-----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, SX5IyiNBIkK6Gvj3vhTX+dNvgKqjRhuqdS/6LUSkxpFvS0xPnJNxArSnWCkbMeU/ Ob6oRehNZ6E3ZDgh8Hmf3Q== 0000801898-98-000024.txt : 19980616 0000801898-98-000024.hdr.sgml : 19980616 ACCESSION NUMBER: 0000801898-98-000024 CONFORMED SUBMISSION TYPE: 10-K/A PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19971031 FILED AS OF DATE: 19980615 SROS: NYSE 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/A SEC ACT: SEC FILE NUMBER: 001-09299 FILM NUMBER: 98648211 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/A 1 SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K/A Amendment Number One and Restatement of: /X/ Annual report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 for the fiscal year ended October 31, 1997. / / Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 for the transition period from to . Commission file number 1-9299 HARNISCHFEGER INDUSTRIES, INC. (Exact Name of Registrant as Specified in Its Charter) Delaware 39-1566457 (State of (I.R.S. Employer Jurisdiction of 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: Name of Each Exchange On Title of Each Class Which Registered Common Stock, $1 Par Value New York and Pacific Stock Exchanges Preferred Stock Purchase Rights New York and Pacific Stock Exchanges Securities registered pursuant to Section 12(g) of the Act: None 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. /X/ The aggregate market value of Registrant's Common Stock held by non-affiliates, as of January 28, 1998, based on a closing price of $35.50, was approximately $1,647.7 million. The number of shares outstanding of Registrant's Common Stock, as of January 28, 1998, was 47,811,544. DOCUMENTS INCORPORATED BY REFERENCE Part III is incorporated by reference from the Registrant's proxy statement for the 1998 annual meeting of stockholders dated February 23, 1998.
HARNISCHFEGER INDUSTRIES, INC. INDEX TO ANNUAL REPORT ON FORM 10-K/A For The Year Ended October 31, 1997 Page - ---- Part I Item 1. Business................................................. Item 2. Properties............................................... Item 3. Legal Proceedings........................................ Item 4. Submission of Matters to a Vote of Security Holders...... Part II Item 5. Market for the Registrant's Common Stock and Related Stockholder Matters...................................... Item 6. Selected Financial Data.................................. Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations...................... Item 8. Financial Statements and Supplementary Data.............. Item 9. Changes in and disagreements with Accountants on Accounting and Financial Disclosure................................. Part III Item 10. Directors and Executive Officers of the Registrant....... Item 11. Executive Compensation................................... Item 12. Security Ownership of Certain Beneficial Owners and Management............................................... Item 13. Certain Relationships and Related Transactions........... Part IV Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K.............................................. Signatures .........................................................
The registrant hereby amends Parts I and II and Item 14 of its Annual Report for the year ended October 31, 1997, on Form 10-K and restates such report in its entirety as so amended. PART I Item 1. Business SEGMENTS OF BUSINESS Harnischfeger Industries, Inc. ("Harnischfeger Industries" or the "Company") is a holding company for subsidiaries involved in the worldwide manufacture and distribution of surface mining equipment (P&H Mining Equipment); underground mining equipment (Joy Mining Machinery); pulp and paper machinery (Beloit Corporation); and material handling equipment (P&H Material Handling). In early fiscal 1996, the Company completed the acquisition of Dobson Park Industries plc ("Dobson"), an industrial engineering group with interests in underground mining equipment, industrial electronic control systems, toys and plastics. Dobson's principal subsidiary, Longwall International, is engaged in the manufacture, sale and service of mining equipment for the international underground coal mining industry and is being integrated into the Company's Mining Equipment Segment. In March 1996, the Company completed the purchase of the assets of the pulp machinery division of Ingersoll-Rand Company. Harnischfeger Industries is the direct successor to a business begun over 100 years ago which, at October 31, 1997, through its subsidiaries, manufactures and markets products classified into three industry segments: Mining Equipment, Pulp and Papermaking Machinery, and Material Handling. Each of the Company's three business segments made strategic acquisitions during fiscal 1997. These acquisitions enhanced the businesses' position in each of their markets. The following discussion contains forward looking statements. Terms such as "anticipate", "believe", "estimate", "expect", "indicate", "may be", "objective", "plan", "predict", and "will be" are intended to identify such statements. Forward-looking statements are subject to certain risks, uncertainties and assumptions which could cause actual results to differ materially from those predicted. See "Cautionary Factors" at the end of this Item 1. MINING EQUIPMENT P&H Mining Equipment is the world's largest producer of electric mining shovels and walking draglines. In addition, P&H Mining Equipment is a significant producer of hydraulic mining excavators, blasthole drills, and dredge and dragline bucket products. Electric mining shovels range in capacity from 18 to 80 cubic yards, crawler draglines from 10 to 20 cubic yards and hydraulic mining excavators from 12 to 27 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. The products of P&H Mining Equipment are used in mines, quarries and earth-moving operations in the digging and loading of such minerals and other ores as coal, copper, gold, iron ore, lead, zinc, bauxite, uranium, phosphate, stone and clay. P&H Mining Equipment has a relationship in the mining shovel business with Kobe Steel, Ltd. ("Kobe") pursuant to which P&H Mining Equipment licenses Kobe to manufacture certain electric mining shovels and related replacement parts in Japan. Harnischfeger Corporation has the exclusive right to market Kobe-manufactured mining shovels and parts outside Japan (except in the case of certain government sales). In addition, Harnischfeger Corporation 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 Mining Equipment with an opportunity to sell component parts for shovels built in China. On November 29, 1994, pursuant to an exchange of common stock, the Company completed its acquisition of Joy Technologies Inc. ("Joy" or "Joy Mining Machinery"), a world leader in underground mining equipment. Joy manufactures and services mining equipment for the underground extraction of coal and other bedded materials and has significant facilities in Australia, South Africa, the United Kingdom and the United States, as well as sales offices in Poland and the People's Republic of China. Joy Mining Machinery designs, manufactures and distributes various equipment for use in underground mining, including continuous miners; longwall shearers; roof supports; armored face conveyors; shuttle cars; continuous haulage systems; entry drivers and sump shearers. Joy products are not sold into the general construction industry and demand for them is not tied to cycles in that industry. 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 seven service centers in the United States and five outside of the United States, all of which are strategically located in major underground mining regions. The financial position and results of operations of Harnischfeger Industries and Joy were combined retroactively in fiscal 1995. In early fiscal 1996, the Company completed the acquisition of Dobson for a purchase price of approximately $330 million including acquisition costs plus the assumption of net debt of approximately $40 million. Dobson, headquartered in the United Kingdom, was an industrial engineering group with interests in underground mining equipment, industrial electronic control systems, toys and plastics. Longwall International ("Longwall"), one of the main subsidiaries of Dobson, was engaged in the manufacture, sale and service of underground mining equipment for the international coal mining industry. Its products include electronically controlled roof support systems, armored face conveyors, pumps and systems. The Company is fully integrating Longwall's operations into Joy, thus enabling Joy to offer integrated underground longwall mining systems to the worldwide mining industry. Several non-mining businesses were designated as businesses held for sale with the original value of these businesses being set at $100 million. At October 31, 1997, one business remained unsold with a net realizable value of $9.3 million. The remaining business is expected to be sold within the next year. Financial information with respect to the acquisition of Dobson is presented in Note 2 to the Consolidated Financial Statements incorporated herein by reference to Item 8 of this report. PULP AND PAPER MACHINERY The Pulp and Paper Machinery Division is comprised of the Company's 80% interest in Beloit Corporation ("Beloit"). Mitsubishi Heavy Industries, Ltd. ("Mitsubishi") is the owner of the other 20% interest in Beloit. The Company and Mitsubishi have entered into certain agreements that provide Mitsubishi with the right to designate one of Beloit's five directors. These agreements also place certain restrictions on the transfer of Beloit stock. In the event of a change in control of the Company, Mitsubishi has the right to sell its 20% interest back to the Company for the greater of $60 million or the book value of its equity interest. Beloit is a leader in the design and manufacture of pulp and paper machinery and related products used in the pulp and paper industries. Beloit operates on a global basis with major manufacturing facilities in ten countries and sales and service offices located throughout the world. In addition, licensing arrangements exist with several major foreign companies. Beloit's activities are divided into the following categories: complete installations involving the design, manufacture and installation of integrated pulp and papermaking machinery; major rebuilds and servicing of existing systems; and the sale of ancillary equipment and replacement parts. This machinery is custom designed to meet the specific needs of each customer. In connection with complete installations and major rebuilds, Beloit engages in "engineer, procure and construct" contracts which often involve complex long-term construction projects, sometimes in relatively undeveloped parts of the world. There are special design, construction, project management, financing and performance risks associated with these projects and other large Beloit pulp and paper machinery sales. On March 27, 1996, the Company purchased the assets of the pulp machinery division of Ingersoll-Rand Company ("IMPCO"), which significantly strengthens Beloit's pulping equipment offerings. Beloit is known for the quality and dependability of its products and is a leader in product innovation and development. Beloit has made a continuous commitment to research and development activities and has been granted numerous patents on its designs. Beloit systems and equipment are used by a substantial number of paper producers, both domestic and foreign. A major factor in Beloit's success in the pulp and paper machinery industry has been its international manufacturing operations. Beloit's overseas facilities have been used to support both domestic and foreign sales and have provided Beloit with the flexibility to shift its manufacturing to more favorable locations as appropriate. Beloit's manufacturing facilities are supported by a domestic and international marketing network staffed by experienced sales engineers. In the fourth quarter of fiscal 1996, Beloit recorded a $43.0 million pre-tax restructuring charge to strategically focus on improving financial returns and increase customer satisfaction while significantly reducing costs and cycle time. In fiscal 1997 and 1996, utilization of the restructuring reserve totaled $29.8 million. It is expected that the remaining restructuring actions will be substantially completed by the end of fiscal 1998. Financial information with respect to the Beloit restructuring is presented in Note 3 to the Consolidated Financial Statements incorporated herein by reference to Item 8 of this report. Formerly, the Pulp and Paper Machinery Division also included the Company's 20% interest in Measurex Corporation ("Measurex"). In fiscal 1995, Measurex repurchased its stock which had been held by the Company resulting in a pre- tax gain of $29.7 million. P&H MATERIAL HANDLING P&H Material Handling produces lines of through-the-air material handling equipment designed for a variety of users and container handling cranes for use in ports in addition to providing aftermarket support and distribution and service. Engineered overhead cranes are comprised of several product lines: engineered cranes, standard cranes, portal cranes, ship-to-shore cranes, and crane components. Cranes are designed for installation in a wide range of industrial settings. Each crane is engineered to the customer's specifications, using standard components wherever possible. Engineered cranes are marketed for moderate to severe duty cycle applications in capacities from 3 to 800 tons. Standard overhead cranes are available in capacities from 5 to 100 tons. Stacker cranes, ranging in capacities from 2 to 50 tons, are particularly suitable for factory automation projects. Portal cranes range in lifting capacities from 5 to 100 tons and are used outdoors for woodyard, scrap, and container handling. P&H Material Handling has two groups specializing in aftermarket support and distribution and service. The P&H Aftermarket Group consists of Product Support, which markets replacement products and repair parts and P&H Modernizations, which handles pre-owned and remanufactured cranes and parts plus provides engineering services for the revitalization of crane and runway systems. P&H Distribution and Service provides installation, erection and repair and maintenance services under the ProCare(R) trademark. DISCONTINUED SEGMENTS Environmental The Company completed the sale of Joy Environmental Technologies ("JET") in the first quarter of 1996. JET was a unit of Joy which supplied air pollution and ash handling equipment for electric utilities and other industrial operations. Systems Syscon Corporation ("Syscon"), the remaining unit in the Company's Systems Group, was sold in February 1995 to Logicon, Inc. Syscon was engaged principally in providing systems development, systems integration and systems services to the U. S. Government, government agencies and commercial enterprises. INTERNATIONAL OPERATIONS Foreign sales of the Mining Equipment segment generated approximately 59% of the segment's consolidated net sales in 1997, 58% in 1996 and 44% in 1995. In 1997, 1996 and 1995, Beloit's foreign sales amounted to 57%, 53% and 41%, respectively, of Beloit's consolidated net sales. Foreign sales of the P&H Material Handling segment's consolidated net sales amounted to 50% in 1997, 39% in 1996 and 48% in 1995. Beloit has granted licensing agreements to serve certain foreign markets to companies located in Australia, Japan and Spain. Beloit maintains sales and service offices throughout the world. Harnischfeger Industries' 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 Industries 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" for additional risks associated with international operations. GENERAL Seasonality No significant portion of Harnischfeger Industries' business is subject to or influenced by seasonal factors; however, the Company's business is influenced by the cyclical nature of the paper, mining and capital goods industries. Distribution P&H Mining Equipment and Joy Mining Machinery sales are made mostly through the segments' headquarters and sales offices located around the world. Joy's worldwide sales forces have marketing responsibility for new machine sales, as well as for parts, components and rebuild services provided to customers. A segment of the sales force in the United States is dedicated to operating a fleet of trucks which visit customer sites on a regular basis in order to deliver components and parts. Sales of Beloit products are principally made directly to end users. Beloit maintains a worldwide marketing group to coordinate and support worldwide facilities in marketing strategies, technical sales support and participation in major projects including interface with engineering firms and financial institutions. Beloit offers systems and turnkey alternatives to assist in related business development throughout the world. Agents are used in certain foreign countries to augment Beloit's sales force stationed in the segment's manufacturing facilities and in sales offices worldwide. In the United States, overhead cranes and certain electrical products are principally marketed directly from the segments' headquarters and regional sales offices. Electric wire rope and chain hoists and crane modernizations are sold through dealers and distributors, assisted and coordinated by corporate and regional office personnel. P&H Material Handling has a dealer network of regional distributorships (referred to as Material Handling Centers). The manufacture and sale of repair and replacement parts and the servicing of equipment are important and growing aspects of each of the Company's businesses. Competition Harnischfeger Industries conducts its domestic and foreign operations under highly competitive market conditions, requiring that its products and services be competitive in price, quality, service and delivery. P&H Mining Equipment's principal competitor in electric mining shovels is Bucyrus International, Inc. Harnischfeger Industries believes P&H Mining Equipment is the leading participant in this market. Its principal competitors in the hydraulic mining excavator market are Demag, Hitachi, Caterpillar and Orenstein & Koppel. In draglines, the main competitor is Bucyrus International, Inc. The Division's main competitors in drills are Ingersoll-Rand, Driltech and Bucyrus International, Inc. In the underground coal mining industry, Joy competes primarily on the basis of the quality and reliability of its products and its ability to provide timely, extensive and cost-effective repair and rebuild services and replacement parts. Joy's primary competitors in the continuous mining machinery industry are EIMCO, Voest Alpine(a Tampella Tamrock Company), Simmons-Rand Company(a subsidiary of Long- Airdox Company) and Jeffrey. In the longwall shearer new equipment market, Joy competes primarily with Anderson Longwall (a subsidiary of Long-Airdox Company), Eickhoff Corporation, and Mitsui Miike Machinery Company, Ltd. In the continuous haulage market, Joy competes with Long- Airdox, Fairchild International and Jeffrey. In roof supports and armored face conveyors, Joy primarily competes with DBT, Long-Airdox Company and several regional suppliers. In the sale of replacement parts for Joy's equipment, Joy competes with various suppliers. The pulp and paper capital machinery market is globally competitive; Beloit's two major paper machinery competitors are foreign-owned companies. The principal competitors are Valmet Corporation, Finland and Voith Sulzer Papiertechnik GMBH, with headquarters in Germany. The principal competitors in pulp machinery are Sunds Defibrator, Ahlstrom, Kvaerner and Andritz. In the aftermarket area, Beloit competes with various small suppliers. The principal worldwide competitors for P&H Material Handling are Demag and Konecranes International KCI. Harnischfeger Industries believes that P&H Material Handling is one of the largest worldwide participants in this market. When considering any specific geographic market, the competitors would normally be split into overhead cranes, dockside cranes, hoists, and service. There are significant numbers of competitors in each of the geographic markets and segments of those markets. Customers Sales to a Pacific Rim customer in the Pulp and Paper Machinery Segment approximated 12% of the Company's consolidated net sales for fiscal 1997 and the related accounts receivable from this customer approximated 25% of consolidated accounts receivable at October 31, 1997. Backlog Backlog by business segment for the Company's continuing operations (in thousands of dollars) as of the end of fiscal years 1997 and 1996 was as follows:
October 31, ------------------------ 1997 1996 ---- ---- Mining Equipment........................ $ 358,340 $ 453,480 Pulp and Paper Machinery.. ......... ... 776,618 846,137 Material Handling ...................... 97,743 132,550 ---------- ---------- $1,232,701 $1,432,167 =========== ==========
Supply of Materials and Purchased Components P&H Mining Equipment and P&H Material Handling manufacture machines and heat-treated gears, pinions, shafts, structural fabrications, electrical motors, generators and other electrical parts. They purchase raw and semi-processed steel, castings, forgings, copper and other materials for these parts and components from approximately 400 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 supplies of component parts and raw materials for its manufacturing requirements. No single source is dominant. Pulp and Paper Machinery purchases raw materials used in its products which include plates, sheets, shapes, carbon and alloy steel, stainless steel, brass and bronze, nickel alloy, and aluminum. Purchases of semi-processed and component parts include castings, valves, filters, pumps, dryers, electrical equipment, and various vacuum, drying, hydraulic, combustion, material-handling and temperature control systems. Beloit has approximately 5,300 suppliers, of which approximately 1,600 are most commonly used. No single source is dominant. Patents and Licenses Joy and P&H Mining Equipment 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 they do not consider any particular patent or license or group of patents or licenses to be essential to their respective business as a whole, they consider their patents and licenses significant to the conduct of its business in certain product areas. Beloit and other papermaking machinery manufacturers have made extensive use of patents. Beloit has been granted numerous patents on its designs and more are pending. Most are registered in all of the major countries into which Beloit and its licensees sell. P&H Material Handling has numerous trademarks and domestic and foreign patents, patent applications and patent licensing agreements. P&H Material Handling does not consider these businesses materially dependent upon any patent or patent license agreement. Research and Development Harnischfeger Industries 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. Beloit maintains research and development facilities in Rockton, Illinois; Pittsfield, Massachusetts; Bolton, England; Clarks Summit, Pennsylvania; Portland, Oregon; and Waukesha, Wisconsin. P&H Mining Equipment and P&H Material Handling maintain research and development facilities in Milwaukee, Wisconsin. Joy pursues technological development through the engineering of new products, systems and applications; the improvement and enhancement of licensed technology; and synergistic acquisitions of technology. Research and development expenses were $40.1 million in 1997, $34.5 million in 1996 and $30.3 million in 1995. 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. Employees As of October 31, 1997, Harnischfeger Industries employed approximately 17,700 people, of which approximately 9,700 were employed in the United States. Approximately 3,400 of the U. S. employees are represented by local unions under collective bargaining agreements with expiration dates from May 31, 1998 to June 1, 2001. Harnischfeger Industries believes that it maintains generally good relationships with its employees. Financial Information about Industry Segments The financial information on industry segments is presented in Note 15 to the Consolidated Financial Statements incorporated herein by reference to Item 8 of this report. Common Stock 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. As of January 28, 1998, The Company had repurchased 1,576,400 shares through open-market transactions at a cost of $62.1 million. Other On January 28, 1998, the Company announced the sale of 80 percent of the Company's P&H Material Handling unit for approximately $340 million in cash at closing in a transaction with Chartwell Investments, Inc. In addition, the Company will receive preferred stock and royalty payments from the new company for 10 years. The 1998 after-tax cash proceeds from the transaction are expected to total approximately $300 million. The transaction is expected to close in two months, subject to completion of Chartwell's financing arrangements. Chartwell is a private investment firm based in New York City that controls businesses in distribution and services with over $1 billion in sales. The Company expects to use the proceeds of the sale to pay down debt and to buy back stock as part of the Company's previously announced intent to repurchase 10 million shares. In regard to the Company's anticipated first-quarter 1998 earnings performance, the Company said it is experiencing softness in orders for both mining equipment and pulp and paper machinery. As a result, management's expectation is that results for the Company's fiscal first quarter ending January 31, 1998 will fall below the earnings of 65 cents per share recorded in the equivalent, year-earlier period. 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. 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 for the mining, papermaking and capital goods industries. Long periods of time are necessary to plan, design and build these machines. With respect to new machines and equipment, there are risks of customer acceptance 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, paper mills, steel mills and other facilities that use these machines. The Company's success in obtaining and managing a relatively small number of sales opportunities, including the companies' 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 political and business conditions are less predictable. In recent years, more than 50% 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: - 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, fiber, paper/paperboard, recycled paper, steel and other commodities; the cash flows of customers; the cost, availability and quality of financing to customers and the ability of customers to obtain regulatory approval for investments in mining, papermaking, steel making, automotive manufacturing and other heavy industrial projects; consolidations among customers; work stoppages at customers or providers of transportation; and the timing, severity and duration of customer buying cycles, particularly in the paper and mining businesses. - 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, especially for papermaking and mining equipment; customers' perceptions of the health and stability of the Company as compared to its competitors; the Company's ability to assist with competitive financing programs and the availability of manufacturing capacity at the Company's factories. - 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. - Factors affecting the Company's general business, such as: unforeseen patent, tax, product, environmental, employee health or benefit or contractual liabilities; nonrecurring restructuring charges; changes in accounting or tax rules or regulations; and reassessments of asset valuations such as inventories. - Factors affecting general business levels, such as political or 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 currency stability and ease of exchange of currencies. Item 2. Properties As of October 31, 1997, the following principal properties were owned, except as indicated. All of these plants are generally suitable for operations. Harnischfeger Industries owns a 94,000 square foot office building in St. Francis, Wisconsin, which is used as its worldwide corporate headquarters.
