months immediately following a change of control of Harnischfeger Industries, you are terminated involuntarily "without cause" or voluntarily terminate for "good reason", you will receive a lump sum payment equal to three times base salary plus target bonus. This payment is subject to the Section 289G Safe Harbor limitation. Provided you continue to make the required employee contributions, you would also receive benefit continuation for the lesser of three years or until you become eligible for such benefits through another employer. These agreements will be reviewed with the creditors' committee prior to issuance. Alternately, you may elect to rely on your prepetition claim under the change-of-control provisions of the Long Term Compensation Plan for Key Executives. Annual Incentive Plan You will continue to be eligible to participate in the Company's annual incentive bonus plan. For fiscal 2000, the plan will change from being EVA based to EBITDA based. Targets will be established shortly after the start of the new fiscal year. Thank you for your continued commitment and dedication. Together we can build a stronger Company and a bright future for all of us. EXHIBIT 11
HARNISCHFEGER INDUSTRIES, INC. CALCULATIONS OF EARNINGS (LOSS) PER SHARE (Amounts in thousands except per share amounts) October 31, -------------------------------------------- 1999 1998(1) 1997(1) Basic Earnings (Loss) - ------------------------------------------------------ Income (loss) from continuing operations $ (353,088) $ 14,366 $ 67,881 Income (loss) from discontinued operations (798,180) (184,399) 70,399 Net gain (loss) on disposal of discontinued operation (529,000) 151,500 -- Extraordinary loss on retirement of debt -- -- (12,999) ----------- ----------- ----------- Net income (loss) $(1,680,268) $ (18,533) $ 125,281 =========== =========== =========== Basic weighted average common shares outstanding 46,329 46,445 47,827 Basic Earnings (Loss) Per Share - ------------------------------------------------------ Income (loss) from continuing operations $ (7.62) $ 0.31 $ 1.42 Income (loss) from and net gain (loss) on disposal of discontinued operations (28.65) (0.71) 1.47 Extraordinary loss on retirement of debt -- -- (0.27) ----------- ----------- ----------- Net income (loss) $ (36.27) $ (0.40) $ 2.62 =========== =========== =========== Diluted Earnings (Loss) - ------------------------------------------------------ Income (loss) from continuing operations $ (353,088) $ 14,366 $ 67,881 Income (loss) from discontinued operations (798,180) (184,399) 70,399 Net gain (loss) on disposal of discontinued operations (529,000) 151,500 -- Extraordinary loss on retirement of debt -- -- (12,999) ----------- ----------- ----------- Net income (loss) $(1,680,268) $ (18,533) $ 125,281 =========== =========== =========== Basic weighted average common shares outstanding 46,329 46,445 47,827 Assumed exercise of stock options -- -- 434 ----------- ----------- ----------- Diluted weighted average common shares outstanding 46,329 46,445 48,261 Diluted Earnings (Loss) Per Share - ------------------------------------------------------ Income (loss) from continuing operations $ (7.62) $ 0.31 $ 1.41 Income (loss) from and net gain (loss) on disposal of discontinued operations (28.65) (0.71) 1.45 Extraordinary loss on retirement of debt -- -- (0.27) ----------- ----------- ----------- Net income (loss) $ (36.27) $ (0.40) $ 2.59 =========== =========== ===========
