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improvements in most of our U.S. and world mar-
the year we began the implementation of the train-
kets.
ing, engineering and manufacturing license agree-
For our mining excavator product line, coal and
ment concluded in November, 1983 with the
certain metals mining are expected to show a more
People™s Republic of China, which offers the Corpo-
favorable long-term outlook in selected foreign
ration long-term potential in modernizing and
requirements and our capability to source equip-
mechanizing this vast and rapidly developing min-
ment from the U.S., Japan or Europe places us in a
ing market.
strong marketing position. In the U.S., we see only a
Sales of material handling equipment and sys-
moderate strengthening in machinery requirements
tems were up 10% for the year and the increasingly
for coal, while metals mining will remain weak.
stronger bookings recorded during the latter part of
Continuing shipments of the Turkish order
the year are continuing into the ¬rst quarter of
throughout 1985 will help to stabilize our plant utili-
1985.
zation levels and improve our operating results for
Sales on construction equipment products showed
this product line.
some signs of selective improvement. In the fourth
In our material handling and systems markets,
quarter, bookings more than doubled from the very
particularly in the U.S., we are experiencing a mod-
depressed levels in the same period a year ago,
erately strong continuation of the improved book-
although the current level is still far below what is
ings which we began to see in the third and fourth
needed to achieve acceptable operating results for
quarters of last year.
this product line.
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3-29 Part 2 Business Analysis and Valuation Tools




In construction lifting equipment markets, we Group.” More information on these Groups is
expect modest overall economic improvement in the reported in their respective sections.
U.S., which should help to absorb the large numbers We are pleased to announce that John P. Moran
of idle lifting equipment that have been manufac- was elected Senior Vice President and Group Execu-
turer, distributor and customer inventories for the tive, Industrial Technologies Group, and John R. Teit-
last three years. As this overhang on the market is gen was elected Secretary and General Counsel.
reduced we will see gradual improvement in new In September Robert F. Schnoes became a mem-
Harnischfeger Corporation




sales. Harnischfeger traditionally exports half of its ber of our Board of Directors. He is President and
U.S.-produced lifting products. However, as with Chief Executive Of¬cer of Burgess, Inc. and of Ultra-
mining equipment, the continued strength of the sonic Power Corporation, and a member of the
U.S. dollar severely restricts our ability to sell U.S.- Board of Signode Industries, Inc.
built products in world markets.
BEGINNING OUR SECOND CENTURY
In addition to the strong dollar and economic
instability in many foreign nations, overcapacity in 1984 was the Corporation™s Centennial year and
worldwide heavy equipment manufacturing remains we marked the occasion by rededicating ourselves
a serious problem in spite of some exits from the to excellence through market leadership, customer
market as well as consolidations within the industry. service and improved operating performance and
The Corporation continues to respond to severe pro¬tability.
price competition through systematic cost reduction Our ¬rst century of achievement resulted from the
programs and through expanded sourcing of P&H dedicated effort, support and cooperation of our
equipment from our European operation and, most employees, distributors, suppliers, lenders, and
importantly, through our 30-year association with shareholders, and we thank all of them.
our Japanese partner, Kobe Steel, Ltd. P&H engi- We look back with pride. We move ahead with
neering and technology have established world con¬dence and optimism. Our major markets have
standards for quality and performance for construc- never been more competitive; however, we will strive
tion cranes and mining equipment, which customers to take advantage of any and all opportunities for
can expect from every P&H machine regardless of its growth and to attain satisfactory pro¬tability. Collec-
source. More than a dozen new models of foreign- tively, we will do what has to be done to ensure that
sourced P&H construction cranes will be made avail- the future will be rewarding to all who have a part in
able for the ¬rst time in the U.S. during 1985, our success.
broadening our existing product lines and giving
competitive pricing to our U.S. distributors and Henry Harnischfeger
customers. Chairman of the Board
To improve our future operating results, we
restructured our three operating divisions into two William W. Goessel
groups. All construction and mining related activities President
are in the new “P&H Heavy Equipment Group.” All
January 31, 1985
material handling equipment and systems activities
are now merged into the “Industrial Technologies
112 Overview of Accounting Analysis




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MANAGEMENT™S DISCUSSION & Net interest expense in 1984 increased $2.9 mil-
lion due to higher interest rates on the outstanding
ANALYSIS
funded debt and a reduction in interest income.
Equity in Earnings (Loss) of Unconsolidated Com-
RESULTS OF OPERATIONS
panies included 1984 income of $1.2 million of
Harnischfeger Credit Corporation, an unconsoli-
1984 Compared to 1983
dated ¬nance subsidiary, re¬‚ecting an income tax
Consolidated net sales of $399 million in ¬scal