MINING EQUIPMENT LOCATIONS Floor Space Land Area Plant and Location (Sq. Ft.) (Acres) Principal Operations - ------------------------- ----------- --------- -------------------- Milwaukee, Wisconsin..... 1,067,000 46 Electric mining shovels, hydraulic mining excavators, electric and diesel-electric draglines and large rotary blasthole drills. Crane welding. Milwaukee, Wisconsin..... 180,000 13 Electrical products, heavy duty overhead and portal crane components and service parts warehouse. Crane assembly. Franklin, Pennsylvania... 714,640 63 Underground coal mining machinery, components and parts. Warrendale, Pennsylvania. 82,750 13 Underground coal mining parts and service. Reno, Pennsylvania....... 121,400 22 Components and parts for mining machinery. Brookpark, Ohio.......... 85,000 4 Components and parts for mining machinery. Solon, Ohio.............. 96,800 14 Components and parts for mining machinery. Abingdon, Virginia....... 63,400 22 Underground coal mining machinery and components. Bluefield, Virginia...... 102,160 15 Duffield, Virginia....... 72,000 11 Homer City, Pennsylvania. 79,500 10 Mining machinery rebuild, Meadowlands, Pennsylvania 118,316 13 service and Mt. Vernon, Illinois..... 107,130 12 parts sales. Price, Utah.............. 44,200 6 Mesa, Arizona............ 12,000 5 Components and parts for mining machinery. Bassendean, Australia.... 72,500 5 Components and parts for mining machinery. Mt. Thorley, Australia... 81,800 11 Components and parts for mining machinery. Kurri Kurri, Australia.............. 61,000 7 Mining machinery rebuild, service and parts sales. Mackay, Australia........ 35,500 3 Components and parts for mining machinery. Litigow, Australia....... 9,000 2 Parts sales for mining machinery parts sales. Wollongong, Australia.... 54,000 3 Rebuild service center. Moss Vale, Australia..... 107,000 18 Underground coal mining machinery, components and parts. Parkhurst, Australia..... 26,900 15 Rebuild service center. Rockhampton, Australia... 8,000 3 Sales. Johannesburg, So. Africa................. 44,000(1) 1 Electrical products and components for mining shovels. Steeledale, South Africa. 557,400 15 Underground coal mining machinery, components and parts. Wadeville, South Africa 154,000 34 Coal mining machinery assembly and service. Belo Horizonte, Brazil... 37,700 1 Components and parts for mining shovels. Santiago, Chile.......... 6,800 1 Antofagasta, Chile....... 9,000 1 Electrical and Calama, Chile............ 5,500 1 mechanical repairs. Pinxton, England......... 76,000 10 Fabrication. Wigan, England........... 337,000 27 Mining machinery, components and parts. Worcester, England....... 100,000 9 Mining machinery, components and parts. Bestwood, England........ 190,000(2) 16 Service and rebuilds. - -------------------------
(1) Under a lease expiring in 2005. (2) Under a lease expiring in 1998. The mining equipment segment operates warehouses in Casper, Gillette and Green River, Wyoming; Hibbing, Minnesota; Charleston and Pineville, West Virginia; Milwaukee, Wisconsin; Mesa, Arizona; Elco, Nevada; Birmingham, Alabama; Carlsbad, New Mexico; Norton, Virginia; Lovely and Henderson, Kentucky; Hinton, Sparwood, Cornwall and Vancouver, Canada; Cardiff, Bayswater, Mt. Thorley, Gracemere, Rockhampton, Emerald, Kurri Kurri and Litigow, Australia; Belo Horizonte, Brazil; Santiago, Iquique and Calama, Chile; Johannesburg, Wadeville and Hendrina, South Africa; Stobswood and Bestwood, England 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 locations in other countries.
PULP AND PAPER MACHINERY LOCATIONS Floor Space Land Area Plant and Location (Sq. Ft.) (Acres) Principal Operations - -------------------------- ----------- --------- -------------------- Beloit, Wisconsin......... 928,000 40 Papermaking machinery and finished product processing equipment. Waukesha, Wisconsin....... 57,000 10 Castings, pattern shop and finished product processing. Waukesha, Wisconsin....... 76,000(1) 13 Refiner plate machining, finished product processing and warehousing. Rockton, Illinois......... 469,000 203 Papermaking machinery, finished product processing equipment and R&D center. Dalton, Massachusetts..... 277,000 55 Stock and pulp preparation equipment and specialized processing systems. Lenox, Massachusetts...... 127,000 19 Winders. Pittsfield, Massachusetts........... 36,000 30 Research and development facility and pilot plant for process simulation. Aiken, South Carolina..... 127,000 17 Columbus, Mississippi..... 133,000 22 Rubber and polymeric Federal Way, Washington... 55,000 3 covers for rolls; Neenah, Wisconsin......... 77,000 10 Rubber blankets; rubber Clarks Summit, Pennsylvania 99,800 10 linings and Renfrew, Canada........... 145,000 22 metal roll repairs. Hattiesburg, Mississippi.. 100,000 15 Component parts and repair of stock and pulp preparation equipment, papermaking machinery and finished product processing equipment. Kalamazoo, Michigan....... 23,500 1 Filled rolls for supercalenders and specialty rolls. Portland, Oregon.......... 41,000 5 Bulk materials handling and drying systems. Rochester, New Hampshire.. 15,650 5 Specialty services provided principally to the paper industry. Nashua, New Hampshire..... 425,000 63 Stock and pulp preparation equipment and specialized processing systems. Pensacola, Florida........ 7,250 2 Specialty services provided principally to the paper industry. Sandusky, Ohio............ 254,000 13 Centrifugal castings. Glenrothes, Scotland...... 56,000 8 Centrifugal castings. Sherbrooke, Quebec, Canada 337,000 26 Stock and pulp preparation equipment and specialized processing systems. Campinas, Brazil.......... 202,000 33 Papermaking machinery and finished product processing equipment; stock and pulp preparation equipment; woodyard and pulp plant equipment. Bolton, England........... 465,400 73 Papermaking machinery and finished product processing equipment; stock and pulp preparation equipment. Pinerolo, Italy........... 517,400 18 Papermaking machinery and finished product processing equipment; stock and pulp preparation equipment. Jelenia Gora, Poland...... 271,500 28 Papermaking machinery and finished product processing equipment; stock and pulp preparation equipment. Swiecie, Poland........... 37,000 (2) 4 Components and parts for papermaking machinery equipment. Tullins, France........... 145,000 9 Roll repair facility and other general maintenance. Cernay, France............ 35,200 15 Roll-covering service. - -------------------------
(1) Under a lease expiring in 2007. (2) Under a lease expiring in 2019. The Pulp and Paper Machinery business has warehouse space at the above facilities and in addition maintains leased facilities in Memphis, Tennessee; Swiecie, Poland; and Montreal, Canada. Sales offices are also maintained at various locations throughout the world.
P&H MATERIAL HANDLING LOCATIONS Floor Space Land Area Plant and Location (Sq. Ft.) (Acres) Principal Operations - ------------------------- ----------- --------- ------------------- Windsor, Wisconsin..... 55,000 (1) 5 Remanufacture of overhead cranes, hoists and material handling equipment. Oak Creek, Wisconsin..... 277,000 36 Engineered and standard overhead cranes, hoists and material handling equipment. Franklin, Ohio........... 75,000 18 Standard overhead cranes and service. Birmingham, Alabama...... 36,500 3 Standard overhead cranes and service. Simpsonville, S. Carolina 40,400 (2) 6 Standard overhead cranes and service. Loughborough, England.... 420,000 36 Engineered and standard overhead cranes, hoists, controls and material handling equipment. Johannesburg, South Africa 124,000 7 Engineered and standard overhead cranes, hoists and material handling equipment. Mexico City, Mexico...... 65,000 3 Engineered and standard overhead cranes, hoists and material handling equipment. Mississauga, Canada...... 17,600 (3) 1 Manufacture of brakes. Edmonton, Canada......... 58,300 3 Standard overhead cranes and service. Singapore, Singapore..... 21,200 (4) 1 Standard overhead cranes and hoist distribution. - ----------------------------------
(1) Under a lease expiring in 2002 (2) Under a lease expiring in 1999 (3) Under a lease expiring in 2000 (4) Under a lease expiring in 2024 The material handling division has leased facilities for its company owned Material Handling Centers in San Leandro, California; Reno, Nevada; Dallas and Houston, Texas; New Orleans, Louisiana; Nashua, New Hampshire; Chicago, Illinois; Detroit and Grand Rapids, Michigan; Pittsburgh, Pennsylvania; Columbus, Cincinnati and Cleveland, Ohio; Louisville, Kentucky; Denver, Colorado; Waukesha, Wisconsin; Lynwood, Washington; Phoenix, Arizona; and Richmond, Calgary and Saskatoon, Canada. In addition, the division leases sales offices throughout the United States and in principal locations in other countries. It also has approximately 24 leased locations for service operations in the United Kingdom, Mexico and South Africa. Information relating to lease commitments is presented in Note 11 to the Consolidated Financial Statements incorporated herein by reference to Item 8 of this report. Item 3. Legal Proceedings The Company is party to litigation matters and claims, which are normal in the course of its operations. Also, as a normal part of their operations, the Company's subsidiaries undertake certain contractual obligations, warranties and guarantees in connection with the sale of products or services. Although the outcome of these matters cannot be predicted with certainty and favorable or unfavorable resolutions 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. In the case of Beloit Corporation, certain litigation matters and claims are currently pending in connection with its contractual undertakings. Beloit may on occasion enter into arrangements to participate in the ownership of or operate 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 that alleges pulp line washers supplied by Beloit for less than $15 million failed to perform satisfactorily. In June, 1997, a Lewiston, Idaho jury awarded Potlatch $95 million in damages in the case. Beloit has appealed this award to the Idaho Supreme Court. While the eventual outcome of the Potlatch case cannot be predicted, reserves in the October 31, 1997 Consolidated Balance Sheet are less than the full amount of the jury award. 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 these matters will not have a materially adverse effect on its consolidated financial position or results of operations. Item 4. Submission of Matters to a Vote of Security Holders No matters were submitted to a vote of security holders during the fourth quarter of fiscal 1997. Executive Officers of the Registrant The following table sets forth, through January 29, 1998, the executive officers of Harnischfeger Industries, their ages, their offices with Harnischfeger Industries and the period during which they have held such offices.
