================================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
---------------------------
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934
---------------------------
For the quarterly period ended April 30, 2000
Commission Registrant; State of Incorporation; IRS EMPLOYER
File Number Address; and Telephone Number Identification No.
333-52529 MMH HOLDINGS, INC. 39-1924039
(a Delaware Corporation)
315 W. Forest Hill Avenue
Oak Creek, Wisconsin 53154
(414) 764-6200
333-52527 MORRIS MATERIAL HANDLING, INC. 39-1716155
(a Delaware Corporation)
315 W. Forest Hill Avenue
Oak Creek, Wisconsin 53154
(414) 764-6200
Indicate by check mark whether the registrants (1) have 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 (or for such shorter period that the
registrants were required to file such reports), and (2) have been subject to
such filing requirements for the past 90 days.
Yes X No
--- ---
Indicate the number of shares outstanding of each of the issuers' classes of
common stock, as of the latest practicable date (June 20, 2000):
MMH Holdings, Inc. Nonvoting common stock, $.01 Par Value,
4,350 shares outstanding. Voting common
stock, $.01 Par Value, 10,169 shares
outstanding.
Morris Material Handling, Inc. Common stock, $.01 Par Value, 100 shares
outstanding. MMH Holdings, Inc. holds all
of the outstanding common stock of Morris
Material Handling, Inc.
MMH HOLDINGS, INC.
MORRIS MATERIAL HANDLING, INC.
INDEX
INTRODUCTION 2
PART I -FINANCIAL INFORMATION:
Item 1. Financial Statements
MMH Holdings, Inc.
Condensed Balance Sheets 4
Condensed Statements of Operations and Comprehensive
Income (Loss) 5
Condensed Statements of Cash Flows 6
Statements of Preferred Stock and Shareholders' Equity 7
Morris Material Handling, Inc.
Condensed Balance Sheets 8
Condensed Statements of Operations and Comprehensive
Income (Loss) 9
Condensed Statements of Cash Flows 10
Statements of Shareholder's Equity 11
Notes to Financial Statements of
MMH Holdings, Inc. and
Morris Material Handling, Inc. 12
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations of
MMH Holdings, Inc. and Morris Material
Handling, Inc. 31
Item 3. Quantitative and Qualitative Disclosures about
Market Risk 41
PART II - OTHER INFORMATION:
Item 1. Legal Proceedings 42
Item 2. Changes in Securities 42
Item 3. Defaults upon Senior Securities 42
Item 4. Submission of Matters to a Vote of Security Holders 42
Item 5. Other Information 42
Item 6. Exhibits and Reports on Form 8-K 42
INTRODUCTION
MMH Holdings, Inc. ("Holdings") is a holding company whose sole direct
subsidiary is Morris Material Handling, Inc. ("MMH"), a manufacturer,
distributor and service provider of "through-the-air" material handling
equipment with operations in the United States, United Kingdom, South Africa,
Singapore, Canada, Australia, Thailand, Chile and Mexico. Unless the context
requires otherwise, references to the "Company" in this combined 10-Q are to
MMH, its subsidiaries and their predecessors. For periods prior to March 30,
1998, references to the Company are to the "through-the-air" material handling
equipment business (the "MHE Business") of Harnischfeger Corporation ("HarnCo")
and those subsidiaries and affiliates of HarnCo that were engaged therein.
2
This combined Form 10-Q is separately filed by MMH Holdings, Inc. and by Morris
Material Handling, Inc. The unaudited interim financial statements presented in
this combined report (collectively, the "Financial Statements") include the
financial statements of Holdings, as well as separate financial statements for
MMH. Information contained herein relating only to Holdings or MMH is filed by
Holdings or MMH as the case may be, on its own behalf.
Certain sections of this Form 10-Q, including "Management's Discussion and
Analysis of Financial Condition and Results of Operations," contain various
forward looking statements within the meaning of Section 21E of the Securities
Exchange Act of 1934, which represent management's expectations or beliefs
concerning future events. Holdings and MMH caution that those statements are
further qualified by important factors that could cause actual results to differ
from those in the forward looking statements. Factors that might cause such a
difference include, without limitation, general economic conditions and
competition in the markets in which the Registrants' operations are located and
are detailed herein under "Management's Discussion and Analysis of Financial
Condition and Results of Operations - Cautionary Factors." Consequently, all
forward looking statements made herein are qualified by these cautionary
statements. There can be no assurance that the actual results, events or
developments referenced herein will occur or be realized.
3
MMH HOLDINGS, INC.
------------------
(DEBTORS - IN - POSSESSION AS OF MAY 17, 2000)
--------------------------------------------
CONDENSED BALANCE SHEETS
------------------------
(DOLLARS IN THOUSANDS)
----------------------
ASSETS
------
April 30, October 31,
2000 1999
----------- -----------
(Unaudited)
Current Assets
Cash and cash equivalents $ 2,101 $ 3,929
Accounts receivable-net 54,649 64,481
Inventories 39,684 39,994
Other current assets 9,784 7,842
--------- ---------
106,218 116,246
Property, Plant and Equipment
Land and improvements 3,349 3,349
Buildings 22,762 23,235
Machinery and equipment 44,640 45,219
--------- ---------
70,751 71,803
Less accumulated depreciation (32,586) (30,829)
--------- ---------
38,165 40,974
--------- ---------
Other Assets
Goodwill 39,872 42,844
Debt financing costs 15,320 16,398
Other 10,141 10,374
--------- ---------
65,333 69,616
--------- ---------
$ 209,716 $ 226,830
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------
April 30, October 31,
2000 1999
----------- ----------
(Unaudited)
Current Liabilities
Short-term notes payable and
current portion of long-term
obligations (Note 7) $ 382 $ 383
Revolving Credit Facility
Borrowings (Note 7) 29,990 27,925
Term Loans (Note 7) 48,395 52,225
Acquisition Facility Line Borrowings
(Note 7) 12,094 12,430
Senior Notes (Note 7) 200,000 200,000
Bank overdrafts 1,693 1,367
Trade accounts payable 19,308 26,757
Employee compensation and
benefits 6,244 8,020
Advance payments and progress
billings 10,800 8,336
Accrued warranties 1,767 1,821
Accrued interest 11,556 1,804
Income taxes payable 3,923 2,205
Other current liabilities 10,472 9,791
--------- ---------
356,624 353,064
--------- ----------
Other Long-Term Obligations 2,638 2,784
Other Long-Term Liabilities 1,044 1,307
Minority Interest 292 504
--------- ----------
Commitments and Contingencies (Note 8)
Manditorily Redeemable Preferred Stock 115,239 108,245
Shareholders' Equity (266,121) (239,068)
--------- ----------
$ 209,716 $ 226,836
========= ==========
The accompanying notes are an integral part of the financial statements.
4
MMH HOLDINGS, INC.
------------------
(DEBTORS - IN - POSSESION AS OF MAY 17, 2000)
---------------------------------------------
CONDENSED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS
---------------------------------------------------------
(UNAUDITED)
-----------
(DOLLARS IN THOUSANDS)
----------------------
For the Three Months For the Six Months
ENDED APRIL 30, ENDED APRIL 30,
--------------------------------- ---------------------------------
2000 1999 2000 1999
------------- ------------- ------------- -------------
Revenues
Equipment and Part Sales $ 51,435 $ 54,430 $ 103,600 $ 107,495
Service Sales 14,770 17,419 29,324 32,274
------------- ------------- ------------- -------------
Net Sales 66,205 71,849 132,924 139,769
Other Income - Net - 45 - 147
------------- ------------- ------------- -------------
66,205 71,894 132,924 139,916
Cost of Sales 50,683 54,442 101,555 105,056
Selling, General and Administrative Expenses 21,291 19,354 38,151 35,287
------------- ------------- ------------- -------------
Operating Loss (5,769) (1,902) (6,782) (427)
Gain on Sale of a Business - - 6,380 -
Interest Expense - Net (7,616) (7,523) (15,366) (14,431)
------------- ------------- ------------- -------------
Loss Before Income Taxes and
Minority Interest (13,385) (9,425) (15,768) (14,858)
Provision for Income Taxes (247) (3,518) (2,035) (1,065)
Minority Interest 11 21 27 27
------------- ------------- ------------- -------------
Net Loss (13,621) (12,922) (17,776) (15,896)
Foreign Currency Translation Adjustments (2,521) (407) (2,278) (1,377)
------------- ------------- ------------- -------------
Comprehensive Loss $ (16,142) $ (13,329) $ (20,054) $ (17,273)
============== ============== ============== =============
The accompanying notes are an integral part of the financial statements.