Harnischfeger Corporation
bene¬t of $1.4 million not previously recorded.
1984 increased $78 million or 24% over 1983.
The preceding items, together with the cumulative
Sales increases were 62% in the Mining and Electri-
effect of the change in depreciation method
cal Equipment Segment, and 10% in the Industrial
described in Financial Note 2, were included in net
Technologies Segment. Sales in the Construction
income of $15.2 million or $1.28 per common
Equipment Segment were virtually unchanged
share, compared with net loss of $34.6 million or
re¬‚ecting the continued low demand for construc-
$3.49 per share in 1983.
tion equipment world-wide.
The sales orders booked and unshipped backlogs
Effective at the beginning of ¬scal 1984, net sales
of orders of the Corporation™s three segments are
include the full sales price of construction and min-
summarized as follows (in million of dollars):
ing equipment purchased from Kobe Steel, Ltd. and
sold by the Corporation, in order to re¬‚ect more
effectively the nature of the Corporation™s transac- Orders Booked 1984 1983
tions with Kobe. Such sales aggregated $28.0 mil-
lion in 1984. Industrial Technologies $132 $106
The $4.0 million increase in Other Income Mining and Electrical Equip-
re¬‚ected a recovery of certain claims and higher ment 210 135
license and technical service fees. Construction Equipment 109 109
Cost of Sales was equal to 79.1% of net sales in $451 $350
1984 and 81.4% in 1983; which together with the
Backlogs at October 31
increase in net sales resulted in a $23.9 million
Industrial Technologies $ 79 $ 71
increase in gross pro¬t (net sales less cost of sales).
Mining and Electrical Equip-
Contributing to this increase were improved sales of
ment 91 50
higher-margin replacement parts in the Mining
Construction Equipment 23 20
Equipment and Industrial Technologies Segments
and a reduction in excess manufacturing costs $193 $141
through greater utilization of domestic manufactur-
ing capacity and economies in total manufacturing 1983 Compared to 1982
costs including a reduction in pension expense. Consolidated net sales of $321 million in ¬scal
Reductions of certain LIFO inventories increased 1983 were $126 million or 28% below 1982. This
gross pro¬t by $2.4 million in 1984 and $15.6 mil- decline re¬‚ected, for the second consecutive year,
lion in 1983. the continued low demand in all markets served by
Product development selling and administrative the Corporation™s products, with exports even more
expenses were reduced, due to the funding of R&D severely depressed due to the strength of the dollar.
expenses in the Construction Equipment Segment The largest decline was reported in the Construction
pursuant to the October 1983 Agreement with Kobe Equipment Segment, down 34%; Mining and Electri-
Steel, Ltd., to reductions in pension expenses and cal Equipment Segment shipments were down 27%,
provision for credit losses, and to the absence of the and the Industrial Technologies Segment, 23%.
corporate ¬nancial restructuring expenses incurred Cost of Sales was equal to 81.4% of net sales in
in 1983. 1983 and 81.9% in 1982. The resulting gross pro¬t
113
Overview of Accounting Analysis




3-31 Part 2 Business Analysis and Valuation Tools




LIQUIDITY AND FINANCIAL RESOURCES
was $60 million in 1983 and $81 million in 1982, a
reduction equal to the rate of sales decrease.
In April 1984, the Corporation issued in public
The bene¬ts of reduced manufacturing capacity
offerings 2,150,000 shares of Common Stock, $50
and economies in total manufacturing costs were
million principal amount of 15% Senior Notes due in
offset by reduced selling prices in the highly compet-
1994, and 100,000 Units consisting of $100 million
itive markets. Reductions of certain LIFO inventories
principal amount of 12% Subordinated Debentures
increased gross pro¬ts by $15.6 million in 1983
Harnischfeger Corporation




due in 2004 and 2,000,000 Common Stock Pur-
and $7.2 million in 1982.
chase Warrants.
Product development, selling and administrative
The net proceeds from the sales of the securities
expenses were reduced as a result of expense reduc-
of $149 million were used to prepay substantially all
tion measures in response to the lower volume of
of the outstanding debt of the Corporation and cer-
business and undertaken in connection with the
tain of its subsidiaries.
Corporation™s corporate recovery program, and
During the year ended October 31, 1984, the
reduced provisions for credit losses, which in 1982
consolidated cash balances increased $32 million to
included $4.0 million in income support for Harnis-
a balance of $96 million, with the cash activity sum-
chfeger Credit Corporation.
marized as follows (in million of dollars):
Net interest expense was reduced $9.1 million
from 1982 to 1983, due primarily to increased
Funds provided by operations $10
interest income from short-term cash investments
Funds returned to the Corporation upon
and an accrual of $4.7 million in interest income on
restructuring of the Salaried Employees™
refundable income taxes not previously recorded.
Pension Plan 39
The Credit for Income Taxes included a federal
Debt repayment less the proceeds of sales of
income tax bene¬t of $5 million, based upon the
securities (9)
recent examination of the Corporation™s income tax
Plant and equipment additions (6)
returns and refund claims. No income tax bene¬ts
All other changes”net (2)
were available for the losses of the U.S. operations
$32
in 1983.
The losses from unconsolidated companies
In the third quarter of ¬scal 1984 the Corporation
recorded in 1983 included $0.5 million in Harnisch-
entered into a $52 million three-year revolving
feger Credit Corporation; $2.1 million in Cranetex,
credit agreement with ten U.S. and Canadian
Inc., a Corporation-owned distributorship in Texas;
banks. While the Corporation has adequate liquidity
and $0.8 million in ASEA Industrial Systems Inc.,
to meet its current working capital requirements, the
then a 49%-owned joint venture between the Corpo-
revolver represents another step in the Corpora-
ration and ASEA AB and now 19%-owned with the
tion™s program to strengthen its ¬nancial position
investment accounted for on the cost method.
and provide the required ¬nancial resources to
The preceding items were re¬‚ected in a net loss of
respond to opportunities as they arise.
$34.6 million or $3.49 per share.
114 Overview of Accounting Analysis




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