Name Age Current Office and Principle Occupation - ---------------------------- --- --------------------------------------- Jeffery T. Grade............ 54 Chairman of the Board and Chief Executive Officer since 1993; Chief Executive Officer since 1992; President and Chief Operating Officer from 1986 to 1995; Director since 1983; Senior Vice President, Finance and Administration and Chief Financial Officer from 1983 to 1986. Number of Years as an Officer 15 John Nils Hanson............ 56 President and Chief Operating Officer since July 1, 1995; President and Chief Executive Officer of Joy Mining Machinery 1990 to July 1995. Director since 1996. Number of Years as an Officer 2 Francis M. Corby, Jr........ 53 Executive Vice President for Finance and Administration since December 1994; Senior Vice President, Finance and Chief Financial Officer from 1986 to December 1994. Director since 1996. Number of Years as an Officer 12 James A. Chokey............. 54 Executive Vice President for Law and Government Affairs since July 1997; Senior Vice President, Law and Corporate Development of Beloit Corporation from 1996 to July 1997. Number of Years as an Officer - Mark E. Readinger........... 44 Senior Vice President since August, 1997; President and Chief Operating Officer of Joy Mining Machinery since 1996; Senior Vice President of Marketing and General Manager of the Joy North American Aftermarket Operations from 1994 to 1996. Number of Years as an Officer - Robert W. Hale.............. 51 Senior Vice President since August, 1997; President of P&H Mining Equipment since December 1994; Vice President of P&H Material Handling from 1998 to 1994. Number of Years as an Officer - Thomas Engelsman............ 47 Senior Vice President since August, 1997; President of Beloit Corporation since August, 1995. Number of Years as an Officer -
Mr. Chokey joined Beloit Corporation in April 1996. Prior to joining the Company, Mr. Chokey held similar positions with Cooper Industries, A.O. Smith Corporation, RTE Corporation and Joy Technologies Inc., where he was employed from 1973 to 1987. Mr. Readinger joined Joy in 1994. Prior to joining Joy, Mr. Readinger held several positions at TRW, Inc. and its subsidiaries from 1989 to 1994, including Vice President and General Manager, Manager of Strategic Development and Director of Planning. Mr. Engelsman joined Beloit Corporation in August, 1995. Prior to joining Beloit Corporation, Mr. Engelsman was President and Chief Executive Officer of the Energy Management division of Landis and Gyr from 1991 to 1995. The business address of each such person is 3600 South Lake Drive, St. Francis, Wisconsin 53235-3716. All officers listed above are citizens of the United States of America except for Mr. Engelsman who is a citizen of Australia. 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 foregoing officers. PART II
Form 10-K/A Item 5. Market for the Registrant's Common Stock and Related Stockholder Matters: incorporated by reference to the information under the heading "Unaudited Quarterly Financial Data and Stock Prices" contained in Item 8 of this report. During fiscal years 1996 and 1997, the Company paid quarterly dividends of 10 cents per share. The principal market for the Company's Common Stock is the New York Stock Exchange, where its trading symbol is HPH. The Company's Common Stock is also traded on the Pacific Exchange. As of October 31, 1997, the approximate number of holders of record of the Company's Common Stock was 2,000. In addition, there were an estimated 10,000 beneficial owners of shares held of record by brokers and fiduciaries. Item 6. Selected Financial Data:
Five-Year Review of Selected Financial Data Harnischfeger Industries, Inc. Years Ended October 31, (Dollar amounts in thousands except per share amounts) 1997 1996 ---- ---- Revenues Net sales $3,088,538 $2,863,931 Other income 29,705 23,639 ---------- ---------- 3,118,243 2,887,570 Cost of Sales 2,369,115 2,166,775 Product Development, Selling and Administrative Expenses 457,456 433,776 Restructuring Charges - 43,000 Nonrecurring Charge - - ---------- ---------- Operating Income (Loss) 291,672 244,019 Interest Expense - Net (72,543) (62,258) ---------- ---------- Pre-tax Income (Loss) before Joy Merger Costs and Gain on Sale of Measurex Investment 219,129 181,761 Joy Merger Costs - - Gain on Sale of Measurex Investment - - (Provision) Credit for Income Taxes (74,475) (63,600) Minority Interest (6,374) (3,944) Income (Loss) from Continuing Operations 138,280 114,217 Income (Loss) from and (Net Loss) on Sale of Discontinued Operations, net of applicable income taxes - - Extraordinary Loss on Retirement of Debt, net of applicable income taxes (12,999) - Cumulative Effect of Accounting Change, net of applicable income taxes and minority interest - - ---------- ---------- Net Income (Loss) $ 125,281 $ 114,217 ========== ========== Earnings (Loss) Per Share Income (loss) from continuing operations $ 2.89 $ 2.42 Income (loss) from and (net loss) on sale of discontinued operations - - Extraordinary loss on retirement of debt (0.27) - Cumulative effect of accounting change - - ---------- ---------- Net Income (Loss) Per Common Share $2.62 $ 2.42 ========== ========== Dividends Per Common Share $0.40 $ 0.40 ========== ========== Bookings $3,080,789 $3,000,775 ========== ==========
Five-Year Review of Selected Financial Data Harnischfeger Industries, Inc. Years Ended October 31, (Dollar amounts in thousands except per share amounts) 1995 1994 ------- ------ Revenues Net sales $2,152,079 $1,551,728 Other income 32,208 23,301 ---------- ---------- 2,184,287 1,575,029 Cost of Sales 1,671,932 1,195,851 Product Development, Selling and Administrative Expenses 330,990 279,016 Restructuring Charges - - Nonrecurring Charge - - ---------- ---------- Operating Income (Loss) 181,365 100,162 Interest Expense - Net (40,713) (47,366) ---------- ---------- Pre-tax Income (Loss) before Joy Merger Costs and Gain on Sale of Measurex Investment 140,652 52,796 Joy Merger Costs (17,459) - Gain on Sale of Measurex Investment 29,657 - (Provision) Credit for Income Taxes (53,500) (13,979) Minority Interest (7,230) (2,224) ---------- ---------- Income (Loss) from Continuing Operations 92,120 36,593 Income (Loss) from and (Net Loss) on Sale of Discontinued Operations, net of applicable income taxes (31,235) (3,982) Extraordinary Loss on Retirement of Debt, net of applicable income taxes (3,481) (4,827) Cumulative Effect of Accounting Change, net of applicable income taxes and minority interest - (81,696) ---------- ---------- Net Income (Loss) $ 57,404 $ (53,912) ========= ========== Earnings (Loss) Per Share Income (loss) from continuing operations $1.99 $0.84 Income (loss) from and (net loss) on sale of discontinued operations (0.67) (0.09) Extraordinary loss on retirement of debt (0.08) (0.11) Cumulative effect of accounting change - (1.87) ---------- ---------- Net Income (Loss) Per Common Share $1.24 $(1.23) ========== ========== Dividends Per Common Share $0.40 $ 0.40 ========== ========== Bookings $2,252,341 $1,636,931 ========== ==========
Five-Year Review of Selected Financial Data Harnischfeger Industries, Inc. Years Ended October 31, (Dollar amounts in thousands except per share amounts) 1993 -------- Revenues Net sales $1,409,204 Other income 9,040 ---------- 1,418,244 Cost of Sales 1,083,846 Product Development, Selling and Administrative Expenses 259,831 Restructuring Charges 67,000 Nonrecurring Charge 8,000 ---------- Operating Income (Loss) (433) Interest Expense - Net (48,313) ----------- Pre-tax Income (Loss) before Joy Merger Costs and Gain on Sale of Measurex Investment (48,746) Joy Merger Costs - Gain on Sale of Measurex Investment - (Provision) Credit for Income Taxes 16,497 Minority Interest 4,799 ---------- Income (Loss) from Continuing Operations (27,450) Income (Loss) from and (Net Loss) on Sale of Discontinued Operations, net of applicable income taxes 7,760 Extraordinary Loss on Retirement of Debt, net of applicable income taxes - Cumulative Effect of Accounting Change, net of applicable income taxes and minority interest - --------- Net Income (Loss) $ (19,690) ========== Earnings (Loss) Per Share Income (loss) from continuing operations $(0.62) Income (loss) from and (net loss) on sale of discontinued operations 0.18 Extraordinary loss on retirement of debt - Cumulative effect of accounting change - ----------- Net Income (Loss) Per Common Share $(0.44) =========== Dividends Per Common Share $ 0.40 =========== Bookings $1,487,502 ===========
Five-Year Review of Selected Financial Data Harnischfeger Industries, Inc. Years Ended October 31, (Dollar amounts in thousands except per share amounts) 1997 1996 ---- ---- Working Capital: Current assets $1,588,712 $1,410,250 Current liabilities 1,180,497 1,077,127 ---------- ---------- Working capital $ 408,215 $ 333,123 ========== ========== Current ratio 1.3 1.3 Plant and Equipment Net properties $ 657,100 $ 634,045 Capital expenditures 133,497 83,388 Depreciation expense 71,824 67,051 ========== ========== Total assets $2,924,535 $2,690,029 ========== ========== Debt and Capitalized Lease Obligations Long-term obligations (1) $ 725,193 $ 662,137 Short-term notes payable 214,126 45,261 ---------- ---------- $ 939,319 $ 707,398 ========== ========== Minority Interest $ 97,724 $ 93,652 ========== ========== Debt to Capitalization Ratio (2) 52.6% 48.0% ========== ========== Shareholders' Equity $ 749,660 $ 673,485 Book value per share $15.93 $14.15 Common shares outstanding (3) 47,046,328 47,598,340 ========== ========== Number of (End of Year): Employees 17,700 17,100 Common Shareholders of Record 1,861 1,972 ========== ==========
(1) Includes amounts classified as current portion of long-term obligations (2) Total debt to total debt, minority interest and shareholders' equity (3) As of end of year, excluding SECT shares
Five-Year Review of Selected Financial Data Harnischfeger Industries, Inc. Years Ended October 31, (Dollar amounts in thousands except per share amounts) 1995 1994 ----- ---- Working Capital: Current assets $1,213,390 $1,043,401 Current liabilities 723,303 612,076 ---------- ---------- Working capital $ 490,087 $ 431,325 Current ratio 1.7 1.7 ========== ========== Plant and Equipment Net properties $ 487,656 $ 490,237 Capital expenditures 73,484 50,842 Depreciation expense 56,642 58,628 ========== ========== Total assets $2,040,767 $1,981,953 ========== ========== Debt and Capitalized Lease Obligations Long-term obligations (1) $ 462,991 $ 571,054 Short-term notes payable 18,921 14,419 ---------- ---------- $ 481,912 $ 585,473 ========== ========== Minority Interest $ 89,611 $ 85,570 ========== ========== Debt to Capitalization Ratio (2) 42.6% 49.9% ========== ========== Shareholders' Equity $ 559,276 $ 502,365 Book value per share $11.98 $11.04 Common shares outstanding (3) 46,693,061 45,503,451 ========== ========== Number of (End of Year): Employees 14,000 14,900 Common Shareholders of Record 2,114 2,261 ========= ==========
(1) Includes amounts classified as current portion of long-term obligations (2) Total debt to total debt, minority interest and shareholders' equity (3) As of end of year, excluding SECT shares
Five-Year Review of Selected Financial Data Harnischfeger Industries, Inc. Years Ended October 31, (Dollar amounts in thousands except per share amounts) 1993 ------ Working Capital: Current assets $ 983,038 Current liabilities 607,802 ---------- Working capital $ 375,236 Current ratio 1.6 ========== Plant and Equipment Net properties $ 505,412 Capital expenditures 71,761 Depreciation expense 56,467 ========== Total assets $1,908,250 ========== Debt and Capitalized Lease Obligations Long-term obligations (1) $ 559,852 Short-term notes payable 67,742 ---------- $ 627,594 ========== Minority Interest $ 89,110 ========== Debt to Capitalization Ratio (2) 51.1% ========== Shareholders' Equity $ 511,169 Book value per share $11.83 Common shares outstanding (3) 43,200,676 ========== Number of (End of Year): Employees 14,700 Common Shareholders of Record 2,512 ==========
(1) Includes amounts classified as current portion of long-term obligations (2) Total debt to total debt, minority interest and shareholders' equity (3) As of end of year, excluding SECT shares Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations: Overview Fiscal 1997 marked another year of global growth and financial achievement with an added emphasis on life-cycle management. The Company reported strong financial results, showing income from continuing operations of $138.3 million, or $2.89 per share, on consolidated net sales of $3,088.5 million. This compares with income from continuing operations of $114.2 million, or $2.42 per share, in 1996 on sales of $2,863.9 million, which included a restructuring charge totaling $43.0 million ($21.8 million after tax and minority interest, or $0.46 per share). Net income for 1997 was $125.3 million, or $2.62 per share, including a $13.0 million extraordinary loss on retirement of debt. In addition, bookings of $3,080.8 million were on par with 1996 bookings. All three of the Company's business segments continued to experience strong order and sales activity. Leading the way in 1997 was the Pulp and Paper Machinery segment. The segment reported net sales of $1,267.8 million, up 12% over 1996 levels, reflecting continued strength in the market for papermaking machines, particularly in the Pacific Rim and Latin America. Operating income decreased from $91.5 million in 1996, excluding the restructuring charge, to $76.5 million in 1997 due to lower margins on certain Pacific Rim original equipment contracts. The Mining Equipment segment, which includes P&H Mining Equipment and Joy Mining Machinery ("Joy"), also reported strong results with net sales of $1,467.3 million, up 4% from 1996. The increase is due to growth in the aftermarket business of both surface and underground mining and steady original equipment sales. Sales for the Material Handling segment increased 9% to $353.4 million in 1997 from $323.2 million in 1996. Operating income increased from $33.1 million in 1996 to $38.4 million in 1997. These strong results are due primarily to improved results in existing product lines and businesses. The strategy of focusing on the five characteristics required of a core business - a global marketplace, leadership positions in the industries served, strong aftermarket sales potential, technological superiority and the ability to earn positive Economic Value Added ("EVA") - continued to steer the actions of the Company in fiscal 1997. Fiscal 1997 marked the fifth year that the Company was guided by the EVA philosophy and the second year that each of the Company's segments posted positive EVA achievement. The Company continues to use EVA for purposes of management incentive compensation. EVA, which measures operating results after taxes in excess of the after-tax cost of capital, has helped to maintain and sometimes reduce capital employed at times of increasing profits and sales. The discussion in Management's Discussion and Analysis contains forward-looking statements. When used in this document, terms such as "anticipate", "believe", "estimate", "expect", "indicate", "may be", "objective", "plan", "predict", and "will be" are intended to identify such statements. Forward-looking statements are subject to certain risks, uncertainties and assumptions which could cause actual results to differ materially from those projected. (See Cautionary Factors below.) Acquisitions and Divestitures In fiscal 1997, the Company focused on life-cycle management initiatives through continued global expansion and streamlining of existing businesses. Key acquisitions and divestitures improved the Company's positioning in the worldwide market. Each of the Company's three business segments made strategic acquisitions in fiscal 1997. The acquisitions supported the life-cycle management initiative and enhanced the businesses' positions in each of their markets. All acquisitions were accounted for as purchase transactions with resultant goodwill being amortized over a 30- or 40-year period. In addition, the Company divested of a few smaller business divisions to enable the segments to focus on core competencies. In early fiscal 1996, the Company completed the acquisition of Dobson Park ("Dobson") which firmly established the Company as a world leader in both surface and underground mining equipment. The transaction was completed for a purchase price of approximately $330 million, including acquisition costs, plus the assumption of net debt of approximately $40 million. The acquisition was accounted for as a purchase transaction with the purchase price allocated to specific assets acquired and liabilities assumed. Resultant goodwill is being amortized over 40 years. Dobson, headquartered in the United Kingdom, was an industrial engineering group with interests in mining equipment, industrial electronic control systems, toys and plastics. Longwall International ("Longwall"), the main subsidiary of Dobson, was engaged in the manufacture, sale and service of mining equipment for the international coal mining industry. Its principal products included electronically controlled roof support systems and armored face conveyors. The acquisition of Dobson enabled Joy to offer integrated underground longwall mining systems to the worldwide mining industry. As a part of the Dobson acquisition, several non-mining businesses were designated as businesses held for sale. The original value of the businesses was set at $100.0 million. At October 31, 1997, one business remains unsold with a total net realizable value of $9.3 million. It is expected that this remaining business will be sold within the next year. Profit/losses generated during the period related to businesses held for sale have been excluded from operating results. On March 27, 1996, the Company's Beloit Corporation subsidiary purchased the assets of the Pulp Machinery Division of Ingersoll-Rand Company ("IMPCO") for $119.2 million, including acquisition costs. The acquisition was accounted for as a purchase transaction with the purchase price allocated to specific assets acquired and liabilities assumed. Resultant goodwill is being amortized over 40 years. With this acquisition, Beloit now offers a full line of pulping machinery and systems. On November 29, 1994, the Company completed the acquisition of Joy Technologies Inc. ("JTI") through a stock-for-stock merger following approval of the merger by shareholders of each company. Under the terms of the acquisition, accounted for as a pooling of interests, the Company exchanged 17,720,750 shares of Company common stock for all of JTI's 31,353,000 outstanding shares, at an exchange ratio of .5652 of a share of the Company's common stock for each of JTI's common shares. Transaction costs incurred to complete the JTI merger of $17.5 million ($11.4 million after tax, or $0.24 per share) were charged to income and consisted primarily of investment banker, attorney and accountant fees, severance and related benefits, and printing, mailing and registration expenses. In addition, during fiscal years 1995 through 1997, the Company made several smaller acquisitions in each of the three business segments. All acquisitions were accounted for as purchase transactions. Resultant goodwill is being amortized over a 30- or 40-year period. On April 12, 1995, the Company announced its decision to divest of Joy Environmental Technologies ("JET"), a unit of JTI that supplies air pollution and ash handling equipment for electric utilities and other industrial operations. Accordingly, the operating results of JET were segregated and reflected in the Consolidated Statement of Income as a discontinued operation. In December, 1995, the Company completed the sale of JET to Babcock and Wilcox, an operating unit of McDermott International, for $11.7 million. The loss on the sale, net of applicable taxes, was recorded in fiscal 1995. In February, 1995, the Company completed the sale of Syscon Corporation ("Syscon") to Logicon, Inc. for a cash price of $45 million. In connection with this sale, the Company recorded a loss on sale of discontinued operations of $(21.9) million or $(0.48) per share, net of applicable income taxes, in the first quarter of 1995. In September, 1997, the Company announced that it was exploring the possible sale of P&H Material Handling. At the end of fiscal 1997, the segment had not been sold. Results of Operations - Consolidated Sales: Worldwide sales in fiscal 1997 amounted to $3,088.5 million representing an increase of 8% over 1996 sales of $2,863.9 million. All three segments reported strong increases, led by a 12% increase in the Pulp and Paper Machinery segment. Mining Equipment segment sales increased 4% over the prior year and Material Handling segment sales increased 9% over the prior year. Sales for fiscal 1996 of $2,863.9 million were 33% greater than 1995 sales of $2,152.1 million, led by a strong increase in the Mining Equipment segment of 49%. Sales for the Pulp and Paper Machinery segment rose 17%. The Material Handling segment reported a sales increase of 35% over the prior year. Costs and Expenses: Costs of sales increased 9% to $2,369.1 million in 1997 from $2,166.8 million in 1996. Strong increases in sales volume during the period were the primary reason for the increase. Product development, selling and administrative expenses as a percent of sales were 14.8% in 1997 and 15.1% in 1996. This level of expenses reflects continued efforts by the Company to control costs. Cost of sales for 1996 increased 30% to $2,166.8 million from $1,671.9 million in 1995. This increase is consistent with the 33% increase in sales for the same period. Product development, selling and administrative expenses as a percent of sales decreased to 15.1% from 15.4% in 1995. Operating Results from Continuing Operations: The Company reported income from continuing operations of $138.3 million in 1997 compared to income from continuing operations of $114.2 million in 1996 ($136.0 million, or $2.88 per share before the nonrecurring restructuring charge) and $92.1 million in 1995. 1996 Restructuring Actions In the fourth quarter of fiscal 1996, the Company's Beloit Corporation subsidiary recorded a restructuring charge of $43.0 million ($21.8 million after tax and minority interest, or $0.46 per share). The focus of the restructuring was to improve financial returns and increase customer satisfaction while significantly reducing costs and cycle times. In fiscal 1997, utilization of the restructuring reserve totaled $29.8 million. It is expected that the remaining restructuring actions will be substantially completed by the end of fiscal 1998. Details regarding specific restructuring actions are as follows:
Original Reserve 10/31/97 Reserve Utilized Reserve Employee severance $15,900 $(12,851) $ 3,049 Machinery and equipment dispositions 7,600 (6,830) 770 Closure of facilities 6,800 (703) 6,097 Sale of businesses 6,000 (3,085) 2,915 Other 6,700 (6,301) 399 ------- -------- ------- $43,000 $(29,770) $13,230 ======= ======== =======
The cash and noncash elements of the restructuring charge approximated $27.7 million and $15.3 million, respectively. It is expected that the remaining restructuring actions will be funded through cash flows from continuing operations. Additional details are discussed in the "Operating Results by Business Segment"section which follows and in the Notes to Consolidated Financial Statements. (Note 3 - Restructuring Charge.) Income Taxes The Company's effective tax rate from continuing operations was 34.0% in 1997 (compared to a 35.0% federal statutory rate), 35.0% in 1996, and 35.0% in 1995. The effective tax rate in 1997 differed from the federal statutory rate of 35.0% due primarily to usage of tax credits. A more detailed discussion of income taxes can be found in the Notes to Consolidated Financial Statements. (Note 6 -Income Taxes.) Adoption of New Accounting Standards In 1993, the Board of Directors of the Company approved a general approach that would culminate 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 will be eliminated on January 1, 1999 for most employee groups, excluding Joy. For Joy, based upon existing plan terms, future eligible retirees will participate in a premium cost-sharing arrangement which is based on age as of March 1, 1993 and position at the time of retirement. Active Joy employees under age 45 as of March 1, 1993 and new hires after April 1, 1993 will be required to pay 100% of the applicable premium. The initial one-time, pre-tax charge reflected all plan terms and amendments in place on November 1, 1993. Negative plan amendments made subsequent to November 1, 1993 are being amortized from the date of amendment to January 1, 1999. Postretirement benefit expense recognized for 1997 and 1996 was reduced by $12.8 million and $10.8 million, respectively, for amortization of negative plan amendments. The Company adopted Statement of Financial Accounting Standard ("SFAS") No. 112, "Employers' Accounting for Postemployment Benefits" in the first quarter of fiscal 1995. The impact of adoption of SFAS No. 112 on the Company's results of operations and financial position was not material. The Company adopted the disclosure requirements of SFAS No. 123, "Accounting for Stock-Based Compensation" effective for the 1997 financial statements. The standard provides for reporting stock-based compensation at fair value instead of the currently used intrinsic value method. The change is not required to be recorded in the financial statements but the pro-forma effect of the standard must be included in the footnotes to the financial statements, if material. The Company has elected to continue measuring compensation cost using the intrinsic value method and as such, no compensation expense for stock options has been recorded. See Notes to Consolidated Financial Statements. (Note 10 - Shareholders' Equity and Stock Options.) In February, 1997, the Financial Accounting Standards Board ("FASB") issued SFAS No. 128, "Earnings per Share."" This statement establishes revised standards for computing and presenting earnings per share. The statement is effective for the Company's fiscal 1998 first quarter. All prior periods will be required to be restated. The adoption of this standard will not have a material impact on the Company's reported earnings per share. In June, 1997, the FASB issued SFAS No. 130, "Reporting Comprehensive Income". The standard requires that certain items recognized under accounting principles as components of comprehensive income be reported in a financial statement that is displayed with the same prominence as other financial statements. The Company is not required to adopt the standard until fiscal 1999. Bookings and Backlog
Backlog at October 31, 1997, 1996 and 1995 by business segment was as follows: IN THOUSANDS 1997 1996 1995 Mining Equipment $ 358,340 $ 453,480 $ 221,540 Pulp and Paper Machinery 776,618 846,137 679,625 Material Handling 97,743 132,550 130,879 ---------- ---------- ----------- $1,232,701 $1,432,167 $1,032,044 ========== ========== ===========
Bookings were $3,080.8 million in 1997, $3,000.8 million in 1996 and $2,252.3 million in 1995. A discussion of changes in bookings by segment is presented in the "Operating Results by Business Segment" section which follows. Mining Equipment backlog was reduced by $18.0 million in fiscal 1997 due to divestitures. Backlog for Pulp and Paper Machinery was reduced by $170.0 million due to change of scope and indefinite deferments on certain contracts booked in prior years and $3.8 million due to divestitures. Liquidity and Capital Resources
The Company's capital structure at October 31, 1997 and 1996 was as follows: IN THOUSANDS 1997 1996 ------------ ----------- Short-term notes payable $ 214,126 $ 45,261 Long-term obligations, including current portion 725,193 662,137 ------------ ------------- 939,319 707,398 Minority interest 97,724 93,652 Shareholders' equity 749,660 673,485 ------------ ------------- Total capitalization $1,786,703 $1,474,535 ============ ============== Debt to capitalization ratio 52.6% 48.0% ===== ======
The Company's debt to capitalization ratio increased to 52.6% at October 31, 1997 from 48.0% at October 31, 1996. The increase was caused primarily by the increase in net working capital to finance increased operating levels and the buyback of common stock, offset by an increase in equity from strong operating results. Cash flow used by operating activities was $79.3 million in 1997 compared to cash flow provided by operating activities of $80.4 million in 1996 and $125.3 million in 1995. The decrease in cash flow between periods was caused primarily by a net increase in working capital items, particularly unbilled receivables on large paper machine orders in the Pacific Rim, offset by higher net income and deferred taxes. Net working capital of $408.2 million at October 31, 1997 increased $75.1 million from October 31, 1996 levels of $333.1 million. The change was primarily due to increases in accounts receivable and inventories and a decrease in other current liabilities, offset by an increase in accounts payable. Net working capital decreased to $333.1 million in 1996 from $490.1 million in 1995, due mainly to cash used for acquisitions and restructuring activities. Cash applied to investing activities in 1997 was $102.3 million, primarily caused by additional investments in property, plant and equipment. Cash applied to investing activities in 1996 was $424.0 million, primarily caused by the acquisitions of Dobson and IMPCO, offset by the sale of businesses. Capital expenditures for property, plant and equipment in 1997 net of dispositions were $99.9 million compared with $66.6 million in 1996. Depreciation and amortization was $94.4 million and $89.3 million in 1997 and 1996, respectively. The $176.9 million of cash provided by financing activities in 1997 was primarily due to the issuance of $150.0 million, 67/8% debentures on February 25, 1997 and increases in borrowings against the Revolving Credit Facility, offset by the repurchase of JTI's 101/4% Senior Notes and a buyback of common stock. Cash provided by financing activities in 1996 of $140.4 million was primarily from the issuance of debt related to the Dobson acquisition offset by a decrease in short-term notes payables. The Company completed the acquisition of Dobson in early 1996 for a purchase price of approximately $330.0 million, including acquisition costs. The transaction was funded via a short-term bridge financing facility arranged specifically for this acquisition, issuance of commercial paper, other short-term facilities and available cash. The short-term facilities were replaced with $150.0 million, 71/4% debentures issued on December 19, 1995, at 99.153%. The Company's Beloit Corporation subsidiary purchased the assets of IMPCO on March 27, 1996 for a purchase price of $119.2 million, including acquisition costs. The acquisition of IMPCO was funded via short-term bridge loans and the Revolving Credit Facility. On October 7, 1997, JTI offered to purchase for cash any and all of its outstanding 101/4% Senior Notes in a fixed-spread tender offer. This offer expired on October 21, 1997, with $180.7 million being repurchased. As a result of the Senior Note repurchases, the Company recorded an extraordinary loss on debt retirement, net of applicable income taxes, of $(13.0) million, or $(0.27) per share, consisting primarily of unamortized financing costs and purchase premiums. The indenture for the Senior Notes provides that JTI may, at its option, redeem the Senior Notes in whole or in part at any time on or after September 1, 1998 at 105.125% of their principal amount, plus accrued interest, declining to 100% of their principal amount, plus accrued interest, on or after September 1, 2000. It is the Company's current intention to redeem the remaining Senior Notes ($7.7 million) in September, 1998. 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. As of October 31, 1997, the Company had repurchased 906,400 shares through open-market transactions at a cost of $38.2 million. The Company maintains the ability to expand its borrowings in several ways, including the following: (1) A shelf registration with the Securities and Exchange Commission for the sale of up to $200.0 million of debt securities. To date, $150.0 million have been issued under this registration. (2) A Revolving Credit Facility Agreement expiring October, 2002 between the Company and certain domestic and foreign financial institutions that allows for borrowings of up to $500.0 million at rates expressed in relation to LIBOR and other rates. Direct borrowings and commercial paper are both considered a utilization of the facility. At October 31, 1997, utilization of the facility amounted to $150.0 million and $84.1 million for direct borrowings and commercial paper, respectively. (3) Short-term bank credit lines of foreign subsidiaries of approximately $218.3 million of which approximately $74.0 million was outstanding at October 31, 1997. The Company believes its available cash, cash flow provided by operating activities and committed credit lines provide adequate liquidity on both a short- and long-term basis. The Company has no significant capital commitments as of October 31, 1997. Any future commitments are expected to be funded through cash flow from operations and, if necessary, from available lines of credit. It is the Company's policy not to participate in high-yield financings, highly leveraged transactions, or other "derivative" instruments. Hedging of specific foreign exchange transaction exposures does occur in certain circumstances. The Company intends to continue to expand its businesses, both internally and through acquisitions. Acquisitions are evaluated in light of the five characteristics required of a core business. It is expected that new acquisitions would be financed primarily by internally-generated funds or additional borrowings. Operating Results by Business Segment Mining Equipment:
IN THOUSANDS 1997 1996 1995 Net sales $1,467,341 $1,405,936 $941,779 Operating income 201,803 183,141 122,116 Bookings 1,390,161 1,406,381 972,419
The Mining Equipment segment reported net sales of $1,467.3 million in 1997, a 4% increase from 1996 sales of $1,405.9 million. The sales increase is due to an increase in aftermarket activity for both surface and underground mining operations. Operating income was $201.8 million or 13.8% of sales, compared to operating income of $183.1 million or 13.0% of sales in 1996. Net sales and operating income amounted to $941.8 million and $122.1 million, respectively, in 1995. The increase in operating income is primarily due to increased sales. Foreign sales of the Mining Equipment segment amounted to 59% of total sales in 1997, 58% in 1996 and 44% in 1995. Bookings amounted to $1,390.2 million in 1997 compared to $1,406.4 million in 1996. The decrease is the result of market softness for original equipment for underground mining. Pulp and Paper Machinery:
IN THOUSANDS 1997 1996 1995 Net sales $1,267,847 $1,134,779 $ 970,418 Operating income before restructuring charge 76,485 91,511 56,062 Restructuring charge - (43,000) - ---------- ----------- -------- Operating income after restructuring charge 76,485 48,511 56,062 Bookings 1,372,085 1,269,507 1,016,273
The Pulp and Paper Machinery segment reported sales of $1,267.8 million and operating income of $76.5 million for 1997. Sales volume in 1997 was 12% higher than the prior year's level of $1,134.8 million, reflecting continued strength in the worldwide pulp and paper industry's spending for original equipment and aftermarket services. Foreign sales for this segment amounted to 57% of total sales in 1997, 53% in 1996 and 41% in 1995. Operating income in 1997 was 6.0% of sales compared to 8.1% in 1996 before the restructuring charge. Operating income in 1997 was reduced by a fourth quarter charge of $27.6 million for additional contract costs related to four large Indonesian contracts. (Note 17 - Subsequent Event - Restatement of Operating Results.) Net sales and operating income amounted to $1,134.8 million and $48.5 million, respectively, in 1996. Net sales were 17% higher than in 1995 reflecting the cyclical upturn in the worldwide pulp and paper industry. Operating income as a percent of sales increased to 8.1%, before the restructuring charge, in 1996 from 5.8% in 1995. In the fourth quarter of fiscal 1996, the Pulp and Paper Machinery segment recorded a restructuring charge of $43.0 million. The focus of the restructuring was to better serve its customers, strengthen market position, enable the segment to increase EVA and improve profitability levels. The charge was primarily comprised of costs related to severance, machinery and equipment dispositions, closure of certain facilities and sale of businesses. See Notes to Consolidated Financial Statements. (Note 3 - Restructuring Charge.) Bookings activity improved in 1997 to $1,372.1 million from $1,269.5 million in 1996. The 8% increase reflects improved bookings in both pulp and paper machinery and aftermarket services and products, particularly in the Pacific Rim and Latin America. MATERIAL HANDLING:
IN THOUSANDS 1997 1996 1995 Net sales $353,350 $323,216 $239,882 Operating income 38,399 33,107 22,850 Bookings 318,543 324,887 263,649
The Material Handling segment reported net sales of $353.4 million in 1997, an increase of 9% from 1996 levels of $323.2 million. Operating income increased to $38.4 million compared to $33.1 million in 1996, an increase of 16%. Increases are primarily due to improved results from existing businesses. Foreign sales amounted to 50% of total sales in 1997 compared to 39% in 1996 and 48% in 1995. Net sales of the Material Handling segment increased to $323.2 million in 1996 from $239.9 million in 1995. Operating income increased from $22.9 million in 1995 to $33.1 million in 1996. The increase in both sales and profitability is primarily due to improved results from original equipment sales and aftermarket services from existing businesses. Bookings amounted to $318.5 million in 1997, as compared to $324.9 million in 1996. The bookings levels reflect the segment's continued leadership in the domestic equipment market and continued growth of its aftermarket business. The Company is currently exploring the potential divestiture of the Material Handling business. The potential sale will be contingent on the Company receiving adequate terms and proceeds for the business. DISCONTINUED OPERATIONS:
IN THOUSANDS 1997 1996 1995 Net sales $ - $ - $101,472 Loss from discontinued operations - - (31,235)
Net sales and loss from discontinued operations in 1995 of $101.5 million and $(31.2) million, respectively, relate to the sale of Syscon and JET. Other The Company is party to litigation matters and claims which are normal in the course of its operations. Also, as a normal part of their operations, the Company's subsidiaries undertake 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 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. In the case of Beloit Corporation, certain litigation matters and claims are currently pending in connection with its contractual undertakings. Beloit may on occasion enter into arrangements to participate in the ownership of or operate pulp or paper making facilities in order to satisfy contractual undertakings or resolve disputes. One of the claims against Beloit involves a lawsuit brought by Potlatch Corporation that alleges pulp line washers supplied by Beloit for less than $15.0 million failed to perform satisfactorily. In June, 1997, a Lewiston, Idaho jury awarded Potlatch $95.0 million in damages in the case. Beloit has appealed this award to the Idaho Supreme Court. While the eventual outcome of the Potlatch case cannot be predicted, reserves in the October 31, 1997 Consolidated Balance Sheet are less than the full amount of the jury award. On August 14, 1997, the Company established a new long-term incentive compensation plan which covers 11 key elected officers of the Company. The plan, which replaces traditional stock options for the participants, consists of awards of up to an aggregate of 1.2 million shares based upon achievement of pre-established stock price improvement factors. The base stock price was set at $40.87 per share. The minimum requirements of the plan call for a portion of the shares to be awarded if a 30% increase in stock price occurs within three years. The shares shall be fully awarded if the stock price increases by 50% within three years or 70% within five years. If target prices are not met, none of the shares will be awarded. As the stock price has declined since inception of the plan, no compensation expense was recorded in fiscal 1997. The Company has addressed Year 2000 system issues in all of its subsidiaries and does not anticipate any significant problems in the transition to the year 2000. Anticipated Year 2000 conversion costs will be expensed as incurred and are expected to be immaterial. 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. 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 for the mining, papermaking and capital goods industries. Long periods of time are necessary to plan, design and build these machines. With respect to new machines and equipment, there are risks of customer acceptance and start-up or performance problems. Large amounts of capital are required to be devoted by the Company's, steel mills and other facilities that use these machines. The Company's success in obtaining and managing a relatively small number of sales opportunities, including warranties and guarantees associated therewith, 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, more than 50% 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: - - Factors affecting purchases of new equipment, rebuilds, parts and services such as: production capacity, stockpiles and production and consumption rates of coal, copper, iron, gold, fiber, paper/paperboard, recycled paper, steel and other commodities; 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, papermaking, steel making, automotive manufacturing and other heavy industrial projects; the ages, efficiencies and utilization rates of existing equipment; the development of new technologies; the availability of used or alternative equipment; consolidations among customers; work stoppages at customers or providers of transportation; and the timing, severity and duration of customer buying cycles, particularly in the paper and mining businesses. - - 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; the existence of patents protecting or restricting the Company's ability to offer features requested by customers; whether the Company has successful reference installations to show customers, especially for papermaking and mining equipment; customers' perceptions of the health and stability of the Company as compared to its competitors; the Company's ability to assist with competitive financing programs; the availability of manufacturing capacity at the Company's factories; and whether the Company can offer the complete package of products and services sought by its customers. - - 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 Company's 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. - - Factors affecting the Company's general business, such as: unforeseen patent, tax, product, environmental, employee health or benefit or contractual liabilities; nonrecurring restructuring charges; changes in accounting or tax rules or regulations; and reassessments of asset valuations such as inventories. - - Factors affecting general business levels, such as: political turmoil and economic growth in major markets such as the United States, Canada, Europe, the Far East, South Africa, Australia and Chile; environmental and trade regulations; and the stability and ease of exchange of currencies. Item 7A. Quantitative and Qualitative Disclosure About Market Risk: not applicable Item 8. Financial Statements and Supplementary Data
Consolidated Statement of Income Harnischfeger Industries, Inc. Years Ended October 31, (DOLLAR AMOUNTS IN THOUSANDS EXCEPT PER SHARE AMOUNTS) 1997 1996 Revenues Net sales $3,088,538 $2,863,931 Other income 29,705 23,639 ---------- ---------- 3,118,243 2,887,570 Cost of Sales 2,369,115 2,166,775 Product Development, Selling and Administrative Expenses 457,456 433,776 Restructuring Charge - 43,000 ---------- ---------- Operating Income 291,672 244,019 Interest Expense - Net (72,543) (62,258) ---------- ---------- Income before Joy Merger Costs, Gain on Sale of Measurex Investment, Provision for Income Taxes and Minority Interest 219,129 181,761 Joy Merger Costs - - Gain on Sale of Measurex Investment - - Provision for Income Taxes (74,475) (63,600) Minority Interest (6,374) (3,944) ----------- ----------- Income from Continuing Operations 138,280 114,217 Loss from and Net Loss on Sale of Discontinued Operation, net of applicable income taxes - - Extraordinary Loss on Retirement of Debt, net of applicable income taxes (12,999) - ----------- ---------- Net Income $ 125,281 $ 114,217 =========== ========== Earnings Per Share Income from continuing operations $2.89 $2.42 Loss from and net loss on sale of discontinued operation - - Extraordinary loss on retirement of debt (0.27) - ------ ------ Net Income Per Share $2.62 $2.42 ====== ======
The Accompanying Notes are an Integral Part of the Financial Statements.