(1) Amounts for 1998 and 1997 have been restated to reflect the Beloit discontinued operation. EXHIBIT 21 HARNISCHFEGER INDUSTRIES, INC. Subsidiaries as of October 31, 1999 Harnischfeger Industries, Inc. is publicly held and has no parent. The following subsidiaries are wholly-owned except as noted below. Certain subsidiaries, which if considered in the aggregate as a single subsidiary would not constitute a significant subsidiary, are omitted from this list. Where the name of the subsidiary is indented, it is wholly-owned by the entity above it at the next outermost margin, unless otherwise indicated. Jurisdiction ------------ Harnischfeger Corporation (d.b.a. P&H Mining Equipment) Delaware HCHC, Inc. Delaware Harnischfeger de Chile Ltda. (1) Chile Comercial Otero S.A. (2) Chile Harnischfeger of Australia Pty. Ltd. (3) Australia Harnischfeger do Brasil Comercio e Industria Ltda. (4) Brazil The Horsburgh & Scott Company Ohio American Alloy Company Ohio 3254496 Canada Inc. (5) Canada Joy Technologies Inc. (d.b.a. Joy Mining Machinery) Delaware Harnischfeger (South Africa) (Proprietary) Ltd. South Africa HCHC UK Holdings, Inc. Delaware Harnischfeger ULC (6) United Kingdom Harnischfeger Ventures Ltd. United Kingdom Harnischfeger Industries Ltd. United Kingdom Joy Mining Machinery Ltd. United Kingdom Joy Manufacturing Company Pty. Ltd. Australia Cram Australia Pty. Ltd. Australia JTI UK Holdings, Inc. Delaware Beloit Corporation (7) (14) Delaware Beloit Canada Ltd./Ltee (8) (14) Canada Joy Technologies Canada Inc. (9) Canada Harnischfeger Corporation of Canada Ltd. (10) Canada Beloit Industrial Ltda. (11) (14) Brazil Beloit Poland S.A. (12) (14) Poland Beloit Technologies, Inc. (14) Delaware BWRC, Inc. (14) Delaware Beloit Italia S.p.A. (13) (14) Italy Beloit Walmsley Ltd. (14) United Kingdom - ------------------- (1) HCHC, Inc. owns 90% and Harnischfeger Corporation owns 10% of the voting securities of Harnischfeger de Chile Ltda. (2) Harnischfeger de Chile Ltda. owns 99.999% and Harnischfeger Corporation owns .001% of the voting securities of Comercial Otero S.A. (3) HCHC, Inc. owns 75% of the voting securities of Harnischfeger of Australia Pty. Ltd. (4) HCHC, Inc. owns 99.999% and Harnischfeger Corporation owns .001% of Harnischfeger do Brasil Comercio e Industria Ltda. (5) Harnischfeger Corporation owns 98% and Harnischfeger Corporation of Canada Ltd. owns 2% of the voting securities of 3254496 Canada Inc. (6) HCHC UK Holdings, Inc. owns 85% and JTI UK Holdings, Inc. owns 15% of the voting securities of Harnischfeger ULC. (7) Harnischfeger Industries, Inc. owns 80% of the voting securities of Beloit Corporation. (8) Beloit Corporation owns 60% of the voting securities of Beloit Canada Ltd./Ltee. Harnischfeger Corporation, Joy Technologies Inc., Joy Technologies Canada Inc. and 3254496 Canada Inc. each own 10% of the voting securities of Beloit Canada Ltd./Ltee. (9) Beloit Canada Ltd./Ltee owns 90% and Joy Technologies Inc. owns 10% of the voting securities of Joy Technologies Canada Inc. (10) Joy Technologies Canada Inc. owns 90% and Harnischfeger Corporation owns 10% of the voting securities of Harnischfeger Corporation of Canada Ltd. (11) Beloit Corporation owns 45% of the voting quotas and 100% of the non-voting quotas of Beloit Industrial Ltda. This gives Beloit Corporation 82.1% ownership of Beloit Industrial Ltda. (12) Beloit Corporation owns 99.90% of the voting securities of Beloit Poland S.A. (13) BWRC, Inc. owns 99.98% of the voting securities of Beloit Italia S.p.A. (14) A Beloit discontinued operation. EXHIBIT 23 HARNISCHFEGER INDUSTRIES, INC. Consent of Independent Accountants We hereby consent to the incorporation by reference in the Prospectuses constituting part of the Registration Statements on Form S-3 and in the Registration Statements on Form S-8 listed below of Harnischfeger Industries, Inc. of our report dated February 11, 2000, appearing in this Annual Report on Form 10-K. 1. Registration Statement on Form S-8 (Registration No. 33-42833) 2. Registration Statement on Form S-8 (Registration No. 33-23985) 3. Registration Statement on Form S-8 (Registration No. 33-46738) 4. Registration Statement on Form S-8 (Registration No. 33-46739) 5. Registration Statement on Form S-8 (Registration No. 33-46740) 6. Registration Statement on Form S-8 (Registration No. 33-57209) 7. Registration Statement on Form S-3 (Registration No. 33-57979) 8. Registration Statement on Form S-8 (Registration No. 33-58087) 9. Registration Statement on Form S-8 (Registration No. 333-01703) 10. Registration Statement on Form S-8 (Registration No. 333-01705) 11. Registration Statement on Form S-3 (Registration No. 333-02401) 12. Registration Statement on Form S-8 (Registration No. 333-10327) 13. Registration Statement on Form S-8 (Registration No. 333-10329) 14. Registration Statement on Form S-3 (Registration No. 333-46429) 15. Registration Statement on Form S-8 (Registration No. 333-65577) /s/PricewaterhouseCoopers LLP PRICEWATERHOUSECOOPERS LLP Milwaukee, Wisconsin February 11, 2000 EXHIBIT 24 POWER OF ATTORNEY Form 10-K Annual Report WHEREAS, Harnischfeger Industries, Inc., a Delaware corporation (hereinafter referred to as the "Corporation"), will file with the Securities and Exchange Commission, under the provisions of the Securities and Exchange Act of 1934, a Form 10-K Annual Report for the fiscal year ended October 31, 1999; and, WHEREAS, the undersigned is a Director of the Corporation; NOW, THEREFORE, the undersigned hereby constitutes and appoints Robert B. Hoffman and John N. Hanson, and each or either of them, her attorney, with full power to act for her and in her name, place and stead, to sign her name in the aforesaid capacity to such Form 10-K Annual Report, hereby ratifying and confirming all that said attorney may or shall lawfully do or cause to be done by virtue hereof. IN WITNESS WHEREOF, the undersigned has hereunto set her hand and seal this 24th day of January, 2000. /s/ (SEAL) ---------------------------- Donna M. Alvarado POWER OF ATTORNEY Form 10-K Annual Report WHEREAS, Harnischfeger Industries, Inc., a Delaware corporation (hereinafter referred to as the "Corporation"), will file with the Securities and Exchange Commission, under the provisions of the Securities and Exchange Act of 1934, a Form 10-K Annual Report for the fiscal year ended October 31, 1999; and, WHEREAS, the undersigned is a Director of the Corporation; NOW, THEREFORE, the undersigned hereby constitutes and appoints Robert B. Hoffman his attorney, with full power to act for him and in his name, place and stead, to sign his name in the aforesaid capacity to such Form 10-K Annual Report, hereby ratifying and confirming all that said attorney may or shall lawfully do or cause to be done by virtue hereof. IN WITNESS WHEREOF, the undersigned has hereunto set his hand and seal this 24th day of January, 2000. /s/ (SEAL) ------------------------------- John N. Hanson POWER OF ATTORNEY Form 10-K Annual Report WHEREAS, Harnischfeger Industries, Inc., a Delaware corporation (hereinafter referred to as the "Corporation"), will file with the Securities and Exchange Commission, under the provisions of the Securities and Exchange Act of 1934, a Form 10-K Annual Report for the fiscal year ended October 31, 1999; and, WHEREAS, the undersigned is a Director of the Corporation; NOW, THEREFORE, the undersigned hereby constitutes and appoints Robert B. Hoffman and John N. Hanson, and each or either of them, his attorney, with full power to act for him and in his name, place and stead, to sign his name in the aforesaid capacity to such Form 10-K Annual Report, hereby ratifying and confirming all that said attorney may or shall lawfully do or cause to be done by virtue hereof. IN WITNESS WHEREOF, the undersigned has hereunto set his hand and seal this 24th day of January, 2000. /s/ (SEAL) ---------------------------- Stephen M. Peck POWER OF ATTORNEY Form 10-K Annual Report WHEREAS, Harnischfeger Industries, Inc., a Delaware corporation (hereinafter referred to as the "Corporation"), will file with the Securities and Exchange