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Harnischfeger Corporation
rands, with imputed Provision (credit)
interest rate of 12% 1,024 ” for income taxes (1,560) (222) 180
Other ” 36 Net income (loss) $1,195 $(502) $(4,815)
153,051 157,175
Less: Amounts payable within Credit™s purchases of ¬nance receivables from the
644 17,799
one year Corporation aggregated $1.1 million in 1984,
Unamortized discounts 23,857 284 $46.7 million in 1983 and $50.4 million in 1982.
Long-Term Debt”excluding
In 1982, Credit received income support of $4.0
amounts payable within
million from the Corporation.
$128,550 $139,092
one year
In 1982, the Corporation organized Cranetex,
Inc. to assume certain assets and liabilities trans-
Note 5
ferred by a former distributor of construction equip-
Harnischfeger Credit Corporation and ment, in settlement of the Corporation™s and
Cranetex, Inc. Credit™s claims against the distributor and to con-
Condensed ¬nancial information of Harnis- tinue the business on an interim basis until the fran-
chfeger Credit Corporation (“Credit”), an uncon- chise can be transferred to a new distributor. The
solidated wholly-owned ¬nance subsidiary, Corporation recorded provisions of $2.5 million in
accounted for under the equity method, was as 1983 and $2.3 million in 1982 and Credit recorded
follows (in thousands of dollars): a provision of $6.7 million in 1982, for credit losses
incurred in the ¬nancing of equipment sold to the
former distributor.
Balance Sheet October 31,
1984 1983
The condensed balance sheet of Cranetex, Inc.
was as follows (in thousand of dollars):
Assets:
Cash and temporary invest-
ments $ 404 $19,824 October 31,
Finance receivables”net 4,335 11,412 1984 1983
Factored account note and
current account receivable Assets:
from parent company ” 8,836 Cash $ 143 $ 49
Other assets 4,181 661 Accounts receivables 566 428
Inventory 2,314 3,464
$8,920 $40,733
Property and equipment 1,547 1,674
Liabilities and Shareholder™s
Equity: $4,570 $5,615
Debt payable $ ” $32,600 Liabilities and De¬cit:
Advances from parent Loans payable $4,325 $6,682
company 950 ” Other liabilities 338 620
Other liabilities 71 1,429 4,663 7,302
1,021 34,029 Shareholder™s (de¬cit), net of
accounts and advances pay-
Shareholder™s equity 7,899 6,704
able to parent company (93) (1,687)
$8,920 $40,733
$4,570 $5,615
123
Overview of Accounting Analysis




3-41 Part 2 Business Analysis and Valuation Tools




The net losses of Cranetex, Inc. of $.2 million in ceding paragraph, approximated $5.2 million,
1984, $2.1 million in 1983 and $1.0 million in $10.5 million and $7.0 million during the three
1982 were included in Equity in Earnings (Loss) of years ended October 31, 1984, 1983 and 1982,
Unconsolidated Companies in the Corporation™s respectively. The purchases from Kobe of mining
Statement of Operations. and construction equipment and components
amounted to approximately $33.7 million, $15.5
Note 6 million and $29.9 million during the three years
Harnischfeger Corporation




ended October 31, 1984, 1983 and 1982, respec-
Transactions with Kobe Steel, Ltd. and ASEA
tively, most of which were resold to customers (See
Industrial Systems Inc.
Note 2).
Kobe Steel, Ltd. of Japan (“Kobe”), has been a lic-
The Corporation owns 19% of ASEA Industrial
ensee for certain of the Corporation™s products since
Systems Inc. (“AIS”), an electrical equipment com-
1955, and has owned certain Harnischfeger Japa-
pany controlled by ASEA AB of Sweden. The Corpo-
nese construction equipment patents and technol-
ration™s purchases of electrical components from AIS
ogy since 1981. As of October 31, 1984, Kobe held
aggregated $11.2 million in 1984 and $6.1 million
1,030,000 shares or 8.4% of the Corporation™s out-
in 1983 and its sales to AIS approximated $2.6 mil-
standing Common Stock (See Note 13). Kobe also
lion in 1984 and $3.8 million in 1983.
owns 25% of the capital stock of Harnischfeger of
The Corporation believes that its transactions with
Australia Pty. Ltd., a subsidiary of the Corporation.
Kobe and AIS were competitive with alternative
This ownership appears as the minority interest on
sources of supply for each party involved.
the Corporation™s balance sheet.
Under agreements expiring in December 1990, Note 7
Kobe pays technical service fees on P&H mining
Inventories
equipment produced and sold under license from
Consolidated inventories consisted of the follow-
the Corporation, and trademark and marketing fees
ing (in thousand of dollars):
on sales of construction equipment outside of
Japan. Net fee income received from Kobe was
$4.3 million in 1984, $3.1 million in 1983, and October 31,
$3.9 million in 1982; this income is included in 1984 1983
Other Income in the accompanying Statement of
At lower of cost or market
Operations.
(FIFO method):
In October 1983, the Corporation entered into a Raw materials $ 11,003 $ 11,904
ten-year agreement with Kobe under which Kobe Work in process and pur-
agreed to supply the Corporation™s requirements for chased parts 88,279 72,956
construction cranes for sale in the United States as it Finished goods 79,111 105,923
phases out its own manufacture of cranes over the 178,393 190,783
next several years, and to make the Corporation the Allowance to reduce inven-
exclusive distributor of Kobe-built cranes in the tories to cost on the LIFO
method (34,081) (37,189)
United States. The Agreement also involves a joint
$144,312 $153,594
research and development program for construction
equipment under which the Corporation agreed to
Inventories valued on the LIFO method repre-
spend at least $17 million over a three-year period
sented approximately 82% of total inventories at
and provided it does so, Kobe agreed to pay this
both October 31, 1984 and 1983.
amount to the Corporation. Sales of cranes outside
Inventory reductions in 1984, 1983 and 1982
the United States continue under the contract terms
resulted in a liquidation of LIFO inventory quantities
described in the preceding paragraph.
carried at lower costs compared with the current cost
The Corporation™s sales to Kobe, principally com-
of their acquisitions. The effect of these liquidations
ponents for mining and construction equipment,
was to increase net income by 2.4 million or $.20
excluding the R&D expenses discussed in the pre-
124 Overview of Accounting Analysis