Consolidated Statement of Income Harnischfeger Industries, Inc. Years Ended October 31, (DOLLAR AMOUNTS IN THOUSANDS EXCEPT PER SHARE AMOUNTS) 1995 Revenues Net sales $2,152,079 Other income 32,208 ---------- 2,184,287 Cost of Sales 1,671,932 Product Development, Selling and Administrative Expenses 330,990 Restructuring Charge - ---------- Operating Income 181,365 Interest Expense - Net (40,713) ----------- Income before Joy Merger Costs, Gain on Sale of Measurex Investment, Provision for Income Taxes and Minority Interest 140,652 Joy Merger Costs (17,459) Gain on Sale of Measurex Investment 29,657 Provision for Income Taxes (53,500) Minority Interest (7,230) ---------- Income from Continuing Operations 92,120 Loss from and Net Loss on Sale of Discontinued Operation, net of applicable income taxes (31,235) Extraordinary Loss on Retirement of Debt, net of applicable income taxes (3,481) ------------ Net Income $ 57,404 ============ Earnings Per Share Income from continuing operations $1.99 Loss from and net loss on sale of discontinued operation (0.67) Extraordinary loss on retirement of debt (0.08) ------------ Net Income Per Share $1.24 ============
The Accompanying Notes are an Integral Part of the Financial Statements.
Consolidated Balance Sheet Harnischfeger Industries, Inc. Years Ended October 31, (DOLLAR AMOUNTS IN THOUSANDS) 1997 1996 Assets Current Assets: Cash and cash equivalents (including cash equivalents of $6,376 and $3,455 in 1997 and 1996, respectively, at cost which approximates market) $ 29,383 $ 36,936 Accounts receivable - net 836,169 667,786 Inventories 594,761 547,115 Businesses held for sale 9,323 26,152 Other current assets 119,076 132,261 --------- --------- 1,588,712 1,410,250 Property, Plant and Equipment: Land and improvements 60,724 48,371 Buildings 293,501 301,010 Machinery and equipment 821,479 776,332 --------- --------- 1,175,704 1,125,713 Accumulated depreciation (518,604) (491,668) --------- ---------- 657,100 634,045 Investments and Other Assets: Goodwill 508,634 512,693 Intangible assets 33,027 39,173 Other assets 137,062 93,868 --------- ---------- 678,723 645,734 --------- ---------- $ 2,924,535 $2,690,029 ========= ========== Liabilities and Shareholders' Equity Current Liabilities: Short-term notes payable, including current portion of long-term obligations $ 225,853 $ 49,633 Trade accounts payable 460,689 346,056 Employee compensation and benefits 132,268 160,488 Advance payments and progress billings 85,680 155,199 Accrued warranties 47,753 50,718 Other current liabilities 228,254 315,033 --------- ---------- 1,180,497 1,077,127 Long-term Obligations 713,466 657,765 Other Liabilities: Liability for postretirement benefits 56,202 78,814 Accrued pension and related costs 36,707 39,902 Other liabilities 11,608 14,364 Deferred income taxes 78,671 54,920 --------- ---------- 183,188 188,000 Minority Interest 97,724 93,652 Shareholders' Equity: Common stock (issued 51,607,172 and 51,406,946 shares, respectively) 51,607 51,407 Capital in excess of par value 625,358 615,089 Retained earnings 253,727 148,175 Cumulative translation adjustments (41,440) (37,584) Less: Stock Employee Compensation Trust (1,433,147 and 1,533,993 shares, respectively) at market (56,430) (61,360) Treasury Stock (3,127,697 and 2,274,613 shares, respectively) at cost (83,162) (42,242) ------------ --------- 749,660 673,485 ------------ --------- $ 2,924,535 $ 2,690,029 ============ ==========
The Accompanying Notes are an Integral Part of the Financial Statements.
Consolidated Statement of Cash Flow Harnischfeger Industries, Inc. Years Ended October 31, (DOLLAR AMOUNTS IN THOUSANDS) 1997 1996 Operating Activities Net income $ 125,281 $ 114,217 Add (deduct) - Items not affecting cash: Restructuring charge - 43,000 Loss from discontinued operations, net of income taxes - - Extraordinary loss on retirement of debt, net of income taxes 12,999 - Net gain on sale of Measurex investment, net of income taxes - - Depreciation and amortization 94,425 89,270 Minority interest, net of dividends paid 6,127 3,254 Deferred income taxes - net 58,145 18,855 Other - net (33,895) (22,065) Changes in working capital, excluding the effects of acquisition opening balance sheets: (Increase) in accounts receivable - net (199,809) (81,007) (Increase) in inventories (48,276) (30,291) (Increase) in other current assets (23,550) (10,978) Increase in trade accounts payable 114,927 18,223 (Decrease) increase in employee compensation and benefits (28,545) (6,729) (Decrease) increase in advance payments and progress billings (69,251) (62,071) (Decrease) increase in other current liabilities (87,923) 6,673 ---------- --------- Net cash (used) provided by operating activities (79,345) 80,351 ---------- -------- Investment and Other Transactions Purchase of Dobson Park Industries plc, net of cash acquired of $4,631 - (325,369) Purchase of Pulp Machinery Division of Ingersoll-Rand, net of cash acquired of $6,858 - (112,372) Other acquisitions, net of cash acquired (17,097) (11,350) Proceeds from sale of New Philadelphia Fan Co. 18,051 - Proceeds from sale of Castings Division 7,229 - Proceeds from sale of non-core Dobson Park businesses 16,829 73,848 Proceeds from sale of Joy Environmental Technologies - 11,651 Proceeds from sale of investment in Measurex Corporation - - Proceeds from sale of Syscon Corporation - - Property, plant and equipment - acquired (133,497) (83,388) Property, plant and equipment - retired 33,549 16,826 Other - net (27,368) 6,174 ---------- ---------- Net cash (applied to) provided by investment and other transactions (102,304) (423,980) ---------- ---------- Financing Activities Purchase of treasury stock (40,720) - Dividends paid (19,151) (18,905) Exercise of stock options 7,164 6,762 Issuance of long-term obligations 261,411 198,892 Redemption of long-term obligations (198,270) (2,334) Increase (decrease) in short-term notes payable 166,505 (43,973) --------- --------- Net cash provided by (applied to) financing activities 176,939 140,442 --------- --------- Effect of Exchange Rate Changes on Cash and Cash Equivalents (2,843) 1,080 ---------- --------- (Decrease) Increase in Cash and Cash Equivalents (7,553) (202,107) ---------- ---------- Cash and Cash Equivalents at Beginning of Year 36,936 239,043 ---------- ---------- Cash and Cash Equivalents at End of Year $ 29,383 $ 36,936 ========== ==========
The Accompanying Notes are an Integral Part of the Financial Statements.
Consolidated Statement of Cash Flow Harnischfeger Industries, Inc. Years Ended October 31, (DOLLAR AMOUNTS IN THOUSANDS) 1995 Operating Activities Net income $ 57,404 Add (deduct) - Items not affecting cash: Restructuring charge - Loss from discontinued operations, net of income taxes 31,235 Extraordinary loss on retirement of debt, net of income taxes 3,481 Net gain on sale of Measurex investment, net of income taxes (18,657) Depreciation and amortization 70,512 Minority interest, net of dividends paid 3,589 Deferred income taxes - net 10,937 Other - net 3,594 Changes in working capital, excluding the effects of acquisition opening balance sheets: (Increase) in accounts receivable - net (73,343) (Increase) in inventories (28,003) (Increase) in other current assets (7,776) Increase in trade accounts payable 13,922 (Decrease) increase in employee compensation and benefits 16,217 (Decrease) increase in advance payments and progress billings 34,156 (Decrease) increase in other current liabilities 8,033 -------- Net cash (used) provided by operating activities 125,301 -------- Investment and Other Transactions Purchase of Dobson Park Industries plc, net of cash acquired of $4,631 - Purchase of Pulp Machinery Division of Ingersoll-Rand, net of cash acquired of $6,858 - Other acquisitions, net of cash acquired (27,905) Proceeds from sale of New Philadelphia Fan Co. - Proceeds from sale of Castings Division - Proceeds from sale of non-core Dobson Park businesses - Proceeds from sale of Joy Environmental Technologies - Proceeds from sale of investment in Measurex Corporation 96,004 Proceeds from sale of Syscon Corporation 45,000 Property, plant and equipment - acquired (73,484) Property, plant and equipment - retired 11,724 Other - net (7,249) --------- Net cash (applied to) provided by investment and other transactions 44,090 --------- Financing Activities Purchase of treasury stock (3,009) Dividends paid (18,524) Exercise of stock options 17,309 Issuance of long-term obligations 9,588 Redemption of long-term obligations (108,769) Increase (decrease) in short-term notes payable 828 --------- Net cash provided by (applied to) financing activities (102,577) --------- Effect of Exchange Rate Changes on Cash and Cash Equivalents (520) --------- (Decrease) Increase in Cash and Cash Equivalents 66,294 --------- Cash and Cash Equivalents at Beginning of Year 172,749 --------- Cash and Cash Equivalents at End of Year $ 239,043 =========
The Accompanying Notes are an Integral Part of the Financial Statements. Consolidated Statement of Shareholders' Equity Harnischfeger Industries, Inc.
(DOLLAR AMOUNTS IN THOUSANDS) Capital in Common Excess of Stock Par Value Balance at October 31, 1994 $50,519 $577,068 Net income Exercise of 861,930 stock options 599 9,131 Dividends paid ($0.40 per share) Dividends on shares held by SECT 681 Adjust SECT shares to market value 16,832 Translation adjustments 110,000 shares acquired as Treasury Stock 457,991 shares transferred from Treasury Stock to SECT Purchase of 425,345 shares by employee benefit plans -------- -------- Balance at October 31, 1995 51,118 603,712 Net income Exercise of 320,172 stock options 282 5,730 Issuance of restricted stock 7 (11,555) Dividends paid ($0.40 per share) Dividends on shares held by SECT 697 Adjust SECT shares to market value 13,541 Translation adjustments Purchase of 230,000 shares by employee benefit plans 2,964 -------- ------- Balance at October 31, 1996 51,407 615,089 Net income Exercise of 301,072 stock options 200 4,984 Dividends paid ($0.40 per share) Dividends on shares held by SECT 578 Adjust SECT shares to market value (2,950) Translation adjustments Purchase of 209,373 shares by employee benefit plans 4,582 1,062,457 shares acquired as treasury stock Amortization of unearned compensation on restricted stock 3,075 ------- -------- Balance at October 31, 1997 $51,607 $625,358 ======= ========
The Accompanying Notes are an Integral Part of the Financial Statements.
Consolidated Statement of Shareholders' Equity Harnischfeger Industries, Inc. (DOLLAR AMOUNTS IN THOUSANDS) Cumulative Retained Translation Earnings Adjustments Balance at October 31, 1994 $15,361 $(37,452) Net income 57,404 Exercise of 861,930 stock options Dividends paid ($0.40 per share) (19,205) Dividends on shares held by SECT Adjust SECT shares to market value Translation adjustments (4,666) 110,000 shares acquired as Treasury Stock 457,991 shares transferred from Treasury Stock to SECT Purchase of 425,345 shares by employee benefit plans -------- --------- Balance at October 31, 1995 53,560 (42,118) Net income 114,217 Exercise of 320,172 stock options Issuance of restricted stock Dividends paid ($0.40 per share) (19,602) Dividends on shares held by SECT Adjust SECT shares to market value Translation adjustments 4,534 Purchase of 230,000 shares by employee benefit plans ------ -------- Balance at October 31, 1996 148,175 (37,584) Net income 125,281 Exercise of 301,072 stock options Dividends paid ($0.40 per share) (19,729) Dividends on shares held by SECT Adjust SECT shares to market value Translation adjustments (3,856) Purchase of 209,373 shares by employee benefit plans 1,062,457 shares acquired as treasury stock Amortization of unearned compensation on restricted stock -------- -------- Balance at October 31, 1997 $253,727 $(41,440) ======== =========
The Accompanying Notes are an Integral Part of the Financial Statements.
Consolidated Statement of Shareholders' Equity Harnischfeger Industries, Inc. (DOLLAR AMOUNTS IN THOUSANDS) Treasury SECT Stock ------ -------- Balance at October 31, 1994 $(53,760) $(52,009) Net income Exercise of 861,930 stock options 7,579 Dividends paid ($0.40 per share) Dividends on shares held by SECT Adjust SECT shares to market value (16,832) Translation adjustments 110,000 shares acquired as Treasury Stock (3,009) 457,991 shares transferred from Treasury Stock to SECT (8,505) 8,505 Purchase of 425,345 shares by employee benefit plans 11,035 -------- --------- Balance at October 31, 1995 (60,483) (46,513) Net income Exercise of 320,172 stock options 750 Issuance of restricted stock 11,914 Dividends paid ($0.40 per share) Dividends on shares held by SECT Adjust SECT shares to market value (13,541) Translation adjustments Purchase of 230,000 shares by employee benefit plans 4,271 -------- ---------- Balance at October 31, 1996 (61,360) (42,242) Net income Exercise of 301,072 stock options 1,980 Dividends paid ($0.40 per share) Dividends on shares held by SECT Adjust SECT shares to market value 2,950 Translation adjustments Purchase of 209,373 shares by employee benefit plans 3,888 1,062,457 shares acquired as treasury stock (44,808) Amortization of unearned compensation on restricted stock --------- --------- Balance at October 31, 1997 $(56,430) $(83,162) ========= =========
The Accompanying Notes are an Integral Part of the Financial Statements.