Commission, under the provisions of the Securities and Exchange Act of 1934, a Form 10-K Annual Report for the fiscal year ended October 31, 1999; and, WHEREAS, the undersigned is a Director of the Corporation; NOW, THEREFORE, the undersigned hereby constitutes and appoints Robert B. Hoffman and John N. Hanson, and each or either of them, his attorney, with full power to act for him and in his name, place and stead, to sign his name in the aforesaid capacity to such Form 10-K Annual Report, hereby ratifying and confirming all that said attorney may or shall lawfully do or cause to be done by virtue hereof. IN WITNESS WHEREOF, the undersigned has hereunto set his hand and seal this 24th day of January, 2000. /s/ (SEAL) ---------------------------- John D. Correnti POWER OF ATTORNEY Form 10-K Annual Report WHEREAS, Harnischfeger Industries, Inc., a Delaware corporation (hereinafter referred to as the "Corporation"), will file with the Securities and Exchange Commission, under the provisions of the Securities and Exchange Act of 1934, a Form 10-K Annual Report for the fiscal year ended October 31, 1999; and, WHEREAS, the undersigned is a Director of the Corporation; NOW, THEREFORE, the undersigned hereby constitutes and appoints John N. Hanson his attorney, with full power to act for him and in his name, place and stead, to sign his name in the aforesaid capacity to such Form 10-K Annual Report, hereby ratifying and confirming all that said attorney may or shall lawfully do or cause to be done by virtue hereof. IN WITNESS WHEREOF, the undersigned has hereunto set his hand and seal this 24th day of January, 2000. /s/ (SEAL) ------------------------------- Robert B. Hoffman POWER OF ATTORNEY Form 10-K Annual Report WHEREAS, Harnischfeger Industries, Inc., a Delaware corporation (hereinafter referred to as the "Corporation"), will file with the Securities and Exchange Commission, under the provisions of the Securities and Exchange Act of 1934, a Form 10-K Annual Report for the fiscal year ended October 31, 1999; and, WHEREAS, the undersigned is a Director of the Corporation; NOW, THEREFORE, the undersigned hereby constitutes and appoints Robert B. Hoffman and John N. Hanson, and each or either of them, his attorney, with full power to act for him and in his name, place and stead, to sign his name in the aforesaid capacity to such Form 10-K Annual Report, hereby ratifying and confirming all that said attorney may or shall lawfully do or cause to be done by virtue hereof. IN WITNESS WHEREOF, the undersigned has hereunto set his hand and seal this 24th day of January, 2000. /s/ (SEAL) ---------------------------- Jean-Pierre Labruyere POWER OF ATTORNEY Form 10-K Annual Report WHEREAS, Harnischfeger Industries, Inc., a Delaware corporation (hereinafter referred to as the "Corporation"), will file with the Securities and Exchange Commission, under the provisions of the Securities and Exchange Act of 1934, a Form 10-K Annual Report for the fiscal year ended October 31, 1999; and, WHEREAS, the undersigned is a Director of the Corporation; NOW, THEREFORE, the undersigned hereby constitutes and appoints Robert B. Hoffman and John N. Hanson, and each or either of them, his attorney, with full power to act for him and in his name, place and stead, to sign his name in the aforesaid capacity to such Form 10-K Annual Report, hereby ratifying and confirming all that said attorney may or shall lawfully do or cause to be done by virtue hereof. IN WITNESS WHEREOF, the undersigned has hereunto set his hand and seal this 24th day of January, 2000. /s/ (SEAL) ------------------------------ Harry L. Davis POWER OF ATTORNEY Form 10-K Annual Report WHEREAS, Harnischfeger Industries, Inc., a Delaware corporation (hereinafter referred to as the "Corporation"), will file with the Securities and Exchange Commission, under the provisions