5
MMH HOLDINGS, INC.
------------------
(DEBTORS - IN - POSSESION AS OF MAY 17, 2000)
---------------------------------------------
CONDENSED STATEMENTS OF CASH FLOWS
----------------------------------
(UNAUDITED)
-----------
(DOLLARS IN THOUSANDS)
----------------------
For the Six Months
ENDED APRIL 30,
------------------------------------
2000 1999
----------- -----------
Operating Activities
Net income (loss) $ (17,776) $ (15,896)
Add (deduct) - items not affecting cash provided by
operating activities:
Depreciation and amortization 4,563 3,853
Amortization of debt financing costs 1,174 1,048
Deferred income taxes - net - 31
Gain on sale of business (6,380) -
Other (27) (27)
Changes in working capital, excluding the
effects of acquisition opening balance sheets:
Accounts receivable 8,312 19,285
Inventories (1,498) 1,262
Other current assets (2,008) (4,063)
Trade accounts payable and bank overdrafts (6,357) (8,125)
Advance payments and progress billings 2,492 1,016
Accrued interest 9,734 (400)
Other current liabilities 966 (5,389)
----------- -----------
Net cash used for operating activities (6,805) (7,405)
----------- -----------
Investment and Other Transactions
Fixed asset additions - net (474) (4,744)
Capitalized software (997) -
Acquisition of businesses - net of cash acquired - (5,070)
Net proceeds on divestiture of business 9,115 -
Repayments of loans from senior management - 70
Other - net (196) (245)
----------- -----------
Net cash provided by (used for) investment and other transactions 7,448 (9,989)
----------- -----------
Financing Activities
Changes in short-term debt and notes payable 6,840 8,267
Net (repayments of)/proceeds from
Revolving Credit Facility borrowings (4,775) 8,784
Repayment of Term Loans (3,812) -
Proceeds from/(repayments of) Acquisition Facility Line borrowings (336) 1,235
Repayments of long-term debt (87) (675)
Payment of fees for amendment of Credit Facility (226) -
----------- -----------
Net cash provided by (used for) financing activities (2,396) 17,611
----------- -----------
Effect of Exchange Rate Changes on
Cash and Cash Equivalents (75) 39
----------- -----------
Increase (decrease) in Cash and Cash Equivalents (1,828) 256
Cash and Cash Equivalents
Beginning of Period 3,929 2,534
----------- -----------
End of Period $ 2,101 $ 2,790
The accompanying notes are an integral part of the financial statements.
6
MMH HOLDINGS, INC.
------------------
(DEBTORS - IN - POSSESION AS OF MAY 17, 2000)
---------------------------------------------
STATEMENTS OF PREFERRED STOCK AND SHAREHOLDERS' EQUITY
-------------------------------------------------------
FOR THE SIX MONTHS ENDED APRIL 30, 2000
---------------------------------------
(UNAUDITED)
----------
(DOLLARS IN THOUSANDS)
----------------------
PREFERRED STOCK
----------------------------------------------------------------------------------------
SERIES A SERIES B SERIES C
------------------------ ------------------------ -----------------------
Shares Carrying Shares Carrying Shares Carrying
OUTSTANDING VALUE OUTSTANDING VALUE OUTSTANDING VALUE TOTAL
----------- -------- ----------- --------- ----------- --------- ----------
BALANCE AT OCTOBER 31, 1999 68,741 $ 67,443 $ 5,750 $ 5,808 $ 34,633 $ 34,994 $ 108,245
Net loss
Change in foreign currency
translation
Preferred stock dividends 4,124 4,165 352 356 2,165 2,187 6,708
Issuance of non-voting common shares
Amortization of preferred stock
discount 291 291
Other (5) (5)
------ --------- ---------- --------- --------- -------- ---------
BALANCE AT APRIL 30, 2000 72,865 $ 71,894 6,102 $ 6,164 36,798 $ 37,181 $ 115,239
====== ========= ======== ========= ========= ========= =========
COMMON STOCK Parent Accumulated
----------------------- Investment/ Other Total
Shares Par Additional Comprehensive Retained Shareholders'
OUTSTANDING VALUE PAID-IN-CAPITAL LOSS EARNINGS EQUITY
------------ -------- --------------- ------------ ---------- --------------
BALANCE AT OCTOBER 31, 1999 12,099 $ - $(121,860) $ (3,428) $(113,780) $(239,068)
Net loss (17,776) (17,776)
Change in foreign currency
translation (2,278) (2,278)
Preferred stock dividends (6,708) (6,708)
Issuance of non-voting common shares 2,420
Amortization of preferred stock
discount (291) (291)
Other
------ ------ --------- --------- --------- ---------
BALANCE AT APRIL 30, 2000 14,519 $ - $(121,860) $ (5,706) $(138,555) $(266,121)
====== ====== ========= ========= ========= =========
The accompanying notes are an integral part of the financial statements.
7
MORRIS MATERIAL HANDLING, INC.
------------------------------
(DEBTORS - IN POSSESSION AS OF MAY 17, 2000)
--------------------------------------------
CONDENSED BALANCE SHEETS
------------------------
(DOLLARS IN THOUSANDS)
----------------------
ASSETS
------
April 30, October 31,
2000 1999
----------- -----------
(Unaudited)
Current Assets
Cash and cash equivalents $ 2,101 $ 3,929
Accounts receivable-net 54,649 64,481
Inventories 39,684 39,994
Other current assets 9,784 7,842
--------- ---------
106,218 116,246
Property, Plant and Equipment
Land and improvements 3,349 3,349
Buildings 22,762 23,235
Machinery and equipment 44,640 45,219
--------- ---------
70,751 71,803
Less accumulated depreciation (32,586) (30,829)
--------- ---------
38,165 40,974
--------- ---------
Other Assets
Goodwill 39,872 42,844
Debt financing costs 15,320 16,398
Other 10,141 10,374
--------- ---------
65,333 69,616
--------- ---------
$ 209,716 $ 226,836
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------
April 30, October 31,
2000 1999
----------- ----------
(Unaudited)
Current Liabilities
Short-term notes payable and
current portion of long-term
obligations (Note 7) $ 382 $ 383
Revolving Credit Facility
Borrowings (Note 7) 29,990 27,925
Term Loans (Note 7) 48,395 52,225
Acquisition Facility Line Borrowings
(Note 7) 12,094 12,430
Senior Notes (Note 7) 200,000 200,000
Bank overdrafts 1,693 1,367
Trade accounts payable 19,308 26,757
Employee compensation and
benefits 6,244 8,020
Advance payments and progress
billings 10,800 8,336
Accrued warranties 1,767 1,821
Accrued interest 11,556 1,804
Income taxes payable 3,923 2,205
Other current liabilities 10,472 9,791
--------- ---------
356,624 353,064
--------- ---------
Other Long-Term Obligations 2,638 2,784
Other Long-Term Liabilities 1,044 1,307
Minority Interest 292 504
Commitments and Contingencies (Note 8)
Shareholders' Equity (150,882) (130,823)
--------- ---------
$ 209,716 $ 226,836
========= =========
The accompanying notes are an integral part of the financial statements.
8
MORRIS MATERIAL HANDLING, INC.
------------------------------
(DEBTORS - IN - POSSESSION AS OF MAY 17, 2000)
--------------------------------------------
CONDENSED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS
---------------------------------------------------------
(UNAUDITED)
-----------
(DOLLARS IN THOUSANDS)
----------------------
For the Three Months For the Six Months
ENDED APRIL 30, ENDED APRIL 30,
--------------------------- ---------------------------
2000 1999 2000 1999
----------- ----------- ----------- -----------
Revenues
Equipment and Part Sales $ 51,435 $ 54,430 $ 103,600 $ 107,495
Service Sales 14,770 17,419 29,324 32,274
----------- ----------- ----------- -----------
Net Sales 66,205 71,849 132,924 139,769
Other Income - Net - 45 - 147
----------- ----------- ----------- -----------
66,205 71,894 132,924 139,916
Cost of Sales 50,683 54,442 101,555 105,056
Selling, General and Administrative
Expenses 21,291 19,354 38,151 35,287
----------- ----------- ----------- -----------
Operating Loss (5,769) (1,902) (6,782) (427)
Gain on Sale of a Business - - 6,380 -
Interest Expense - Net (7,616) (7,523) (15,366) (14,431)
---------- ---------- ----------- -----------
Loss Before Income Taxes and
Minority Interest (13,385) (9,425) (15,768) (14,858)
Provision for Income Taxes (247) (3,518) (2,035) (1,065)
Minority Interest 11 21 27 27
----------- ----------- ----------- -----------
Net Loss (13,621) (12,922) (17,776) (15,896)
Foreign Currency Translation Adjustments (2,521) (407) (2,278) (1,377)
----------- ----------- ----------- -----------
Comprehensive Loss $ (16,142) $ (13,329) $ (20,054) $ (17,273)
=========== =========== =========== ===========
The accompanying notes are an integral part of the financial statements.