Consolidated Statement of Shareholders' Equity Harnischfeger Industries, Inc. (DOLLAR AMOUNTS IN THOUSANDS) Total ------ Balance at October 31, 1994 $499,727 Net income 57,404 Exercise of 861,930 stock options 17,309 Dividends paid ($0.40 per share) (19,205) Dividends on shares held by SECT 681 Adjust SECT shares to market value - Translation adjustments (4,666) 110,000 shares acquired as Treasury Stock (3,009) 457,991 shares transferred from Treasury Stock to SECT - Purchase of 425,345 shares by employee benefit plans 11,035 -------- Balance at October 31, 1995 559,276 Net income 114,217 Exercise of 320,172 stock options 6,762 Issuance of restricted stock 366 Dividends paid ($0.40 per share) (19,602) Dividends on shares held by SECT 697 Adjust SECT shares to market value - Translation adjustments 4,534 Purchase of 230,000 shares by employee benefit plans 7,235 --------- Balance at October 31, 1996 673,485 Net income 125,281 Exercise of 301,072 stock options 7,164 Dividends paid ($0.40 per share) (19,729) Dividends on shares held by SECT 578 Adjust SECT shares to market value - Translation adjustments (3,856) Purchase of 209,373 shares by employee benefit plans 8,470 Purchase of 1,062,457 shares acquired as treasury stock (44,808) Amortization of unearned compensation on restricted stock 3,075 -------- Balance at October 31, 1997 $749,660 ========
The Accompanying Notes are an Integral Part of the Financial Statements. Notes to Consolidated Financial Statements Harnischfeger Industries, Inc. (Dollar amounts in thousands unless indicated) Note 1 Significant Accounting Policies Basis of Presentation: The consolidated financial statements and related notes give retroactive effect to the merger on November 29, 1994 with Joy Technologies Inc. ("JTI") for all periods presented, accounted for as a pooling of interests. The Consolidated Statement of Income has also been restated to reflect the Company's divestiture in 1995 of the Systems Group and Joy Environmental Technologies ("JET") accounted for as discontinued operations. (See Note 16 - Discontinued Operations.) The term "Company" as used in these consolidated financial statements refers to Harnischfeger Industries, Inc. and its subsidiaries. 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 on long-term contracts is generally recorded using the percentage-of-completion method for financial reporting purposes. Such contracts include contracts for papermaking machinery, certain mining equipment and custom-engineered cranes. Losses, if any, are recognized in full as soon as identified. Sales of other products and services are recorded as products are shipped or services are rendered. Property, Plant and Equipment: Property, plant and equipment is 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. 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: Any gain or loss on forward contracts designated as hedges of commitments is deferred and included in the measurement of the related foreign currency transaction, except that permanent losses are recognized immediately. Foreign Currency Translation: The majority of the assets and liabilities of the Company's international operations are translated at year-end exchange rates; income and expenses are translated at average exchange rates prevailing during the year. For operations whose functional currency is the local currency, translation adjustments are accumulated in a separate section of shareholders' equity. Transaction gains and losses, as well as translation adjustments relating to operations whose functional currency is the U.S. dollar, are reflected in income. Pre-tax foreign exchange (losses) gains included in operating income were $(701), $(1,150) and $1,901 in 1997, 1996 and 1995, 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 from 30 to 40 years. The Company assesses the carrying value of goodwill at each balance sheet date. Consistent with Statement of Financial Accounting Standard ("SFAS") No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of", such assessments include, as appropriate, a comparison of (a) the estimated future nondiscounted cash flows anticipated to be generated during the remaining amortization period of the goodwill to (b) the net carrying value of goodwill. The Company recognizes diminution in value of goodwill, if any, on a current basis. Other intangible assets are amortized over the shorter of their legal or economic useful lives ranging from 5 to 20 years. Accumulated amortization was $95,033 and $93,383 at October 31, 1997 and 1996, respectively. 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 6 - 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 $40,094, $34,471 and $30,348 in 1997, 1996 and 1995, respectively. Certain capital expenditures used in research activities, such as the construction of a pilot paper machine used in research and for customer tests, are capitalized and depreciated over their expected useful lives. Earnings Per Share: Earnings per share are based upon the weighted average number of common shares outstanding during the year. The number of shares used in the computation were 47,826,813, 47,196,388 and 46,218,144 in 1997, 1996 and 1995, respectively. Common stock equivalents were not significant in any of the years presented. Shares in the Stock Employee Compensation Trust ("SECT") are not considered outstanding for purposes of computing earnings per share. Future Accounting Changes: In February, 1997, the Financial Accounting Standards Board ("FASB") issued SFAS No. 128, "Earnings per Share." This statement establishes revised standards for computing and presenting earnings per share. The statement is effective for the Company's fiscal 1998 first quarter. All prior periods will be required to be restated. The adoption of this standard will not have a material impact on the Company's reported earnings per share. In June, 1997, the FASB issued SFAS No. 130, "Reporting Comprehensive Income". The standard requires that certain items recognized under accounting principles as components of comprehensive income be reported in a financial statement that is displayed with the same prominence as other financial statements. The Company is not required to adopt the standard until fiscal 1999. Note 2 Acquisitions In early fiscal 1996, the Company completed the acquisition of Dobson Park Industries plc ("Dobson") for a purchase price of approximately $330,000, including acquisition costs, plus the assumption of net debt of approximately $40,000. 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 is being amortized over 40 years. Dobson, headquartered in the United Kingdom, was an industrial engineering group with interests in underground mining equipment, industrial electronic control systems, toys and plastics. Longwall International ("Longwall"), one of the main subsidiaries of Dobson, was engaged in the manufacture, sale and service of underground mining equipment for the international coal mining industry. Longwall's products included electronically controlled roof support systems and armored face conveyors. The Company is fully integrating Longwall's operations into Joy Mining Machinery ("Joy"), thus enabling Joy to offer integrated underground longwall mining systems to the worldwide mining industry. As a result of this integration, the Company established purchase accounting reserves to provide for the estimated costs of this effort. The reserves related primarily to the closure of selected manufacturing and service facilities, severance and relocation costs approximated $71,000. As of October 31, 1997, approximately $46,000 of the reserves had been used. As part of the Dobson acquisition, the non-core businesses are held for sale and separately classified as such in the Consolidated Balance Sheet. These businesses were originally valued at $100,000. All but one of the businesses have been sold, aggregating net proceeds of $90,677. The remaining balance represents the net realizable value including the expected cash flow from the remaining business. This business is expected to be sold within the next year. Profit/losses generated during the period related to businesses held for sale have been excluded from operating results. On March 27, 1996, the Company's Beloit Corporation subsidiary purchased the assets of the Pulp Machinery Division of Ingersoll-Rand Company ("IMPCO") for $119,230, including acquisition costs. 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 is being amortized over 40 years. On November 29, 1994, the Company completed the acquisition of JTI upon the approval of the shareholders of each company. Under the terms of the acquisition, accounted for as a pooling of interests, the Company exchanged 17,720,750 common shares for all of JTI's 31,353,000 outstanding shares, at an exchange ratio of .5652 of a share of the Company's common stock for each of JTI's common shares. Transaction costs incurred to complete the JTI merger of $17,459 ($11,384 after tax, or $0.24 per share) were charged to income and consisted primarily of investment banker, attorney and accountant fees, severance and related benefits, and printing, mailing and registration expenses. Note 3 Restructuring Charge In the fourth quarter of fiscal 1996, the Company's Beloit Corporation subsidiary recorded a restructuring charge. The focus of the restructuring is to better serve its customers and strengthen its market position in the worldwide pulp and paper industry. The restructuring is consistent with the Company's policy to generate positive Economic Value Added ("EVA"). The restructuring initiative involves organizing engineering and manufacturing operations into Centers of Excellence and expanding the aftermarket capabilities of the subsidiary. The total estimated cost of the restructuring activities reduced pre-tax income by $43,000 ($21,830 after tax and minority interest, or $0.46 per share). Included in the charge are costs related to severance for approximately 500 employees worldwide, the disposition of machinery and equipment, closure of certain facilities and the sale of businesses. At the end of fiscal 1997, $29,770 had been charged against the reserve and 444 employees had been terminated in accordance with the plan.
Details of the restructuring charge are as follows: Original Reserve 10/31/97 Reserve Utilized Reserve Employee severance $15,900 $(12,851) $ 3,049 Machinery and equipment dispositions 7,600 (6,830) 770 Closure of facilities 6,800 (703) 6,097 Sale of businesses 6,000 (3,085) 2,915 Other 6,700 (6,301) 399 -------- --------- ------- $43,000 $(29,770 ) $13,230 ======= ======== =======
The cash and noncash elements of the restructuring charge approximated $27,700 and $15,300, respectively. Cash outflows to date are approximately $18,400. The remaining reserves are expected to be substantially utilized during 1998. Note 4 Accounts Receivable
Accounts receivable at October 31 consisted of the following: 1997 1996 Trade receivables $438,591 $507,312 Unbilled receivables 405,897 169,086 Allowance for doubtful accounts and contract losses (8,319) (8,612) -------- -------- $836,169 $667,786 ======== ========
The amount of accounts receivable due beyond one year is not significant. Note 5 Inventories
Inventories at October 31 consisted of the following: 1997 1996 Finished goods $274,391 $198,160 Work in process and purchased parts 247,568 278,671 Raw materials 132,980 134,448 -------- -------- 654,939 611,279 Less excess of current cost over stated LIFO value (60,178) (64,164) --------- --------- $594,761 $547,115 ========= =========
Inventories valued using the LIFO method represented approximately 54% and 56% of consolidated inventories at October 31, 1997 and 1996, respectively. Note 6 Income Taxes
The components of income for the Company's domestic and foreign operations for the years ended October 31 were as follows: 1997 1996 1995 Domestic $126,230 $ 82,533 $102,701 Foreign 92,899 99,228 37,951 -------- -------- -------- Pre-tax income from continuing operations before Joy merger costs and gain on sale of Measurex investment $219,129 $181,761 $140,652 ======== ======== ========
The consolidated provision for income taxes included in the Consolidated Statement of Income for the years ended October 31 consisted of the following: 1997 1996 1995 Current provision(benefit): Federal $ (5,048) $ 4,957 $17,934 State 1,618 2,288 1,311 Foreign 24,691 36,474 14,690 --------- --------- ------- Total current 21,261 43,719 33,935 Deferred provision (credit): Federal 44,784 13,409 7,721 State and foreign (236) 6,472 1,509 --------- ------- ------- Total deferred 44,548 19,881 9,230 ------- ------- ------- Total consolidated income tax provision $65,809 $63,600 $43,165 ======= ======= =======
The income tax provision is included in the Consolidated Statement of Income as follows:
1997 1996 1995 Continuing operations $ 74,475 $63,600 $53,500 Loss from discontinued operations - - (8,015) Extraordinary item - retirement of debt (8,666) - (2,320) -------- ------- ------- $65,809 $63,600 $43,165 ======= ======= =======
The difference between the federal statutory tax rate and the effective tax rate on continuing operations for the years ended October 31 are as follows: 1997 1996 1995 Federal statutory tax rate 35.0% 35.0% 35.0% Goodwill amortization not deductible for tax purposes 1.6 1.9 0.7 Differences in foreign and U.S. tax rates 9.2 3.4 0.3 Differences in Foreign Sales Corporation and U.S. tax rate (0.8) (0.6) (1.5) State income taxes, net of federal tax impact 0.8 1.8 0.5 General business and foreign tax credits utilized (14.4) (9.1) (1.5) Other items-net 2.6 2.6 1.5 ----- ----- ----- Effective tax rate 34.0% 35.0% 35.0% ===== ===== =====
Temporary differences and carryforwards which gave rise to the net deferred tax (liability) asset at October 31 are as follows:
1997 1996 Inventories $(16,788) $(22,601) Reserves not currently deductible 5,757 59,892 Depreciation and amortization in excess of book expense (41,926) (54,666) Employee benefit related items 15,319 22,823 Tax credit carryforwards 28,300 14,579 Tax loss carryforwards 65,032 71,572 Other - net (65,618) (36,956) Valuation allowance (34,895) (44,968) --------- --------- Net deferred tax (liability) asset $(44,819) $ 9,675 ======= =======
This net (liability) asset is included in the Consolidated Balance Sheet in the following captions:
1997 1996 Other current assets $ 33,852 $ 64,595 Deferred income taxes (78,671) (54,920) --------- --------- $(44,819) $ 9,675 ========= =========
At October 31, 1997, the Company had general business tax credits of $17,971 expiring in 2009-2012, and alternative minimum tax credit carryforwards of $10,329 which do not expire. In addition, tax loss carryforwards consisted of foreign carryforwards of $25,469 with various expiration dates, capital loss carryforwards of $19,481 with various expiration dates, and domestic carryforwards of $20,082 with various states and expiration dates. The carryforwards will be available for the reduction of future income tax liabilities; a valuation allowance has been recorded against certain of these carryforwards for which utilization is uncertain. 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 $160,300 at October 31, 1997. 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 foreign tax credits that would be available. Income taxes paid were $11,809, $30,205 and $31,686 for 1997, 1996 and 1995, respectively. Note 7 Long-Term Obligations, Bank Credit Facilities and Interest Expense
Long-term obligations at October 31 consisted of the following: 1997 1996 10 1/4% Senior Notes, due 2003 $ 7,730 $188,380 8.9% Debentures, due 2022 75,000 75,000 8.7% Debentures, due 2022 75,000 75,000 71/4% Debentures, due 2025 (net of discount of $1,247 and $1,261, respectively) 148,753 148,739 67/8% Debentures, due 2027 (net of discount of $111) 149,889 - Senior Notes, Series A through D, at interest rates of between 8.9% and 9.1%, due 1998 to 2006 71,364 73,182 Revolving Credit Facility 150,000 40,000 Industrial Revenue Bonds, at interest rates of between 5.9% and 8.8%, due 1998 to 2017 33,400 34,629 Other 14,057 27,207 --------- --------- 725,193 662,137 Less: Amounts payable within one year 11,727 4,372 -------- --------- $713,466 $657,765 ======== =========
The 10 1/4% Senior Notes have a maturity date of September 1, 2003. JTI may, at its option, redeem the Senior Notes in whole or in part at any time on or after September 1, 1998 at 105.125% of their principal amount, plus accrued interest, declining to 100% of their principal amount, plus accrued interest, on or after September 1, 2000. In addition, upon a change of control of JTI, JTI is required to make an offer to purchase the Senior Notes then outstanding at a purchase price equal to 101% of the principal amount thereof plus accrued interest. On December 29, 1994, JTI issued an offer to purchase for cash at 101% any and all of its outstanding 10 1/4% Senior Notes. This offer expired on February 10, 1995 with $270 being repurchased under the offer. Prior to this tender offer, the Company had purchased $11,350 of outstanding 10 1/4% Senior Notes in unsolicited open market transactions. In 1995, as a result of the 10-1/4% Senior Note repurchases and repayment of remaining borrowings under JTI's Bank Facility, the Company recorded an extraordinary loss on debt retirement, net of applicable income taxes, of $(3,481), or $(0.08) per share, consisting primarily of unamortized financing costs and purchase premiums. On October 7, 1997, JTI issued a fixed-spread tender offer to purchase any and all of its 10 1/4% Senior Notes. This offer expired on October 21, 1997 with $180,650 being repurchased under the offer. In 1997, as a result of the 101/4% Senior Note repurchases, the Company recorded an extraordinary loss on debt retirement, net of applicable income taxes, of $(12,999), or $(0.27) per share, consisting primarily of unamortized financing costs and purchase premiums. Debt purchased was funded through available cash and credit facilities. It is the Company's current intention to redeem the remaining notes in September, 1998. The Company has $150,000 of unsecured debentures outstanding with interest rates ranging from 8.7% to 8.9% due at maturity in 2022. The 7 1/4% debentures were issued on December 19, 1995 at 99.153%. The debentures mature on December 15, 2025, are not redeemable prior to maturity and are not subject to any sinking fund requirements. In 1996, the Company filed a shelf registration with the Securities and Exchange Commission for the sale of up to $200,000 of debt securities. On February 25, 1997, $150,000 of 6 7/8% debentures were issued at 99.925%. Proceeds were used to repay short-term indebtedness and to increase cash. The debentures will mature on February 15, 2027, are not redeemable by the Company prior to maturity and are not subject to sinking fund requirements. Each holder of the debentures has the right to require the Company to repay the holders, in whole or in part, on February 15, 2007, at a repayment price equal to 100% of the aggregate principal amount thereof plus accrued and unpaid interest. Interest on the debentures is payable semi-annually on February 15 and August 15 of each year commencing on August 15, 1997. The Senior Notes, Series A through D, are privately placed and unsecured. The Series D Notes provide for eleven equal annual repayments beginning in 1996; Series A through C Notes are due at maturity in 1999, 1999 and 2001, respectively. The terms of certain of the debt instruments place limits on the amount of additional long-term debt the Company may issue and require maintenance of a minimum consolidated net worth, as defined. Additional funded debt may be incurred if immediately thereafter consolidated funded debt does not exceed 50% of consolidated total tangible assets, as defined. In November, 1993, the Company entered into a four-year Revolving Credit Facility Agreement between the Company and certain domestic and foreign financial institutions that allowed for borrowings of up to $150,000 at rates expressed in relation to LIBOR and other rates. In November, 1994, the facility was increased to $240,000. In October, 1997, the $240,000 facility was replaced by a new $500,000 Revolving Credit Facility which expires in October, 2002. A facility fee is payable on the Revolving Credit Facility. At October 31, 1997, direct outstanding borrowings under the facility were $150,000 and commercial paper borrowings, considered a utilization of the facility, were $84,149. Installments payable to holders of the outstanding long-term obligations of the Company are due as follows: 1998 $11,727 1999 39,215 2000 2,738 2001 28,073 2002 152,062 At October 31, 1997, short-term bank credit lines of foreign subsidiaries were approximately $218,300. The outstanding borrowings were $73,977 with a weighted average interest rate of 7.2%. There were no compensating balance requirements under these lines of credit.
Net interest expense consisted of the following: 1997 1996 1995 Interest income $ 3,458 $ 6,505 $ 11,035 Interest expense (76,001) (68,763) (51,748) ---------- ---------- --------- Interest expense - net $(72,543) $ (62,258) $(40,713) ========== ========== =========
Interest paid was $76,378, $65,161 and $52,615 in 1997, 1996 and 1995, respectively. Note 8 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, funded by Company stock held in a trust, 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, 1997 and 1996. The Company recorded an additional minimum pension liability and intangible asset of $4,513 and $5,600 in 1997 and 1996, respectively, to recognize the unfunded accumulated benefit obligation of certain plans. Pension expense for all plans of the Company was $20,953 in 1997, $19,132 in 1996 and $17,344 in 1995. Net periodic pension costs for U.S. plans and plans of subsidiaries outside the United States for which SFAS No. 87, "Employers' Accounting for Pensions," has been adopted included the following components:
1997 1996 1995 Service cost-benefits earned during the year $ 23,602 $ 22,892 $ 16,854 Interest cost on projected benefit obligation 62,722 56,792 33,655 Actual gain on plan assets (115,397) (98,003) (55,856) Net amortization and deferral 43,277 33,832 20,134 --------- --------- --------- Net periodic pension cost $ 14,204 $ 15,513 $ 14,787 ========= ========= =========
The discount rate used for U.S. plans was 7.5% in 1997 and 8.0% in 1996 and 1995, respectively, and for non-U.S. plans ranged from 7.0%-15.0%. The assumed rate of increase in future compensation of U.S. salaried employees was 4.5% in 1997 and 5.0% in 1996 and 1995, respectively, and for non-U.S. salaried employees ranged from 2.0%-12.0%. Benefits under the hourly employee plans are generally not based on wages. The expected long-term rate of return on assets for U.S. plans ranged from 8.0% to 10.0% and for non-U.S. plans ranged from 8.5%-16.0%. 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. The following table sets forth the plans' funded status at October 31, 1997 and 1996:
1997 Plans With Plans With Assets Accumulated Exceeding Benefits Accumulated Exceeding Benefits Assets Actuarial present value of: Vested benefits $715,967 $30,043 Accumulated benefits 757,050 35,492 Projected benefits 827,474 42,903 Net assets available for benefits 864,281 9,836 Plans' assets greater (less) than projected benefits 36,807 (33,067) Unrecognized (asset) obligation existing at adoption (5,328) 663 Unrecognized prior service cost 33,657 1,801 Unrecognized net (gain) loss (18,341) 9,272 --------- --------- Net pension asset (liability) $ 46,795 $(21,331) ========= =========
1996 Plans With Plans With Assets Accumulated Exceeding Benefits Accumulated Exceeding Benefits Assets Actuarial present value of: Vested benefits $601,511 $ 34,139 Accumulated benefits 633,397 39,149 Projected benefits 704,585 46,243 Net assets available for benefits 771,887 9,807 Plans' assets greater (less) than projected benefits 67,302 (36,436) Unrecognized (asset) obligation existing at adoption (5,508) 846 Unrecognized prior service cost 27,311 2,023 Unrecognized net (gain) loss (38,358) 9,748 --------- -------- Net pension asset (liability) $50,747 $(23,819) ========= =========
Pension plan assets consist primarily of trust funds with diversified portfolios of primarily equity and fixed income investments. 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 $9,957 in 1997, $10,783 in 1996 and $6,321 in 1995. In the first quarter of fiscal 1995, the Company implemented SFAS No. 112, "Employers' Accounting for Postemployment Benefits". The impact upon adoption of SFAS No. 112 on the Company's results of operations and financial position was not material. Note 9 Postretirement Benefits Other Than Pensions The Company generally provides certain health care and life insurance benefits under various plans for U.S. employees who retire after attaining early retirement eligibility, subject to the plan amendments discussed below. The weighted average discount rate used in determining the postretirement benefit obligation was 7.5% at October 31, 1997 and 8.0% at October 31, 1996 and October 31, 1995, respectively. The following table sets forth the plans' funded status and amounts recognized in the Company's Consolidated Balance Sheet as of October 31:
1997 1996 Accumulated postretirement benefit obligation: Retirees $53,531 $58,819 Fully eligible active plan participants 2,052 2,788 Other active plan participants 3,182 7,832 ------- ------- Total 58,765 69,439 Plan assets at fair value - - Accumulated postretirement benefit obligation in excess of plan assets 58,765 69,439 Unrecognized transition obligation - - Unrecognized prior service credit 11,903 20,653 Unrecognized gain 2,590 7,214 ------- ------- Accrued postretirement benefit liability 73,258 97,306 Less: Current portion 17,056 18,492 ------- ------- $56,202 $78,814 ======= =======
For measurement purposes, an annual rate of increase in the per capita cost of covered health care benefits in the range of 6.2% to 9.0% for non-Medicare eligible participants was assumed for 1997 (a range of 5.4% to 8.0% was used for Medicare eligible participants); 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, 1997 by $3,000 and the aggregate service cost and interest cost components of the net periodic postretirement benefit cost for the year by $200. Postretirement life insurance benefits have a minimal effect on the total benefit obligation. In 1993, the Board of Directors of the Company approved a general approach that would culminate 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 will be eliminated on January 1, 1999 for most employee groups, excluding Joy. 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.