of the Securities and Exchange Act of 1934, a Form 10-K Annual Report for the fiscal year ended October 31, 1999; and, WHEREAS, the undersigned is a Director of the Corporation; NOW, THEREFORE, the undersigned hereby constitutes and appoints Robert B. Hoffman and John N. Hanson, and each or either of them, his attorney, with full power to act for him and in his name, place and stead, to sign his name in the aforesaid capacity to such Form 10-K Annual Report, hereby ratifying and confirming all that said attorney may or shall lawfully do or cause to be done by virtue hereof. IN WITNESS WHEREOF, the undersigned has hereunto set his hand and seal this 24th day of January, 2000. /s/ (SEAL) --------------------------- Robert M. Gerrity POWER OF ATTORNEY Form 10-K Annual Report WHEREAS, Harnischfeger Industries, Inc., a Delaware corporation (hereinafter referred to as the "Corporation"), will file with the Securities and Exchange Commission, under the provisions of the Securities and Exchange Act of 1934, a Form 10-K Annual Report for the fiscal year ended October 31, 1999; and, WHEREAS, the undersigned is a Director of the Corporation; NOW, THEREFORE, the undersigned hereby constitutes and appoints Robert B. Hoffman and John N. Hanson, and each or either of them, his attorney, with full power to act for him and in his name, place and stead, to sign his name in the aforesaid capacity to such Form 10-K Annual Report, hereby ratifying and confirming all that said attorney may or shall lawfully do or cause to be done by virtue hereof. IN WITNESS WHEREOF, the undersigned has hereunto set his hand and seal this 24th day of January, 2000. /s/ (SEAL) ---------------------------- L. Donald LaTorre POWER OF ATTORNEY Form 10-K Annual Report WHEREAS, Harnischfeger Industries, Inc., a Delaware corporation (hereinafter referred to as the "Corporation"), will file with the Securities and Exchange Commission, under the provisions of the Securities and Exchange Act of 1934, a Form 10-K Annual Report for the fiscal year ended October 31, 1999; and, WHEREAS, the undersigned is a Director of the Corporation; NOW, THEREFORE, the undersigned hereby constitutes and appoints Robert B. Hoffman and John N. Hanson, and each or either of them, his attorney, with full power to act for him and in his name, place and stead, to sign his name in the aforesaid capacity to such Form 10-K Annual Report, hereby ratifying and confirming all that said attorney may or shall lawfully do or cause to be done by virtue hereof. IN WITNESS WHEREOF, the undersigned has hereunto set his hand and seal this 24th day of January, 2000. /s/ (SEAL) ------------------------------ Leonard E. Redon EX-27 2 FDS --
5 (Replace this text with the legend) 0000801898 HARNISCHFEGER INDUSTRIES, INC. 1,000 USD 12-MOS OCT-31-1999 NOV-1-1998 OCT-31-1999 1 57,453 0 214,550 11,720 447,655 758,385 444,825 234,078 1,711,813 571,216 168,097 0 0 51,669 (1,076,820) 1,711,813 1,114,146 1,118,055 922,806 1,220,873 0 0 28,865 (131,683) 220,448 (353,088) (1,327,180) 0 0 (1,680,268) (36.27) (36.27)
EX-27 3 FDS --
5 (Replace this text with the legend) 0000801898 HARNISCHFEGER INDUSTRIES, INC. 1,000 USD 12-MOS OCT-31-1998 NOV-01-1997 OCT-31-1998 1 30,012 0 702,215 9,889 610,478 1,463,144 1,143,465 529,884 2,787,259 1,026,280 962,797 0 0 51,669 615,181 2,787,259 1,212,307 1,213,631 916,970 1,152,238 0 0 70,600 (9,207) (24,608) 14,366 (32,899) 0 0 (18,533) (0.40) (0.40)
EX-27 4 FDS --
5 (Replace this text with the legend) 0000801898 HARNISCHFEGER INDUSTRIES, INC. 1,000 USD 12-MOS OCT-31-1997 NOV-01-1996 OCT-31-1997 1 29,383 0 844,488 8,319 594,761 1,588,712 1,175,704 518,604 2,924,535 1,180,497 713,466 0 0 51,607 698,053 2,924,535 1,467,341 1,485,364 1,090,947 1,308,576 0 0 70,259 106,529 36,519 67,881 70,399 (12,999) 0 125,281 2.62 2.59
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