9
MORRIS MATERIAL HANDLING, INC.
------------------------------
(DEBTORS - IN - POSSESION AS OF MAY 17, 2000)
---------------------------------------------
CONDENSED STATEMENTS OF CASH FLOWS
----------------------------------
(UNAUDITED)
-----------
(DOLLARS IN THOUSANDS)
----------------------
For the Six Months
ENDED APRIL 30,
------------------------------------
2000 1999
----------- -----------
Operating Activities
Net income (loss) $ (17,776) $ (15,896)
Add (deduct) - items not affecting cash provided by
operating activities:
Depreciation and amortization 4,563 3,853
Amortization of debt financing costs 1,174 1,048
Deferred income taxes - net - 31
Gain on sale of business (6,380) -
Other (27) (27)
Changes in working capital, excluding the
effects of acquisition opening balance sheets:
Accounts receivable 8,312 19,285
Inventories (1,498) 1,262
Other current assets (2,008) (4,063)
Trade accounts payable and bank overdrafts (6,357) (8,125)
Advance payments and progress billings 2,492 1,016
Accrued interest 9,734 (400)
Other current liabilities 966 (5,389)
----------- -----------
Net cash used for operating activities (6,805) (7,405)
----------- -----------
Investment and Other Transactions
Fixed asset additions - net (474) (4,744)
Capitalized software (997) -
Acquisition of businesses - net of cash acquired - (5,070)
Net proceeds on divestiture of business 9,115 -
Repayments of loans from senior management - 70
Other - net (196) (245)
----------- -----------
Net cash provided by (used for) investment and other transactions 7,448 (9,989)
----------- -----------
Financing Activities
Changes in short-term debt and notes payable 6,840 8,267
Net (repayments of)/proceeds from
Revolving Credit Facility borrowings (4,775) 8,784
Repayment of Term Loans (3,812) -
Proceeds from/(repayments of) Acquisition Facility Line borrowings (336) 1,235
Repayments of long-term debt (87) (675)
Payment of fees for amendment of Credit Facility (226) -
----------- -----------
Net cash provided by (used for) financing activities (2,396) 17,611
----------- -----------
Effect of Exchange Rate Changes on
Cash and Cash Equivalents (75) 39
----------- -----------
Increase (decrease) in Cash and Cash Equivalents (1,828) 256
Cash and Cash Equivalents
Beginning of Period 3,929 2,534
----------- -----------
End of Period $ 2,101 $ 2,790
The accompanying notes are an integral part of the financial statements.
10
MORRIS MATERIAL HANDLING, INC.
------------------------------
(DEBTORS - IN - POSSESSION AS OF MAY 17, 2000)
----------------------------------------------
STATEMENTS OF SHAREHOLDER'S EQUITY
----------------------------------
FOR THE SIX MONTHS ENDED APRIL 30, 2000
---------------------------------------
(UNAUDITED)
-----------
(DOLLARS IN THOUSANDS)
----------------------
COMMON STOCK Parent Accumulated
-------------------- Investment/ Other Total
Shares Par Additional Comprehensive Retained Shareholder's
Outstanding Value Paid-in-Capital Loss Earnings Equity
----------- ----- -------------- ------------- -------- -------------
>
BALANCE AT OCTOBER 31, 1999 100 $ - $ (33,392) $ (3,428) $ (94,003) $(130,823)
Net loss (17,776) (17,776)
Change in foreign currency
translation (2,278) (2,278)
Other (5) (5)
BALANCE AT APRIL 30, 2000 100 $ - $ (33,392) $ (5,706) $(111,784) $(150,882)
===== ===== ========== ========== ========== ==========
The accompanying notes are an integral part of the financial statements.
11
MMH HOLDINGS, INC.
------------------
MORRIS MATERIAL HANDLING, INC.
------------------------------
(DEBTORS- IN - POSSESSION AS OF MAY 17, 2000)
---------------------------------------------
NOTES TO FINANCIAL STATEMENTS
-----------------------------
UNAUDITED
---------
(DOLLAR AMOUNTS IN THOUSANDS UNLESS INDICATED)
NOTE 1 - REORGANIZATION UNDER CHAPTER 11
- ----------------------------------------
On May 17, 2000, MMH Holdings, Inc. ("Holdings") and its domestic operating
subsidiaries (collectively, the "Debtors") filed voluntary petitions for
reorganization under Chapter 11 of the U.S. Bankruptcy Code (the "Bankruptcy
Code") in the United States Bankruptcy Court for the District of Delaware (the
"Bankruptcy Court"). The Debtors' Chapter 11 cases have been consolidated for
the purpose of joint administration under case number 00-2027(SLR). The Debtors
are currently operating their businesses as debtors-in-possession pursuant to
the Bankruptcy Code. Pursuant to the Bankruptcy Code, actions to collect certain
prepetition indebtedness of the Debtors and other obligations against the
Debtors may not be enforced. These claims will be reflected in subsequent
filings in the balance sheet as "liabilities subject to compromise". In
addition, under the Bankruptcy Code, the Debtors may assume or reject executory
contracts, including leases. Additional claims may arise from such rejection,
and from the determination by the court (or agreed by the parties in interest)
to allow claims for contingencies and other disputed amounts. However, the
Debtors have not yet completed their review of all their prepetition executory
contracts and leases for assumption or rejection. See also Note 7, Indebtedness
and Note 12, Subsequent Events.
The Debtors received approval from the Bankruptcy Court to pay or otherwise
honor certain of their prepetition obligations, including employee wages and
obligations to their customers. In addition, the Bankruptcy Court authorized the
Debtors to maintain their employee benefit programs.
NOTE 2 - BASIS OF PRESENTATION
- ------------------------------
On January 28, 1998, Harnischfeger Industries, Inc. ("HII") reached an agreement
with MHE Investments, Inc. ("MHE Investments"), an affiliate of Chartwell
Investments Inc. ("Chartwell"), for the sale of an approximately 80 percent
common ownership interest in HII's Material Handling Equipment Business (the
"MHE Business"). As more fully described in Note 3, the resulting transactions
(the "Recapitalization"), which closed on March 30, 1998 (the "Recapitalization
Closing"), led to a significant change in the capital structure and a
reorganization of the underlying legal entities of the MHE Business. As a result
of the Recapitalization, Holdings, a pre-existing company engaged in the MHE
Business, became an indirect holding company for the operating entities engaged
in the MHE Business. Specifically, Morris Material Handling, Inc. ("MMH" and
collectively with its subsidiaries and their predecessors, the "Company"), a
newly formed wholly owned direct subsidiary of Holdings, directly or indirectly
acquired the various operating entities engaged in the MHE Business. Holdings
was recapitalized in order to effect the redemption of certain shares of common
stock of Holdings held by Harnischfeger Corporation ("HarnCo"). As a result of
the reorganization of the legal entities of the MHE Business, Holdings and MMH
became the successor companies to the MHE Business. The transactions have been
accounted for as a recapitalization and accordingly, the financial statements
presented herewith reflect the underlying historical accounting basis of the MHE
Business.
The accompanying consolidated interim financial statements have been prepared on
a going concern basis, which contemplates continuity of operations, realization
of assets and liquidation of liabilities in the ordinary course of business and
do not reflect any adjustments that might result if the Debtors are unable to
continue as a going concern. As a result of the Debtors' Chapter 11 filings,
however, such matters are subject to significant uncertainty, although the
Debtors intend to file a plan of reorganization with the Bankruptcy Court.