Net periodic postretirement benefit cost includes the following components: 1997 1996 1995 Service cost $ 163 $ 327 $ 502 Interest cost on accumulated postretirement benefit obligation 4,743 5,632 6,475 Amortization of prior service (credit) (12,810) (10,780) (9,417) Net amortization and deferral (2,943) (2,624) (225) ---------- --------- --------- Net periodic postretirement benefit cost $ (10,847) $ (7,445) $ (2,665) ========== ========== ==========
Note 10 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 20% or more of the outstanding common stock of the Company. In September, 1997, the Company announced its intent to repurchase up to ten million shares of its common stock. At October 31, 1997, the Company had repurchased 906,400 shares for treasury at a cost of approximately $38,200. An additional $6,600 of treasury stock was repurchased in separate transactions. In fiscal 1997, the Company adopted the disclosure requirements of SFAS No. 123, "Accounting for Stock-Based Compensation," but elected to continue to measure compensation cost using the intrinsic value method, in accordance with Accounting Principles Board ("APB") Opinion No. 25, "Accounting for Stock Issued to Employees." Accordingly, no compensation cost for stock options has been recognized. If compensation cost had been determined based on the estimated fair value of options granted in 1996 and 1997, consistent with the methodology in SFAS No. 123, the pro forma effects on the Company's net income and earnings per share would not have been material. The fair value of each option granted in 1996 and 1997 was estimated using the Black-Scholes option-pricing method with the following weighted average assumptions: Expected stock price volatility 29.45% Risk-free interest rate 6.54% Expected life of options 7 years Expected dividends $0.40 per share On August 14, 1997, the Company established a new long-term incentive compensation plan which covers 11 key elected officers of the Company. The plan, which replaces traditional stock options for these participants, consists of awards of up to an aggregate of 1,200,000 shares based upon achievement of pre-established stock price improvement factors. The base stock price was set at $40.87 per share. The minimum requirements of the plan call for a portion of the shares to be awarded if a 30% increase in stock price occurs within three years. The shares shall be fully awarded if the stock price increases 50% within three years or 70% within five years. If target prices are not met, none of the shares will be awarded. As the stock price has declined since inception of the plan, no compensation expense was recorded in fiscal 1997. At the April 9, 1996 annual meeting, shareholders approved a new Stock Incentive Plan. This 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 30,000 shares were granted under this plan in fiscal year 1997. The Company's 1988 Incentive Stock Plan provides for the granting of qualified and non-qualified options, stock appreciation rights and restricted stock to key employees for not more than 3,600,000 shares of common stock. In fiscal 1996, non-qualified options and restricted stock covering 4,000 and 347,857 shares, respectively, were granted under this plan. The restricted stock was issued in connection with the cancellation of the employment contracts of certain senior executive officers. Shares are forfeited if the officer voluntarily terminates employment before age 55. During 1997, the shares were surrendered in exchange for comparable payment rights based on stock held in the Company's deferred compensation trust. Following shareholder approval of the Stock Incentive Plan, the 1988 Incentive Stock Plan terminated for the granting of future awards. Since the inception of the 1978 and 1988 Incentive Stock Plans and the 1996 Stock Incentive Plan, options for the purchase of 4,160,405 shares have been granted at prices ranging from $6.75 to $47.00 per share. At October 31, 1997, 1,159,771 of the options were outstanding, 1,901,075 had been exercised and 1,099,559 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.
Certain information regarding stock options is as follows: Number Weighted Average of Shares Price Per Share Outstanding at October 31, 1994 1,858,946 $19.04 Granted 637,750 29.17 Exercised (861,930) 18.44 Canceled or expired (190,480) 19.01 ---------- ------ Outstanding at October 31, 1995 1,444,286 23.88 Granted 494,900 37.83 Exercised (320,172) 20.97 Canceled or expired (120,680) 23.86 ---------- ------ Outstanding at October 31, 1996 1,498,334 29.11 Granted 30,000 43.29 Exercised (301,072) 23.80 Canceled or expired (67,491) 30.37 ---------- ------ Outstanding at October 31, 1997 1,159,771 30.78 ---------- ------ Exercisable at October 31, 1997 573,386 $26.86 ========== ======
The weighted average contractual life of options outstanding at October 31, 1997 is 7.78 years with exercise prices ranging from $14.38 to $47.00. Following a "Dutch auction" self-tender offer in May, 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 $195/8 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 $50,000 at $195/8 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. Shares in the SECT are being 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. Note 11 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 $27,307, $27,887 and $20,822 in 1997, 1996 and 1995, respectively. At October 31, 1997, 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: 1998 $19,761 1999 20,000 2000 13,496 2001 10,169 2002 8,716 2003 and thereafter 81,091 Note 12 Commitments, Contingencies and Off-Balance-Sheet Risks At October 31, 1997, the Company was contingently liable to banks, financial institutions and others for approximately $441,000 for outstanding letters of credit securing performance of sales contracts and other guarantees in the ordinary course of business, excluding the H-K Systems, Inc. back-up bond guarantee facility. The Company may also guarantee performance of its equipment at levels specified in sales contracts without the requirement of a letter of credit. The Company is party to litigation matters and claims which are normal in the course of its operations. Also, as a normal part of their operations, the Company's subsidiaries undertake 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 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. In the case of Beloit Corporation, certain litigation matters and claims are currently pending in connection with its contractual undertakings. Beloit may on occasion enter into arrangements to participate in the ownership of or operate 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 that alleges pulp line washers supplied by Beloit for less than $15,000 failed to perform satisfactorily. In June, 1997, a Lewiston, Idaho jury awarded Potlatch $95,000 in damages in the case. Beloit has appealed this award to the Idaho Supreme Court. While the eventual outcome of the Potlatch case cannot be predicted, reserves in the October 31, 1997 Consolidated Balance Sheet are less than the full amount of the jury award. 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 these matters will not have a materially adverse effect upon its consolidated financial position or results of operations. The Company 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. These contracts are used to hedge known cash receipts and disbursements in the ordinary course of business. At October 31, 1997, the outstanding net U.S. dollar face amounts of contracts to cover sales and purchase activity totaled approximately $78,400. In addition, at October 31, 1997, the Company had outstanding foreign exchange contracts totaling $10,689 to cover interest and borrowing obligations. The difference between contract and estimated fair values at October 31, 1997 was not significant. It is the Company's policy not to participate in high-yield financings, highly leveraged transactions or other "derivative" instruments. On October 29, 1993, the Company completed the sale of H-K Systems, Inc. to that unit's senior management and some equity partners. The Company agreed to make available a back-up bonding guarantee facility for certain bid, performance and other contract bonds issued by H-K Systems, Inc. Outstanding contract bonds under the guarantee arrangement totaled approximately $14,700 at October 31, 1997. No new bonds can be issued during 1998. Note 13 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. Long-Term Obligations: The fair value of the Company's long-term obligations has been based on prevailing market quotations and by discounting cash flows using current market yields quoted on similar issues. The estimated fair values of the Company's financial instruments at October 31, 1997 and 1996 are as follows:
1997 Carrying Value Fair Value Cash and Cash Equivalents $ 29,383 $ 29,383 =========== =========== Long-Term Obligations (725,193) (769,361) =========== =========== 1996 Carrying Value Fair Value Cash and Cash Equivalents $ 36,936 $ 36,936 =========== ========== Long-Term Obligations (662,137) (708,204) =========== ==========
Note 14 Transactions With Affiliated Companies Mitsubishi Heavy Industries, Ltd. ("Mitsubishi") owns a 20% interest in Beloit Corporation. In connection with this ownership interest, Mitsubishi entered into certain agreements that provide it with the right to designate one of Beloit's five directors. The agreements also place certain restrictions on the transfer of Beloit stock. In the event of change in control of the Company, Mitsubishi has the right to sell its 20% interest back to the Company for the greater of $60,000 or the book value of its equity interest. On October 1, 1996, Beloit Corporation entered into a joint venture agreement with Eduard Kuester Maschinenfabrik GmbH & Co. KG ("Kuesters"). Kuesters owns a 55% interest in the joint venture and is authorized to appoint two of the four members of the joint venture advisory board, including the chairman.
Transactions with related parties for the years ending October 31 were as follows: 1997 1996 1995 Sales $ 3,965 $1,267 $1,553 Purchases 39,413 223 265 Receivables 8,291 6,306 6,413 Payables 18,994 41 14 License Income 7,831 7,127 7,582
The Company believes that its transactions with all related parties were competitive with alternate sources of supply for each party involved. As of October 31, 1994, the Company's total investment in Measurex Corporation, including related expense, equity income and net of dividends received, amounted to $66,347, representing a 20% interest. In fiscal 1995, Measurex repurchased its stock which had been purchased by the Company resulting in a pre-tax gain of $29,657. Measurex continues to have cooperative agreements with Beloit. Note 15 Segment Information The Company designs, manufactures, markets and services products structured into three industry segments. The "Mining Equipment Segment" consists of P&H Mining Equipment (Harnischfeger Corporation) and Joy Mining Machinery. P&H Mining Equipment designs, manufactures and markets electric mining shovels, electric and diesel-electric draglines, buckets, hydraulic mining excavators, large rotary blasthole drilling equipment and related replacement parts for the surface mining and quarrying industries. Joy Mining Machinery designs, manufactures and distributes continuous miners, longwall shearers, roof supports, face conveyors, shuttle cars and flexible conveyor train continuous haulage systems for use in the underground extraction of coal and other minerals. In addition, Joy engineers, manufactures and markets worldwide a highwall mining system for the extraction of coal from exposed surface seams in the walls of surface coal mines, trenches and mountainside benches. It also rebuilds and services installed equipment and sells spare parts for the equipment it manufactures. The "Pulp and Paper Machinery Segment" (Beloit Corporation) designs, manufactures, services and markets papermaking machinery and allied equipment for the pulp and paper industries. Sales to a Pacific Rim customer in this segment approximated 12% of the Company's consolidated net sales for fiscal 1997 and the related accounts receivable from this customer approximated 25% of consolidated accounts receivable at October 31, 1997. The "Material Handling Segment" (Harnischfeger Corporation) designs, manufactures, services and markets overhead cranes, electric wire rope and chain hoists, engineered products, container cranes and crane modernizations and electrical products for use worldwide in a variety of industries and applications. In September, 1997, the Company announced that it was exploring the possible sale of this business segment. Intersegment sales are not significant. Common operating plants have been allocated to the respective segments. Corporate assets include principally cash, cash equivalents, and administration facilities.
Segments of Business by Industry Total Operating Sales Income --------- --------- 1997 Mining Equipment $1,467,341 $ 201,803 Pulp and Paper Machinery 1,267,847 76,485 Material Handling 353,350 38,399 ---------- --------- Total continuing operations 3,088,538 316,687 Corporate - (25,015) ---------- --------- Consolidated total $3,088,538 $ 291,672 ========== ========= 1996 Mining Equipment $1,405,936 $ 183,141 Pulp and Paper Machinery 1,134,779 48,511(1) Material Handling 323,216 33,107 ---------- --------- Total continuing operations 2,863,931 264,759 Corporate - (20,740) Consolidated total $2,863,931 $ 244,019 ========== ========= 1995 Mining Equipment $ 941,779 $ 122,116 Pulp and Paper Machinery 970,418 56,062 Material Handling 239,882 22,850 ---------- --------- Total continuing operations 2,152,079 201,028 Corporate - (19,663) Discontinued Operations - - ---------- --------- Consolidated total $2,152,079 $181,365 ========== =========
(1) After restructuring charge of $43,000.
Segments of Business by Industry Depreciation and Capital Amortization Expenditures ---------------- ------------ 1997 Mining Equipment $ 41,231 $ 61,004 Pulp and Paper Machinery 45,122 53,616 Material Handling 6,964 7,096 ---------- -------- Total continuing operations 93,317 121,716 Corporate 1,108 11,781 ---------- -------- Consolidated total $ 94,425 $133,497 ========== ======== 1996 Mining Equipment $ 44,051 $ 23,938 Pulp and Paper Machinery 38,788 39,769 Material Handling 5,893 6,833 ---------- -------- Total continuing operations 88,732 70,540 Corporate 538 12,848 ---------- -------- Consolidated total $ 89,270 $ 83,388 ========== ======== 1995 Mining Equipment $ 29,280 $ 25,963 Pulp and Paper Machinery 33,296 39,227 Material Handling 4,517 5,609 ---------- -------- Total continuing operations 67,093 70,799 Corporate 675 2,473 Discontinued Operations 2,744 212 ---------- -------- Consolidated total $ 70,512 $ 73,484 ========== ========
(1) After restructuring charge of $43,000.
Segments of Business by Industry Identifiable Assets ------------ 1997 Mining Equipment $1,371,484 Pulp and Paper Machinery 1,240,764 Material Handling 232,559 ---------- Total continuing operations 2,844,807 Corporate 79,728 ---------- Consolidated total $2,924,535 ========== 1996 Mining Equipment $1,362,435 Pulp and Paper Machinery 1,023,819 Material Handling 204,412 ---------- Total continuing operations 2,590,666 Corporate 99,363 ---------- Consolidated total $2,690,029 ========== 1995 Mining Equipment $ 797,921 Pulp and Paper Machinery 817,411 Material Handling 154,905 ---------- Total continuing operations 1,770,237 Corporate 222,881 Discontinued Operations 47,649 ---------- Consolidated total $2,040,767 ==========
(1) After restructuring charge of $43,000.