3-42
Overview of Accounting Analysis




per common share in ¬scal 1984, and to reduce the 1984, $6.5million in 1983 and $12.2 million in
net loss by approximately $15.6 million or $1.54 1982.
per share in 1983, and by $6.7 million or $.66 per Accumulated plan bene¬ts and plan net assets for
share in 1982; no income tax effect applied to the the Corporation™s U.S. de¬ned bene¬t plans, at the
adjustment in 1984 and 1983. beginning of the ¬scal years 1984 and 1983, with
the data for the Salaried Employees™ Retirement Plan
Note 8 as in effect on August 1, 1984, were as follows (in




Harnischfeger Corporation
Accounts Receivable thousands of dollars):
Accounts receivable were net of allowances for
doubtful accounts of $5.9 million and $6.4 million 1984 1983
at October 31, 1984 and 1983, respectively.
Actuarial present value of
Note 9 accumulated plan bene¬ts:
Vested $52,639 $108,123
Research and Development Expense
Nonvested 2,363 5,227
Research and development expense incurred in $55,002 $113,350
the development of new products or signi¬cant Net assets available for
improvements to existing products was $5.1 million bene¬ts:
in 1984 (net of amounts funded by Kobe Steel, Ltd.) Asset s of the Pension Trusts $45,331 $112,075
$12.1 million in 1983 and $14.1 million in 1982. Accrued contributions not
paid to the Trusts 16,717 12,167
Note 10 $62,048 $124,242
Foreign Operations
The net sales, net income (loss) and net assets of The Salaried Employees™ Retirement Plan, which
subsidiaries located in countries outside the United covers substantially all salaried employees in the
States and Canada and included in the consolidated U.S., was restructured during 1984 due to overfund-
¬nancial statements were as follows (in thousands of ing of the Plan. Effective August 1, 1984, the Corpo-
dollars): ration terminated the existing plan and established
a new plan which is substantially identical to the
Year Ended October 31, prior plan except for an improvement in the mini-
1984 1983 1982 mum pension bene¬t. All participants in the prior
plan became fully vested upon its termination. All
$78,074 $45,912 $69,216
Net sales
vested bene¬ts earned through August 1, 1984 were
Net income (loss)
covered through the purchase of individual annu-
after minority
ities at a cost aggregating $36.7 million. The
828 (1,191) 3,080
interests
remaining plan assets, which totaled $39.3 million,
Corporation™s
reverted to the Corporation in cash upon receipt of
equity in total net
17,734 7,716 7,287
assets regulatory approval of the prior plan termination
from the Pension Bene¬t Guaranty Corporation. For
Foreign currency transaction losses included in ¬nancial reporting purposes, the new plan is consid-
Cost of Sales were $2.7 million in 1984, $1.2 mil- ered to be a continuation of the terminated plan.
lion in 1983 and $1.3 million in 1982. Accordingly, the $39.3 million actuarial gain which
resulted from the restructuring is included in
Note 11
Accrued Pension Costs in the accompanying Bal-
Pension Plans and Other Postretirement Bene¬ts ance Sheet and is being amortized to income over a
ten-year period commencing in 1984. For tax
Pension expense for all plans of the Corporation
reporting purposes, the asset reversion will be
and its consolidated subsidiaries was $1.9 million in
125
Overview of Accounting Analysis




3-43 Part 2 Business Analysis and Valuation Tools




treated as a ¬scal 1985 transaction. The initial Note 12
unfunded actuarial liability of the new plan, com- Income Taxes
puted as of November 1, 1983, of $10.3 million is
Domestic and foreign income (loss) before
also included in Accrued Pension Costs.
income tax effects was as follows (in thousands of
In 1982 and 1983, the Pension Trusts purchased
dollars):
certain securities with effective yields of 13% and
12%, respectively, and dedicated these assets to the Year Ended October 31,
Harnischfeger Corporation




plan bene¬ts of a substantial portion of the retired
1984 1983 1982
employees and certain terminated employees with
deferred vested rights. These rates, together with 9% $1,57 $(35,41) $(77,60
Domestic
for active employees in 1984, 8% in 1983 and 71„4% 8 2 0)
in 1982, were the assumed rates of return used in Foreign:
determining the annual pension expense and the Harnischfeger
GmbH 432 (2,159) (475)
actuarial present value of accumulated plan bene¬ts
All other 3,728 4,768 8,418
for the U.S. plans.
4,160 2,609 7,943
The effect of the changes in the investment return
Total income (loss)
assumption rates for all U.S. plans, together with the
before income tax
1984 restructuring of the U.S. Salaried Employees™

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