Continuing on a going concern basis is dependent upon, among other things, the
Debtors' formulation of an acceptable plan of reorganization, the success of
future business operations, and the generation of sufficient cash from
operations and financing sources to meet the Debtors' obligations. The
accompanying consolidated interim financial statements do not reflect: (i) the
realizable value of assets on a liquidation basis or their availability to
satisfy
12
liabilities, (ii) aggregate prepetition liability amounts that may be allowed
for claims or contingencies, or their status or priority, (iii) the effect of
any changes to the Debtors' capital structure or in the Debtors' business
operations as the result of an approved plan of reorganization; or (iv)
adjustments to the carrying value of assets or liability amounts that may be
necessary as the result of actions by the Bankruptcy Court. Further, while
management believes that no impairment of recorded goodwill or related
long-lived assets exists at April 30, 2000, based upon current estimates of
future nondiscounted cash flows excluding interest, assesssment of recoverable
amounts could decrease materially in the near term if estimates of future
operating cash flows are reduced.
These consolidated interim financial statements should be read in conjunction
with the combined 1999 Annual Report on Form 10-K of Holdings and the Company.
In the opinion of management, all adjustments, normal and recurring in nature,
necessary for a fair presentation of results of operations and financial
position have been included in the accompanying balance sheets and statements of
operations. The results of operations for the three and six months ended April
30, 2000 are not, however, necessarily indicative of the results which may be
expected for fiscal 2000.
NOTE 3 - RECAPITALIZATION TRANSACTION
- -------------------------------------
The Recapitalization was effectuated pursuant to the January 28, 1998
Recapitalization Agreement among MHE Investments, HarnCo and certain of HII's
affiliates. Pursuant to this agreement, HarnCo and other HII affiliates effected
a number of transactions which resulted in Holdings owning, directly or
indirectly, the equity interests of all of the operating entities engaged in the
MHE Business. Holdings, in turn, formed MMH as a wholly owned subsidiary to
directly or indirectly hold the various operating entities engaged in the MHE
Business.
The principal transactions effected as part of the Recapitalization were the
following: (i) MHE Investments acquired (x) 7,907 shares of Holdings' common
stock for $25.1 million and (y) $28.9 million liquidation preference of
Holdings' 12 1/2% Series C Junior Voting Exchangeable Preferred Stock (the
"Series C Junior Voting Preferred Stock") from HarnCo; (ii) Holdings redeemed
certain shares of its common stock and Series C Junior Voting Preferred Stock
held by HarnCo for $287 million in cash (including a $5 million prepayment of a
potential post-closing redemption price adjustment) and approximately $4.8
million liquidation preference of Holdings' 12 1/4% Series B Junior Exchangeable
Preferred Stock (the "Series B Junior Preferred Stock"); and (iii) HarnCo
retained 2,261 shares of Holdings' common stock.
To finance the Recapitalization, Holdings sold $60 million of Series A Units,
consisting of $57.7 million liquidation preference of Holdings' 12% Series A
Senior Exchangeable Preferred Stock (the "Series A Senior Preferred Stock") and
$2.3 million of Holdings' non-voting common stock, to institutional investors.
In addition, MMH issued (the "Note Offering") $200 million of aggregate
principal amount of its 9 1/2% senior notes due 2008 (the "Senior Notes") and
entered into a senior secured credit facility (the "New Credit Facility") (see
Note 7). The New Credit Facility consisted of a $70 million Revolving Credit
Facility (the "Revolving Credit Facility"), a $30 million acquisition facility
(the "Acquisition Facility") and $55 million in term loans. MMH used a portion
of the $200 million aggregate proceeds from the Note Offering and $55 million
aggregate borrowings under the New Credit Facility to redeem certain of its
common shares from Holdings and pay Holdings a dividend which redemption and
dividend totaled $233.8 million. Holdings, in turn, used the proceeds from this
redemption, together with the proceeds of the sale of the Series A Units, to
finance the cash portion of the redemption price for HarnCo's shares. The
remainder of the proceeds was used by Holdings and MMH (i) to make loans to
senior management to acquire indirect equity interests in Holdings, (ii) to fund
certain transaction fees and expenses and (iii) for general corporate purposes.
At April 30, 2000, MHE Investments owned approximately 54.5% of the common stock
of Holdings and $36.8 million liquidation preference of the Series C Junior
Voting Preferred Stock and HarnCo owned approximately 15.6% of the common stock
of Holdings and $6.1 million liquidation preference of the Series B Junior
Preferred Stock. Certain indirect equity holders in MHE Investments own, through
Martin Crane L.L.C., approximately 25.0% of the common stock of Holdings. The
remaining equity interests are held by institutional investors and consist of
non-voting stock representing approximately 4.9% of the outstanding common stock
of Holdings and $72.9 million liquidation preference of the Series A Senior
Preferred Stock.
NOTE 4 - LIQUIDITY AND CAPITAL RESOURCES
- ----------------------------------------
The Company did not meet certain financial covenants contained in the New Credit
Facility for the quarter ended April 30, 2000 and anticipates that it will not
meet them in the foreseeable future. The Company entered into several Amendments
and Waivers under the New Credit Facility, dated as of January 31, 2000 through
April 28, 2000, whereby, among other matters, the lenders waived compliance by
the Company with such financial covenants, for the period from January 31, 2000
until 5:00 p.m. May 26, 2000 (the "Waivers"). The Waivers permitted the Company,
subject to certain conditions, to make additional
13
borrowings under the Revolving Credit Facility and issue additional letters of
credit, above levels in existence on January 28, 2000, in an aggregate amount of
up to $12.4 million, during the period as to which the Waivers apply.
On May 17, 2000, Holdings and its domestic operating subsidiaries filed
voluntary petitions for reorganization under Chapter 11 of the U.S. Bankruptcy
Code. See Note 1, Reorganization under Chapter 11 and Note 12, Subsequent
Events. On May 18, 2000, the Bankruptcy Court entered an order approving $10.0
million in interim debtor-in-possession financing to the Debtors and authorizing
the Debtors to utilize their collections in the operation of their business.
This $10 million amount represented the initial portion under a commitment by
the lenders to provide $35 million in financing (including a letter of credit
facility) in connection with the Debtors' Chapter 11 cases. The full $35 million
facility was approved by the Bankruptcy Court on June 15, 2000. This new
facility has an initial maturity date of December 1, 2000, which date, absent a
default, shall be automatically extendable to June 1, 2001 if a sale of the
Debtors shall not have been consummated prior to December 1, 2000.
The Company believes that the filing provides the Debtors with the opportunity
to restructure its indebtedness. The Company plans to continue to implement its
cost savings initiatives to bring costs in line with market requirements.
Although no material adverse effects have occurred to date, disruption of
operations relating to the Chapter 11 reorganization could adversely affect the
Debtors' relationships with their creditors, customers, suppliers or employees.
As of the end of second quarter of 2000, the Company had $306.7 million of
indebtedness outstanding, including $90.9 million under the New Credit Facility
(including accrued interest) and $211.1 million evidenced by the Senior Notes
(including accrued interest).
The Company is currently seeking, and is engaged in discussions regarding, its
strategic alternatives. The Company has engaged in discussions with its bank
lenders and representatives of the holders of Senior Notes concerning the
possible restructuring of the Company's capital structure, including a possible
sale of the Company to a third party in connection therewith. There can be no
assurance that the Company will be able to successfully pursue strategic
alternatives or that the results of its discussions with its creditors will be
successful. As discussed above, if the Company fails in the near future to
resolve its critical liquidity issues, the Company may be unable to continue as
a going concern.
NOTE 5 - ACQUISITIONS
- ---------------------
During the six months ended April 30, 2000, the Company did not make any
acquisitions. During the six months ended April 30, 1999, the Company completed
one acquisition with an aggregate purchase price of $3.1 million, net of cash
acquired, including approximately $1.0 million financed by the seller. This
acquisition was related to the Company's aftermarket business and was accounted
for as a purchase transaction with the purchase price allocated to the fair
value of specific assets acquired and liabilities assumed. Resultant goodwill of
$1.8 million is being amortized over 40 years. This acquisition was partially
financed by the seller, resulting in a deferred purchase price which will be
paid in 2004 and 2005.
During the six months ended April 30, 1999, the Company made final payments of
$1.5 million related to two 1998 acquisitions. In addition, with respect to a
1995 acquisition, the Company was required to make a contingent consideration
payment of $1.4 million in the six months ended April 30, 1999. Additionally, a
payment of $100 was made in each of the six month periods ended April 30, 2000
and 1999 toward a fiscal 1998 purchase which was partially financed by the
seller. On a pro forma basis, the fiscal 1999 acquisition was not material to
results of operations reported for the six months ended April 30, 1999 and
accordingly, such information is not presented.