Geographical Segment Information Total Interarea Sales Sales ------- --------- 1997 United States $2,121,490 $(280,314) Europe 760,752 (165,730) Other Foreign 661,915 (9,575) Interarea Eliminations (455,619) 455,619 ----------- --------- $3,088,538 $ - =========== ========== 1996 United States $1,860,203 $(213,061) Europe 837,815 (158,639) Other Foreign 562,558 (24,945) Interarea Eliminations (396,645) 396,645 ----------- --------- $2,863,931 $ - =========== ========= 1995 United States $1,690,096 $(199,940) Europe 337,293 (43,604) Other Foreign 381,493 (13,259) Interarea Eliminations (256,803) 256,803 ----------- --------- $2,152,079 $ - =========== =========
Geographical Segment Information Sales to Unaffiliated Operating Customers Income ----------- -------- 1997 United States $1,841,176 $219,685 Europe 595,022 114,629 Other Foreign 652,340 50,077 Interarea Eliminations - (67,704) ---------- -------- $3,088,538 $316,687 ========== ======== 1996 United States $1,647,142 $156,556 Europe 679,176 86,273 Other Foreign 537,613 49,263 Interarea Eliminations - (27,333) ---------- -------- $2,863,931 $264,759 ========== ======== 1995 United States $1,490,156 $165,916 Europe 293,689 19,520 Other Foreign 368,234 35,290 Interarea Eliminations - (19,698) ---------- --------- $2,152,079 $201,028 ========== =========
Geographical Segment Information Identifiable Assets ---------- 1997 United States $1,814,018 Europe 672,929 Other Foreign 441,489 Interarea Eliminations (83,629) ---------- $2,844,807 ========== 1996 United States $1,456,221 Europe 700,496 Other Foreign 478,847 Interarea Eliminations (44,898) ---------- $2,590,666 ========== 1995 United States $1,202,038 Europe 313,822 Other Foreign 261,171 Interarea Eliminations (6,794) ---------- $1,770,237 ==========
Exports of U.S.-produced products were approximately $508,000, $321,000 and $263,000 in 1997, 1996 and 1995, respectively. Note 16 Discontinued Operations In February, 1995, the Company completed the sale of Syscon Corporation to Logicon, Inc. for a cash price of $45,000. In connection with this sale, the Company recorded a loss of $(21,948) or $(0.48) per share, net of applicable income taxes, in the first quarter of 1995. In December, 1995, the Company completed the sale of substantially all of the assets of JET to Babcock and Wilcox, an operating unit of McDermott International, for $11,651. The loss on sale, net of applicable income taxes, was recorded in fiscal 1995. As a result, the Consolidated Statement of Income reflects a loss from the discontinued operations of $(9,287) or $(0.19) per share for fiscal 1995. Operating results of discontinued operations as of October 31, were as follows:
1997 1996 1995 Net sales $ - $ - $101,472 Loss before income taxes - - (39,250) Income taxes credit - - 8,015 ------ ----- --------- Loss from discontinued operations $ - $ - $(31,235) ===== = ===== =========
Note 17 Subsequent Event-Restatement of Operating Results During the second quarter of fiscal 1998, the Company identified at its Beloit Corporation subsidiary additional estimated contract costs of approximately $155,000 related to four, large ongoing Indonesian projects with total contract values aggregating approximately $600,000. At the direction of the Company's Board of Directors, a special review was undertaken to assess the reasonableness of the revised cost estimates and the related financial reporting implications. Based upon the Company's internal review and the results of the special review, it has been determined that $27,600 of the approximate $155,000 in additional contract costs relate to certain isolated costs which were inadvertently overlooked in the preparation of the year-end cost estimates on these contracts. As such, $27,600 of these costs are more appropriately recorded in the fourth quarter of fiscal 1997 and the remaining $127,400 will be recorded in the Company's first and second quarters of fiscal 1998. Accordingly, the Company's fiscal 1997 financial statements have been restated as follows:
As Reported Restated Income before provision for income taxes and minority interest $ 246,729 $ 219,129 Provision for income taxes (83,875) (74,475) Minority interest (10,014) (6,374) ---------- --------- Income from continuing operations $ 152,840 $ 138,280 ========== ========= Net Income $ 139,841 $ 125,281 ========== ========= Earnings per share Income from continuing operations $ 3.20 $ 2.89 Net income 2.93 2.62
The additional estimated contract costs of approximately $155,000 on these Indonesian contracts are based upon the Company's best estimate at this time of the total estimated costs to complete these contracts. The actual costs may vary significantly from these estimates based upon numerous factors, including the volatility of the Indonesian political and economic situation and delivery, performance and other risks inherent in executing these large, complex projects. Report of Independent Accountants To the Directors and Shareholders of Harnischfeger Industries, Inc. In our opinion, the consolidated financial statements listed in the index appearing under Item 14(a)(1) and (2) of this Form 10-K/A, after the restatement described in Note 17, present fairly, in all material respects, the financial position of Harnischfeger Industries, Inc., and its subsidiaries (the "Company") at October 31, 1997 and 1996, and the results of their operations and their cash flows for each of the three years in the period ended October 31, 1997, in conformity with generally accepted accounting principles. 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 generally accepted auditing standards 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. Price Waterhouse LLP Milwaukee, Wisconsin November 18, 1997, except as to Note 17, which is as of June 1, 1998
Unaudited Quarterly Financial Data and Stock Prices Harnischfeger Industries, Inc. (Dollar amounts in thousands except per share and market price amounts) Fiscal Quarter 1997 First Second --------- -------- Net sales $699,411 $794,578 Gross profit 171,774 189,632 Operating income 67,500 91,373 Income from continuing operations 30,858 44,971 Extraordinary loss on retirement of debt, net of applicable income taxes - - --------- -------- Net income $ 30,858 $ 44,971 ========= ======== Earnings per share: Income from continuing operations $ 0.65 $ 0.94 Extraordinary loss on retirement of debt - - --------- -------- Net income per share $ 0.65 $ 0.94 ========= ======== Market price of common stock: High $ 50 $ 49 1/4 Low 39 1/2 40 Fiscal Quarter 1996 First Second -------- -------- Net sales $632,684 $739,509 Gross profit 141,152 178,689 Operating income 53,178 72,649 Net income $ 23,191 $ 33,555 ======== ======== Earnings per share: Net income per share $ 0.50 $ 0.71 Market price of common stock: High $ 35 1/4 $ 42 1/8 Low 28 5/8 33 3/4
Unaudited Quarterly Financial Data and Stock Prices Harnischfeger Industries, Inc. (Dollar amounts in thousands except per share and market price amounts) Fiscal Quarter 1997 Third Fourth ------ ------ Net sales $786,029 $808,520 Gross profit 185,681 172,336 Operating income 75,270 57,529 Income from continuing operations 35,890 26,561 Extraordinary loss on retirement of debt, net of applicable income taxes - (12,999) -------- --------- Net income $ 35,890 $ 13,562 ======== ========= Earnings per share: Income from continuing operations $ 0.75 $ 0.55 Extraordinary loss on retirement of debt - (0.27) -------- --------- Net income per share $ 0.75 $ 0.28 ======== ========= Market price of common stock: High $43 7/8 $ 44 13/16 Low 38 7/8 37 15/16 Fiscal Quarter 1996 Third Fourth (1) ------- ---------- Net sales $779,752 $711,986 Gross profit 182,487 194,828 Operating income 79,502 38,690 Net income $ 37,692 $ 19,779 ======== ======== Earnings per share: Net income per share $ 0.80 $ 0.41 ======== ======== Market price of common stock: High $ 41 5/8 $ 41 Low 30 1/4 30 7/8
(1) After restructuring charge of $43,000 ($21,830 after tax, or $0.46 per share)
Unaudited Quarterly Financial Data and Stock Prices Harnischfeger Industries, Inc. (Dollar amounts in thousands except per share and market price amounts) 1997 Year ------ Net sales $3,088,538 Gross profit 719,423 Operating income 291,672 Income from continuing operations 138,280 Extraordinary loss on retirement of debt, net of applicable income taxes (12,999) ----------- Net income $ 125,281 =========== Earnings per share: Income from continuing operations $ 2.89 Extraordinary loss on retirement of debt (0.27) ----------- Net income per share $ 2.62 =========== Market price of common stock: High $ 50 Low 37 15/16 1996 Year (1) ----------- Net sales $2,863,931 Gross profit 697,156 Operating income 244,019 Net income $ 114,217 ========== Earnings per share: Net income per share $ 2.42 ========== Market price of common stock: High $ 42 1/8 Low 28 5/8
(1) After restructuring charge of $43,000 ($21,830 after tax, or $0.46 per share) Item 9. Changes in and disagreements with Accountants on Accounting and Financial Disclosure: None PART III All information required by Items 10 through 13 of Part III, with the exception of information on the Executive Officers which appears in Part I of this report, is incorporated by reference from the Company's Proxy Statement for its 1998 Annual Meeting of Shareholders dated February 23, 1998. 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 Consolidated Statement of Income for the years ended October 31, 1997, 1996 and 1995 Consolidated Balance Sheet at October 31, 1997 and 1996 Consolidated Statement of Cash Flow for the years ended October 31, 1997, 1996 and 1995 Consolidated Statement of Shareholders' Equity for the years ended October 31, 1997, 1996 and 1995 Notes to Consolidated Financial Statements Report of Independent Accountants (2) Financial Statement Schedule For the Years Ended October 31, 1997, 1996 and 1995: II. Valuation and Qualifying Accounts
HARNISCHFEGER INDUSTRIES, INC. SCHEDULE VIII VALUATION AND QUALIFYING ACCOUNTS (Thousands of Dollars) Balance at Additions Beginning by Classification of Year Acquisition - ------------------------------ ---------- ----------- Allowances Deducted in Balance Sheet from Accounts Receivable: For the year ended October 31, 1997 Doubtful accounts $ 8,612 $ 158 ====== ====== For the year ended October 31, 1996 Doubtful accounts $ 7,604 $2,240 ====== ====== For the year ended October 31, 1995 Doubtful accounts $ 7,230 $ 495 ====== ====== (1) Represents write-off of bad debts, net of recoveries.
HARNISCHFEGER INDUSTRIES, INC. SCHEDULE VIII VALUATION AND QUALIFYING ACCOUNTS (Thousands of Dollars) Additions Charged Classification to Expense Deductions(1) - ------------------------------ ----------- ------------- Allowances Deducted in Balance Sheet from Accounts Receivable: For the year ended October 31, 1997 Doubtful accounts $ 2,604 $(3,006) ======= ======= For the year ended October 31, 1996 Doubtful accounts $ 4,278 $(4,381) ======= ======= For the year ended October 31, 1995 Doubtful accounts $ 1,483 $(1,514) ======= ======== (1) Represents write-off of bad debts, net of recoveries.
HARNISCHFEGER INDUSTRIES, INC. SCHEDULE VIII VALUATION AND QUALIFYING ACCOUNTS (Thousands of Dollars) Other Items Including Transactions Currency of Translation Discontinued Classification Effects Operations - ------------------------------ ------------- ----------- Allowances Deducted in Balance Sheet from Accounts Receivable: For the year ended October 31, 1997 Doubtful accounts $ (291) $ 242 ======= ======= For the year ended October 31, 1996 Doubtful accounts $(1,117) $ (12) ======= ======= For the year ended October 31, 1995 Doubtful accounts $ (26) $ (64) ======= ======= (1) Represents write-off of bad debts, net of recoveries.
HARNISCHFEGER INDUSTRIES, INC. SCHEDULE VIII VALUATION AND QUALIFYING ACCOUNTS (Thousands of Dollars) Balance at End Classification of Year - ------------------------------ --------- Allowances Deducted in Balance Sheet from Accounts Receivable: For the year ended October 31, 1997 Doubtful accounts $ 8,319 ======= For the year ended October 31, 1996 Doubtful accounts $ 8,612 ======= For the year ended October 31, 1995 Doubtful accounts $ 7,604 ======= (1) Represents write-off of bad debts, net of recoveries.
Allowance Deducted in Balance Sheet from Deferred Tax Assets:
Balance at Additions/ Balance Beginning Deductions- at end of Year Net of Year ---------- ---------- -------- For the year ended October 31, 1997 $ 44,968 $(10,073) $ 34,895 ========== ========== ======== For the year ended October 31, 1996 $ 18,256 $ 26,712 $ 44,968 ========== ========== ======== For the year ended October 31, 1995 $ 14,206 $ 4,050 $ 18,256 ========== ========== ========
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 50% or less-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. (3) Exhibits and Exhibit Index See the Exhibit Index included as the last part of this report which is incorporated herein by reference. Each management contract and compensatory plan or arrangement required to be filed as an exhibit to this report is identified in the Exhibit Index by an asterisk (*) following the description of the exhibit. (b) Reports on Form 8-K NONE SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this amended and restated report to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of St. Francis, Wisconsin, on the 15th day of June 1998. HARNISCHFEGER INDUSTRIES, INC. (Registrant) /s/FRANCIS M. CORBY, JR. ---------------------------- Francis M. Corby, Jr. Executive Vice President for Finance and Administration Pursuant to the requirements of the Securities Exchange Act of 1934, this amended and restated report has been signed below by the following persons on behalf of the registrant and in the capacities indicated on June 15, 1998.
Signature Title - ------------------------------- -------------------------------------- /s/JEFFERY T. GRADE Chairman and Chief Executive Officer ------------------------- Jeffery T. Grade /s/JOHN NILS HANSON Director and President and Chief --------------------- Operating Officer John Nils Hanson /s/FRANCIS M. CORBY, JR. Director and Executive Vice ----------------------- President for Finance Francis M. Corby, Jr. and Administration /s/JAMES C. BENJAMIN Vice President and Controller ------------------------ James C. Benjamin (1) Director ------------------------ Donna M. Alvarado (1) Director ------------------------ Larry D. Brady (1) Director ------------------------ John D. Correnti (1) Director ------------------------ Harry L. Davis (1) Director ------------------------ Robert M. Gerrity (1) Director ------------------------ Robert B. Hoffman (1) Director ------------------------ Ralph C. Joynes (1) Director ------------------------ Jean-Pierre Labruyere (1) Director ------------------------ L. Donald LaTorre (1) Director ------------------------ Leonard E. Redon (1) Director ------------------------ Donald Taylor
- ------------------------- (1) Jeffery T. Grade, by signing his name hereto, does hereby sign and execute this amended and restated 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. June 15, 1998 By: /s/JEFFERY T. GRADE -------------------- Jeffery T. Grade, Attorney-in-fact EXHIBIT INDEX
Exhibit 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 April 15, 1997 (incorporated by reference to Exhibit 3(b) to Report of Harnischfeger Industries, Inc. on Form 10-Q for the quarter ended April 30, 1997). (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 issued March 3, 1992 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 issued June 22, 1992 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 $150,000,000 dated August 22, 1992, File No. 33-51436 (incorporated by reference to Exhibit 4(h) to Report of Harnischfeger Industries, Inc. on Form 10-K for the year ended October 31, 1992, File No. 1-9299). (h) 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. (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) 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).* (l) 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).* (m) 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).* (n) $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). (o) Form of Indenture, dated as of September 1, 1993, for Joy Technologies Inc.'s 10 1/4% Senior Notes due 2002(incorporated by reference to Exhibit 4.1 to Joy Technologies Inc.'s Report on Form 10-Q for the quarter ended August 27, 1993, filed October 7, 1993). 9(a) Amendment No. 1 to Form of Indenture for Joy Technologies Inc.'s 10 1/4% Senior Notes due 2002. (b) Amendment No. 2 to Form of Indenture for Joy Technologies Inc.'s 10 1/4% Senior Notes due 2002. 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 February 10, 1997 (incorporated by reference to Exhibit 10(a) to Report of Harnischfeger Industries, Inc. on form 10-Q for the quarter ended January 31, 1997).* (c) Harnischfeger Industries, Inc. Executive Incentive Plan, as amended and restated as of February 10, 1997 (incorporated by reference to Exhibit 10(b) to Report of Harnischfeger Industries, Inc. on Form 10-Q for the quarter ended January 31, 1997).* (d) Long-Term Compensation Plan for Key Executives as of September 8, 1997 (incorporated by reference to Exhibit 10(d) to Report of Harnischfeger Industries, Inc. on Form 10-K for the year ended October 31, 1997, File No. 1-9299).* (e) Harnischfeger Industries, Inc. Supplemental Retirement and Stock Funding Plan, as amended and restated as of February 10, 1997 (incorporated by reference to Exhibit 10(b) to Report of Harnischfeger Industries, Inc. on Form 10-Q for the quarter ended January 31, 1997).* (f) Directors Stock Compensation Plan,as amended and restated, as of February 10, 1997 (incorporated by reference to Exhibit 10(b) to Report of Harnischfeger Industries, Inc. on Form 10-Q for the quarter ended January 31, 1997).* (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 of September 8, 1997 (incorporated by reference to Exhibit 10(h) to Report of Harnischfeger Industries, Inc. on Form 10-K for the year ended October 31, 1997, 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 For 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) Amended and Restated Grant Letter issued on June 8, 1997 to Jeffery T. Grade (incorporated by reference to Exhibit 10(m) to Report of Harnischfeger Industries, Inc. on Form 10-K for the year ended October 31, 1997, File No. 1-9299).* (n) Amended and Restated Grant Letter issued on June 8, 1997 to Francis M. Corby, Jr (incorporated by reference to Exhibit 10(n) to Report of Harnischfeger Industries, Inc. on Form 10-K for the year ended October 31, 1997, File No. 1-9299).* 11 Statement Re Computation of Earnings Per Share, filed herewith. 21 Subsidiaries of the Registrant (incorporated by reference to Exhibit 21 to Report of Harnischfeger Industries, Inc. on Form 10-K for the year ended October 31, 1997, File No. 1-9299. 23 Consent of Price Waterhouse LLP, filed herewith 24 Powers of Attorney (incorporated by reference to Exhibit 24 to Report of Harnischfeger Industries, Inc. on Form 10-K for the year ended October 31, 1997, File No. 1-9299. 27 Amended Financial Data Schedule, filed herewith. *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/A. - ----------------------
EXHIBIT 11 HARNISCHFEGER INDUSTRIES, INC. CALCULATIONS OF EARNINGS (LOSS)PER SHARE (Dollar amounts in thousands except per share amounts)
Year Ended October 31, ---------------------- Determination of Number of Shares 1997 1996 1995 --------------------------------- ---- ---- ---- Average shares outstanding.............. 47,826,813 47,196,388 46,218,144 ========== ========== ========== Net Income (Loss) ----------------- Income from Continuing Operations....... $138,820 $114,217 $92,120 Loss from and Net Loss on Sale of Discontinued Operation, net of applicable income taxes............... - - (31,235) Extraordinary Loss on Retirement of Debt, net of applicable income taxes........ (12,999) - (3,481) --------- -------- --------- Net Income ............................. $125,821 $114,217 $ 57,404 ======== ======== ========= Earnings (Loss) Per Share ------------------------- Income from continuing operations....... $ 2.89 $ 2.42 $ 1.99 Loss from and net loss on sale of discontinued operation................. - - (0.67) Extraordinary loss on retirement of debt. (0.27) - (0.08) ------- ------- --------- Net Income Per Share..................... $ 2.62 $ 2.42 $ 1.24 ======= ======= ========
Exhibit 23 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 November 18, 1997, except as to Note 17, which is as of June 1, 1998, appearing in this Annual Report on Form 10-K/A. 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) PRICE WATERHOUSE LLP Milwaukee, Wisconsin June 15, 1998 EX-27 2
5 1000 12-MOS OCT-31-1997 OCT-31-1997 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 3,088,538 3,118,243 2,369,115 0 0 0 72,543 219,129 74,475 138,280 0 (12,999) 0 125,281 2.62 2.60
-----END PRIVACY-ENHANCED MESSAGE-----