14
NOTE 6 - INVENTORIES
Inventories consisted of the following:
April 30, October 31,
2000 1999
---------------------------
Raw material $ 5,370 $ 8,771
Work-in-process 21,678 20,166
Finished parts 18,995 18,116
---------------------------
46,043 47,053
Less excess of current cost over
stated LIFO value (6,359) (7,059)
---------------------------
$39,684 $39,994
===========================
NOTE 7 - INDEBTEDNESS
- ---------------------
On June 15, 2000, the Bankruptcy Court approved a $35 million
Debtor-in-Possession facility and authorized the Debtors to use their
collections in the operations of their business. The new facility contains a
number of covenants that, among other things, limit the Debtors' ability to
create or assume liens, consolidate or merge with other entities, create, incur,
or assume additional indebtedness, dispose of certain assets and make capital
expenditures. The new facility also requires the Debtors to comply with certain
financial ratios and borrowing condition tests based on monthly measurements of
the latest twelve months results of operations.
The Company did not meet certain of the financial covenants under the New Credit
Facility for the period ended January 31, 1999 and did not meet such financial
covenants and certain additional financial covenants for the period ended April
30, 1999. On August 2, 1999, the Company obtained an amendment to the New Credit
Facility (the "Amendment") which cured past financial covenant violations and
reset the financial covenants until April 2001. The Amendment increased the cash
availability under the Revolving Credit Facility from $35.7 million under the
previous waiver agreement to $40.7 million. In connection with, and as a
condition to, the Amendment, certain of the current indirect equity holders in
Holdings purchased a $5.0 million participation in the New Credit Facility and
received certain non-voting equity interests in Holdings, consisting of 25% of
the then outstanding common stock of Holdings.
As discussed in Note 4, the Company was in violation of its amended financial
covenants under the New Credit Facility as of April 30, 2000, and anticipated
being in violation of those covenants at subsequent quarterly measurement dates
during fiscal 2000. Accordingly, amounts outstanding at April 30, 2000 of $78.9
million under the New Credit Facility and $200 million of Senior Notes have been
classified as current liabilities in the accompanying balance sheets.
NOTE 8 - COMMITMENTS AND CONTINGENCIES
- --------------------------------------
To secure the performance of sales contracts related to MMH operations, MMH was
contingently liable to financial institutions and others for the following at
April 30, 2000: (i) $4.5 million of outstanding letters of credit and surety
bonds under the New Credit Facility, (ii) $2.7 million under a surety
arrangement for outstanding surety bonds and (iii) $4.3 million of surety bonds
with other institutions. Prior to the Recapitalization Closing, HII and its
affiliates ("HII Group") provided credit support for the MHE Business. As part
of the Recapitalization, HII agreed to maintain in place credit support
(including letters of credit and surety bonds) in existence at the
Recapitalization Closing and the Company agreed to reimburse HII for any
payments made by the HII Group with respect to such credit support. At April 30,
2000, approximately $11.6 million of HII Group letters of credit and surety
bonds remained outstanding.
As of the Recapitalization Closing, HarnCo retained certain income and other tax
liabilities relating to the MHE Business, all environmental liabilities relating
to previously shared facilities, any liabilities for which HarnCo or its
affiliates have been named as potentially responsible parties with respect to
Superfund sites, and any liabilities arising in connection with claims alleging
exposure to asbestos (to the extent there is insurance coverage therefor) in
connection with the MHE Business prior to the Recapitalization Closing.
Additionally, HarnCo retained all liability for medical and disability benefit
claims for then current United States employees made prior to the
Recapitalization Closing and all claims with respect to any of the HII benefit
plans for former United States employees.
15
HarnCo has been and is currently a defendant to a number of asbestos related
lawsuits and will likely be named in future such actions. Most suits involve
multiple defendants including asbestos manufacturers. MMH has agreed to
indemnify HarnCo and its affiliates with respect to any liabilities in excess of
insurance arising in connection with past and future asbestos litigation
relating to the MHE Business. HII's insurance program included coverage for
asbestos related claim activity through 1986, when coverage for asbestos related
claims ceased to be available. HII's insurer has provided first dollar coverage
for policy periods through 1976. During the 1977 to 1985 policy periods, HII had
a variety of policies, with retention levels ranging from $100,000 to $15.0
million and total coverage limits ranging from $12.5 million to $50.0 million.
To date, HII's insurer has paid all indemnification liabilities relating to
asbestos claims (which amounts have not been material to the MHE Business) but
there can be no assurance such insurers will continue to do so in the future or
that there will be insurance coverage for such claims. In addition, policy
primary aggregate levels were exhausted in certain years, which would require
the participation of excess insurers for future claim activity. Given its
experience to date with such claims, the Company believes that its exposure to
asbestos related claims is not material, but there can be no assurance that such
liability will not in fact be material.
All of the Company's agreements and arrangements with HII and its affiliates
(including those referred to above and those relating to the provision of
services and materials by HII and its affiliates to the Company) could be
materially adversely affected by the fact that on June 7, 1999 (the "Petition
Date"), HII and certain of its United States affiliates (including HarnCo) filed
voluntary petitions for relief under Chapter 11 of the Bankruptcy Code in the
United States Bankruptcy Court for the District of Delaware (the "HII
Bankruptcy"). Certain provisions of the Bankruptcy Code allow a debtor to avoid,
delay and/or reduce its contractual and other obligations to third parties.
There can be no assurance that HII and its affiliates will not attempt to
utilize such provisions to cease performance under their agreements with the
Company. The inability of the Company to receive the benefits of one or more of
these agreements or the termination of ongoing arrangements between the Company
and affiliates of HII could materially adversely affect the Company's operations
and financial performance. In the event that any of the liabilities retained by
HII and its affiliates remain unsatisfied as of the Petition Date, the Company's
right to indemnification for any such amounts it has paid on behalf of HII and
its affiliates may also be avoided, delayed or reduced.
Each of HII and certain of its affiliates on the one hand, and the Company and
certain of its affiliates, on the other hand, have receivables and payables to
the other which may be affected by the HII Bankruptcy.
On October 28, 1996, a strong windstorm caused significant damage to the Belview
container-handling terminal at the Port of Waterford in Ireland. One
container-handling crane sold by the Company's United Kingdom subsidiary was
destroyed and another was seriously damaged. The two cranes were sold to the
Waterford Harbour Commissioners in 1992 and commissioned for use in 1993. On
October 19, 1998, the Waterford Harbour Commissioners wrote to the Company and
provided a notice of arbitration, asserting breach of contract, negligence and
breach of duty against the Company's United Kingdom subsidiary in connection
with the destroyed and damaged cranes. The Waterford Harbour Commissioners
claimed direct damages of IR(pound)8.5 million ($11.5 million based on exchange
rates at April 30, 2000) and unspecified consequential damages. The port
operator, Bell Lines, Limited, filed a similar claim against the Company's
United Kingdom subsidiary in October 1999, asserting unspecified damages.
Management intends to vigorously defend both matters. One of the Company's
insurance carriers has agreed to provide defense coverage for one of the two
cranes involved in the accident and limited indemnification if the Company is
unsuccessful in defending the claims. The Company is continuing to work with its
insurance broker to determine the availability of additional insurance coverage,
if any. While the Company believes that it will obtain a favorable resolution
(either by successfully defending the claim or by obtaining insurance coverage
thereon), no assurances can be made as to the final outcome of the claims. If
the Company is found liable for the claims and is unable to obtain insurance
coverage therefore, there could be a material adverse effect on the Company's
operations and financial performance. Based upon the current status of this
matter, no related liability has been accrued at April 30, 2000.
The Company is a party to various other litigation matters, including product
liability and other claims, which are normal in the course of its operations.
Also, as a normal part of its operations, the Company undertakes certain
contractual obligations and warranties in connection with the sale of products
or services. Although the outcome of these matters cannot be predicted with
certainty, management believes that the resolution of such matters will not have
a material adverse effect on the consolidated results of operations, financial
position or cash flows of the Company.
Under the terms of the Recapitalization Agreement, HarnCo retained all liability
for the only two open environmental clean-up claims brought against HarnCo in
the Milwaukee, Wisconsin area. The Company and its management are not aware of
any other material environmental clean-up claim which is pending or is
threatened against the Company, but there can be no assurance that any such
claim will not be asserted against the Company in the future. In addition, as
noted above, the Company's right to indemnification against HarnCo for such
liabilities may be avoided, delayed or reduced as a result of HarnCo's filing
for bankruptcy protection.
16
As a result of the Company's bankruptcy filing described in Note 1,
Reorganization under Chapter 11, litigation against the Company and its
subsidiaries which filed bankruptcy is stayed.
NOTE 9 - SEGMENT INFORMATION
- ----------------------------
The Company adopted SFAS No. 131, "Disclosures about Segments of an Enterprise
and Related Information" during the fiscal year ended October 31, 1999. The
prior year's second quarter segment information has been restated to conform to
the current year presentation. Pursuant to SFAS No. 131, the Company has
identified its reportable segments based on the Company's method of internal
reporting which is utilized by its chief operating decision-maker, the Chief
Executive Officer. The reportable operating segments are as follows:
o Equipment and Aftermarket - Americas
o Equipment and Aftermarket - Other
o Distribution and Service - North America
o Engineered Products and Automation - Europe
o Equipment and Aftermarket - Europe
o Equipment and Aftermarket - Asia Pacific
o Equipment and Aftermarket - South Africa
Each segment has a manager who is directly accountable to and maintains regular
contact with the Chief Executive Officer. The Company evaluates performance of
its segments based on operating income, determined on a basis consistent with
amounts reported in the consolidated financial statements.
The Equipment and Aftermarket - Americas segment designs and manufactures a
comprehensive line of engineered and standard overhead cranes, hoists and other
component products and repair parts at the Company's facilities located in Oak
Creek and Windsor, Wisconsin. This segment also modernizes products manufactured
by both the Company and its competitors. This segment is the main manufacturer
of the replacement parts sold by the Company's Distribution and Service - North
America segment as well as the manufacturer of component products used in that
segment's standard cranes. Repair parts and component products are purchased by
the Distribution and Service - North America segment at list price less standard
intercompany discounts.
The Equipment and Aftermarket - Other segment is the Company's brake
manufacturing operation in Canada. Approximately 35% of this segment's sales are
to other Company segments. The Company sold this operation in December 1999.
The Distribution and Service - North America segment is the network of
Company-owned locations in key industrial markets in North America. The network
is the platform for the Company's sales activities, serving as distribution
centers for its original equipment and replacement parts as well as the focal
point for service activities. Some of the distribution centers also fabricate
and assemble standard cranes using components manufactured by the Equipment and
Aftermarket - Americas and the Equipment and Aftermarket - Europe segments.
The Engineered Products and Automation - Europe segment focuses on the
manufacture of highly engineered ship-to-shore and gantry cranes for use in
container handling and automated warehouse units at the Company's facility
located in Loughborough, England, and provides software support for the
automated warehouse units installed at customer locations.
The Equipment and Aftermarket - Europe segment consists of standard crane and
hoist manufacturing in the Loughborough, England facility as well as the network
of Company-owned distribution centers in key industrial markets in the United
Kingdom. The Equipment and Aftermarket - Europe segment provides services for
the Engineered Products and Automation segment at prices consistent with those
charged to external customers. In addition, this segment distributes hoists
through Distribution and Service - North America and Equipment and Aftermarket -
Asia Pacific and South Africa at prices consistent with those charged to
external customers.
The Equipment and Aftermarket - Asia Pacific and South Africa segments operate
in a manner similar to the Distribution and Service - North America segment. The
Asia Pacific segment includes operations in Australia, Singapore, Thailand and
Saudi Arabia.
17
Within North America, certain centrally incurred costs such as insurance costs
and computer charges are allocated to operating segments based upon various
methods of allocation. In the United Kingdom, utilities, property taxes and
insurance costs are allocated to the segments based upon varying allocation
methods. Domestically, costs related to centralized accounting, marketing, human
resources, and IT functions are not allocated. Internationally, these costs are
allocated amongst individual segments in the First and Second Quarters of fiscal
year 2000, however, in the First and Second Quarters of fiscal year 1999, no
allocation was done.
18
MMH HOLDINGS, INC.
MORRIS MATERIAL HANDLING, INC.
Operating Segments
For the Six Months Ended April 30, 2000
------------------------------------------
SALES
------------------------------------------ ----------------
Operating Income
(Loss)
External Intercompany Total
----------- ------------ ---------- ----------------
Equipment & Aftermarket - Americas $17,317 $24,324 $41,641 $493
Equipment & Aftermarket - Other 423 111 534 (4)
----------- ------------ ---------- ----------------
Total Equipment & Aftermarket 17,740 24,435 42,175 489
Distribution & Service - North America 84,885 333 85,218 4,799
Eliminations & Other 0 (24,768) (24,768) 105
----------- ------------ ---------- ----------------
Total Americas 102,625 0 102,625 5,393
----------- ------------ ---------- ----------------
Engineered Products & Automation - Europe 4,067 5 4,072 (1,488)
Equipment & Aftermarket - Europe 14,914 2,825 17,739 (425)
Eliminations & Other 0 (439) (439) (1,064)
----------- ------------ ---------- ----------------
Total Europe 18,981 2,391 21,372 (2,977)
Equipment & Aftermarket - South Africa 4,652 0 4,652 (334)
Equipment & Aftermarket - Asia Pacific 6,666 0 6,666 (452)
Eliminations & Other 0 (527) (527) (929)
----------- ------------ ---------- ----------------
Total International 30,299 1,864 32,163 (4,692)
----------- ------------ ---------- ----------------
Corporate and Eliminations 0 (1,864) (1,864) (7,483)
----------- ------------ ---------- ----------------
Consolidated $132,924 $ - $132,924 $(6,782)
=========== ============ ========== ================
19
MMH HOLDINGS, INC.
MORRIS MATERIAL HANDLING, INC.
(Debtors - in - Possession as of May 17, 2000)
Operating Segments
For the Three Months Ended April 30, 2000
------------------------------------------
SALES
------------------------------------------ --------------
Operating
Income (Loss)
External Intercompany Total
----------- ------------ ---------- --------------
Equipment & Aftermarket - $6,121 $13,816 $19,937 $(507)
Equipment & Aftermarket - - - - -
Other
---------- ------------ ---------- --------------
Total Equipment & 6,121 13,816 19,937 (507)
Aftermarket
Distribution & Service -
Europe
44,461 176 44,637 2,916
Eliminations & Other 0 (13,992) (13,992) 222
---------- ------------ ---------- --------------
Total Americas 50,582 0 50,582 2,631
---------- ------------ ---------- --------------
Engineered Products & 1,997 (12) 1,985 (1,665)
Automation - Europe
Equipment & Aftermarket -
Europe 7,977 1,537 9,514 362
Eliminations & Other 0 (233) (233) (867)
---------- ------------ ---------- --------------
Total Europe 9,974 1,292 11,266 (2,170)
Equipment & Aftermarket -
South Africa 2,409 0 2,409 (243)
Equipment & Aftermarket -
Asia Pacific 3,240 0 3,240 (116)
Eliminations & Other 0 (336) (336) (458)
---------- ------------ ---------- --------------
Total International 15,623 956 16,579 (2,987)
---------- ------------ ---------- --------------
Corporate and Eliminations 0 (956) (956) (5,413)
---------- ------------ ---------- --------------
Consolidated $66,205 $ - $66,205 $(5,769)
========== ============ ========== ==============
20
MMH HOLDINGS, INC.
MORRIS MATERIAL HANDLING, INC.
(Debtors - in - Possession as of May 17, 2000)
Operating Segments
For the Six Months Ended April 30, 1999
------------------------------------------
SALES
------------------------------------------ --------------
Operating
Income (Loss)
External Intercompany Total
----------- ------------ ---------- --------------
Equipment & Aftermarket - Americas $25,655 $25,065 $50,720 $2,030
Equipment & Aftermarket - Other 2,117 709 2,826 778
---------- ------------ ---------- --------------
Total Equipment & Aftermarket 27,772 25,774 53,546 2,808
Distribution & Service - North America 76,158 2,290 78,448 4,257
Eliminations & Other 0 (28,064) (28,064) 117
---------- ------------ ---------- --------------
Total Americ 103,930 0 103,930 7,182
---------- ------------ ---------- --------------
Engineered Products & Automation - Europe 4,986 407 5,393 (1,255)
Automation - Europe
Equipment & Aftermarket - Europe 17,335 3,158 20,493 361
Eliminations & Other 0 (939) (939) (1,615)
---------- ------------ ---------- --------------
Total Europe 22,321 2,626 24,947 (2,509)
Equipment & Aftermarket - South Africa 7,178 0 7,178 224
Equipment & Aftermarket - Asia & Pacific 6,340 0 6,340 (221)
Eliminations & Other 0 (713) (713) (236)
---------- ------------ ---------- --------------
Total International 35,839 1,913 37,752 (2,742)
---------- ------------ ---------- --------------
Corporate and Eliminations 0 (1,913) (1,913) (4,867)
---------- ------------ ---------- --------------
Consolidated $139,769 $ - $139,769 $(427)
========== ============ ========== ==============
21
MMH HOLDINGS, INC.
MORRIS MATERIAL HANDLING, INC.
(Debtors - in - Possession as of May 17, 2000)
Operating Segments
For the Three Months Ended April 30, 1999
------------------------------------------
SALES
------------------------------------------ --------------
Operating
Income (Loss)
External Intercompany Total
----------- ------------ ---------- --------------
Equipment & Aftermarket - Americas $13,013 $14,495 $27,508 $1,050
Equipment & Aftermarket - Other 1,159 464 1,623 387
----------- ------------ ---------- --------------
Total Equipment & Aftermarket 14,172 14,959 29,131 1,437
Distribution & Service - North America 40,532 1,114 41,646 1,971
Eliminations & Other 0 (16,073) (16,073) 19
----------- ------------ ---------- --------------
Total Americas 54,704 0 54,704 3,427
----------- ------------ ---------- --------------
Engineered Products & Automation - Europe 1,021 285 1,306 (1,251)
Equipment & Aftermarket - Europe 9,074 2,021 11,095 (48)
Eliminations & Other 0 (732) (732) (975)
----------- ------------ ---------- --------------
Total Europe 10,095 1,574 11,669 (2,274)
Equipment & Aftermarket - South Africa 3,770 0 3,770 121
Equipment & Aftermarket - Asia Pacific 3,280 0 3,280 (230)
Eliminations & Other 0 (428) (428) (121)
----------- ------------ ---------- --------------
Total International 17,145 1,146 18,291 (2,504)
----------- ------------ ---------- --------------
Corporate and Eliminations 0 (1,146) (1,146) (2,825)
----------- ------------ ---------- --------------
Consolidated $71,849 $ - $71,849 $(1,902)
=========== ============ ========== ==============
22
NOTE 10 - DIVESTITURE
On December 16, 1999, the Company completed the sale of the Company's brake
manufacturing operation (the "Brake Business") located in Mississauga, Ontario,
Canada, for a net sale price of $6.8 million after deduction of certain
transaction-related items, including taxes. During the first quarter of fiscal
year 2000, the Brake Business contributed $0.5 million in sales and no operating
income to the Company's results.
In accordance with the New Credit Facility, as amended by the Amendment, the
Company was permitted to apply half of the net proceeds of the sale of the Brake
Business (which amounted to $3.4 million) to general corporate purposes, which
the Company would otherwise have been required to use to prepay indebtedness
under the New Credit Facility. After consummation of the sale, the Company
repaid $3.1 million of the outstanding term loans ($2.4 million of which was
applied to the final scheduled principal payment obligation with respect to the
term loans) and repaid $0.3 million on the Acquisition Facility. A pre-tax gain
of $6.4 million was recognized on this transaction.
NOTE 11 - SUPPLEMENTAL CONDENSED FINANCIAL INFORMATION
- ------------------------------------------------------
In connection with the Recapitalization, MMH, a direct wholly-owned subsidiary
of Holdings, issued Senior Notes that are guaranteed by certain of MMH's
subsidiaries (the "Guarantor Subsidiaries"). Each of the Guarantor Subsidiaries
is a wholly-owned subsidiary, directly or indirectly, of MMH and the guarantees
are full, unconditional and joint and several. Both Holdings and MMH are holding
companies with no material operating assets. All of the Company's business
operations are conducted through subsidiaries of MMH and accordingly, both
Holdings and MMH are dependent on the operating subsidiaries of MMH to fund
their cash needs, including debt service and tax obligations.
Separate financial statements of the Guarantor Subsidiaries are not presented
because management has determined that they would not be material to investors.
The following supplemental financial information sets forth the balance sheet,
statement of operations and cash flow information for the Guarantor Subsidiaries
and for MMH's other subsidiaries (the "Non-Guarantor Subsidiaries"). The
supplemental financial information reflects the investments of the Guarantor
Subsidiaries in the Non-Guarantor Subsidiaries using the equity method of
accounting. For purposes of this presentation, it is assumed that, historically,
all of the assets of the MHE Business were wholly-owned by subsidiaries of MMH,
which is an entity that was formed by Holdings in connection with the
Recapitalization and accordingly, the historical financial statements of MMH and
Holdings are identical following completion of the Recapitalization.
23
MMH HOLDINGS, INC.
(Debtors - in - Possession as of May 17, 2000)
SUPPLEMENTAL CONDENSED CONSOLIDATING BALANCE SHEET
APRIL 30, 2000
(UNAUDITED)
(Dollars in Thousands)
Consolidated
Non Morris Morris MMH
Guarantor Guarantor Material Material Holdings.
Subsidiaries Subsidiaries Handling, Inc. Eliminations Handling, Inc. Inc. Eliminations
------------ ------------ -------------- ------------ --------------- --------- ------------
ASSETS
Current Assets
Cash and cash
equivalents $ 1,699 402 $ - $ - $ 2,101 $ - $ -
Accounts receivable -
net 51,121 3,528 - - 54,649 - -
Intercompany accounts
receivable 26,070 (20) 18,738 (44,788) - - -
Inventories 37,648 2,036 - - 39,684 - -
Other current assets 8,731 503 550 - 9,784 - -
--------- -------- -------- --------- -------- -------- ----------
125,269 6,449 19,288 (44,788) 106,218 - -
--------- -------- -------- --------- -------- -------- ----------
Property, Plant and
Equipment - net 35,665 2,500 - - 38,165 - -
--------- -------- -------- --------- -------- -------- ----------
Other Assets
Goodwill 37,169 2,703 - - 39,872 - -
Debt financing costs - - 15,320 - 15,320 - -
Noncurrent intercompany
receivable 4,904 - 80,118 (85,022) - - -
Investment in affiliates (1,900) - 55,310 (53,410) - (150,882) 150,882
Deferred income taxes - - - - - - -
Other 9,415 - 726 - 10,141 - -
--------- --------- --------- ----------- --------- ---------- ----------
49,588 2,703 151,474 (138,432) 65,333 (150,882) 150,882
--------- --------- --------- ----------- --------- ---------- ---------
$210,522 $11,652 $170,762 $(183,220) $209,716 $(150,882) $150,882
========= ========= ========= =========== ========= ========== ==========
LIABILITIES AND SHAREHOLDERS EQUITY
Current Liabilities
Current portion of long-
term obligations 343 39 $ - $ - $ 382 $ - $ -
New Credit Facility
borrowings 7,265 - 22,725 - 29,990
Term loans - - 48,395 - 48,395
Aquisition Facility - 12,094 - 12,094
Senior Notes - - 200,000 - 200,000
Bank overdrafts 412 1,281 - - 1,693 - -
Trade accounts payable 17,852 1,456 - - 19,308 - -
Intercompany accounts
payable 18,718 3,966 22,104 (44,788) - - -
Advance payments and
progress billings 10,800 - - - 10,800 - -
Accrued warranties 1,767 - - - 1,767 - -
Accrued interest 26 - 11,530 - 11,556 - -
Other current liabilities 14,994 1,051 4,594 - 20,639 - -
-------- -------- --------- ----------- -------- ---------- ----------
72,177 7,793 321,442 (44,788) 356,624 - -
-------- -------- --------- ----------- -------- ---------- ----------
Other Term Debt 2,075 563 - - 2,638 - -
Noncurrent Intercompany
Payable 80,118 4,904 - (85,022) - - -
Deferred Income Taxes - - - - - - -
Other Long Term Liabilities 842 - 202 - 1,044 - -
-------- -------- --------- ----------- -------- ---------- ----------
155,212 13,260 321,644 (129,810) 360,306 - -
Minority Interest (206) - - 498 292 - -
Manditorily Redeemable
Preferred Stock - - - - - 115,239
Shareholders' Equity 55,516 (1,608) (150,882) (53,908) (150,882) (266,121) 150,882
-------- -------- --------- ----------- --------- ---------- ----------
$210,522 $11,652 $170,762 $(183,220) $209,716 $(150,882) $150,882
======== ======== ========= =========== ========= ========== ==========
Consolidated
MMH
Holdings, Inc.
--------------
ASSETS
Current Assets
Cash and cash
equivalents $ 2,101
Accounts receivabable -
net 54,649
Intercompany accounts
receivable -
Inventories 39,684
Other current assets 9,784
----------
106,218
----------
Property, Plant and Equipment - net 38,165
----------
Other Assets:
Goodwill 39,872
Debt financing costs 15,320
Noncurrent intercompany receivable -
Investment in affiliates -
Deferred income taxes -
Other 10,141
-----------
65,333
-----------
$209,716
===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities
Current portion of long-
term obligations $ 382
New Credit Facility
borrowings 29,990
Term loans 48,395
Aquisition Facility 12,094
Senior Notes 200,000
Bank overdrafts 1,693
Trade accounts payable 19,308
Intercompany accounts
payable -
Advance payments and
progress billings 10,800
Accrued warranties 1,767
Accrued interest 11,556
Other current liabilities 20,639
----------
356,624
----------
Other Term Debt 2,638
Noncurrent Intercompany
Payable -
Deferred Income Taxes -
Other Long-Term Liabilities 1,044
----------
360,306
Minority Interest 292
Manditorily Redeemable Preferred Stock 115,239
Shareholders' Equity (266,121)
----------
$ 209,716
==========
24
MMH HOLDINGS, INC.
(Debtors - in - Possession as of May 17, 2000)
SUPPLEMENTAL CONDENSED CONSOLIDATING BALANCE SHEET
OCTOBER 31, 1999
(Dollars in Thousands)
Non Morris Consolidated
Guarantor Guarantor Material Morris Material MMH
Subsidiaries Subsidiaries Handling, Inc. Eliminations Handling, Inc. Holdings, Inc.
------------ ------------ -------------- ------------ -------------- --------------
ASSETS
Current Assets
Cash and cash equivalents $ 2,325 $ 104 $ 1,500 $ -- $ 3,929 $ --
Accounts receivable - net 60,163 4,318 -- -- 64,481 --
Intercompany accounts receivable 20,057 -- 13,204 (33,261) -- --
Inventories 37,892 2,102 -- -- 39,994 --
Other current assets 6,509 533 800 -- 7,842 --
--------- --------- --------- --------- --------- ---------
126,946 7,057 15,504 (33,261) 116,246 --
--------- --------- --------- --------- --------- ---------
Property, Plant and Equipment 38,294 2,680 -- -- 40,974 --
--------- --------- --------- --------- --------- ---------
Other Assets
Goodwill 40,010 2,834 -- -- 42,844 --
Debt financing costs -- -- 16,398 -- 16,398 --
Noncurrent intercompany receivable 5,161 -- 83,891 (89,052) -- --
Investment in affiliates (1,527) -- 64,899 (63,372) -- (130,823)
Deferred income taxes -- -- -- -- -- --
Other 9,758 -- 616 -- 10,374 --
--------- --------- --------- --------- --------- ---------
53,402 2,834 165,804 (152,424) 69,616 (130,823)
--------- --------- --------- --------- --------- ---------
$ 218,642 $ 12,571 $ 181,308 $(185,685) $ 226,836 $(130,823)
========= ========= ========= ========= ========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities
Current portion of long-term oligations $ 342 $ 41 $ -- $ -- $ 383 $ --
New Credit Facility borrowings 425 -- 27,500 -- 27,925 --
Term loans -- -- 52,225 -- 52,225 --
Acquisition Facility Line borrowings -- -- 12,430 -- 12,430 --
Senior notes -- -- 200,000 -- 200,000 --
Bank overdrafts 139 1,228 -- -- 1,367 --
Trade accounts payable 25,562 1,195 -- -- 26,757 --
Intercompany accounts payable 13,204 4,153 15,904 (33,261) -- --
Advance payments and progress billings 8,336 -- -- -- 8,336 --
Accrued warranties 1,748 73 -- -- 1,821 --
Accrued interest 18 -- 1,786 -- 1,804 --
Other current liabilities 16,854 1,148 2,014 -- 20,016 --
--------- --------- --------- --------- --------- ----------
66,628 7,838 311,859 (33,261) 353,064 --
--------- --------- --------- --------- --------- ----------
Other Long-Term Debt 2,189 595 -- -- 2,784 --
Noncurrent intercompany payable 83,891 5,161 -- (89,052) -- --
Other Long-Term Liabilities 1,035 -- 272 -- 1,307 --
Minority Interest -- -- -- 504 504 --
Manditorily Redeemable Preferred Stock -- -- -- -- -- --
Stockholders' Equity 64,899 (1,023) (130,823) (63,876) (130,823) (239,068)
--------- --------- --------- --------- --------- ----------
$ 218,642 $ 12,571 $ 181,308 $(185,685) $ 226,836 $(130,823)
========= ========= ========= ========== ========= ===========
Consolidated
MMH
Eliminations Holdings, Inc.
----------- --------------
ASSETS
Current Assets $ -- $ 3,929
Cash and cash equivalents -- 64,481
Accounts receivable - net -- --
Intercompany accounts receivable -- 39,994
Inventories -- 7,842
Other current assets --------- ---------
-- 116,246
--------- ---------
-- 40,974
Property, Plant and Equipment --------- ---------
Other Assets -- 42,844
Goodwill -- 16,398
Debt financing costs -- --
Noncurrent intercompany receivable 130,823 --
Investment in affiliates -- --
Deferred income taxes -- 10,374
Other --------- ---------
130,823 69,616
--------- ---------
$ 130,823 $ 226,836
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities
Current portion of long-term oligations
New Credit Facility borrowings $ -- $ 383
Term loans -- 27,925
Acquisition Facility Line borrowings -- 52,225
Senior notes -- 12,430
Bank overdrafts -- 200,000
Trade accounts payable -- 1,367
Intercompany accounts payable -- 26,757
Advance payments and progress billings -- --
Accrued warranties -- 8,336
Accrued interest -- 1,821
Other current liabilities -- 1,804
-- 20,016
--------- ---------
-- 353,064
--------- ---------
Other Long-Term Debt
Noncurrent intercompany payable -- 2,784
Other Long-Term Liabilities -- --
-- 1,307
Minority Interest
Manditorily Redeemable Preferred Stock -- 504
Stockholders' Equity -- 108,245
130,823 (239,068)
--------- ---------
$ 130,823 $ (226,836)
========= =========
25
MMH HOLDINGS, INC.
(Debtors - in - Possession as of May 17, 2000)
SUPPLEMENTAL CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED APRIL 30, 2000
(UNAUDITED)
(Dollars in Thousands)
Consolidated
Non Morris Morris
Guarantor Guarantor Material Material MMH
Subsidiaries Subsidiaries Handling, Inc. Eliminations Handling, Inc. Holdings, Inc.
------------ ------------ -------------- ------------ -------------- --------------
Revenues
Net Sale 127,152 6,297 - (525) 132,924 -
Other Income - net - - - - - -
-------- --------- --------- ----------- ----------- -----------
127,152 6,297 - (525) 132,924 -
Cost of Sales 97,261 4,819 - (525) 101,555 -
Selling, General
and Administrative expenses 34,761 1,817 1,573 - 38,151 -
-------- --------- --------- ----------- ----------- -----------
Operating Income (4,870) (339) (1,573) - (6,782) -
Gain on sale of business - - 6,380 - 6,380 -
Interest Expense - Net
Affiliates (2,978) (177) 3,155 - - -
Third party (270) (135) (14,961) - (15,366) -
-------- --------- --------- ----------- ----------- -----------
Loss Before Income Taxes, Equity
in Earnings (Loss of Subsidiaries and
Minority Interest (8,118) (651) (6,999) - (15,768) -
Benefit (Provision) for Income Taxes (552) (83) (1,400) - (2,035) -
Equity in Earnings (Loss) of Subsidiaries (707) - (9,377) 10,084 - (17,776)
Minority Interest - - - 27 27 -
-------- --------- --------- ----------- ----------- -----------
Net Income (Loss) $ (9,377) $ (734) $ (17,776) $ 10,111 $ (17,776) (17,776)
======== ========= ========= =========== =========== ===========
Consolidated
MMH
Eliminations Holdings, Inc.
----------- --------------
Revenues
Net Sales - 132,924
Other Income - net - -
-------- ---------
- 132,924
Cost of Sales - 101,555
Selling, General
and Administrative expenses - 38,151
-------- ---------
Operating Income - (6,782)
Gain on sale of business - 6,380
Interest Expense - Net
Affiliates - -
Third party - (15,366)
-------- ---------
Loss Before Income Taxes, Equity
in Earnings (Loss of Subsidiaries and
Minority Interest - (15,768)
Benefit (Provision) for Income Taxes - (2,035)
Equity in Earnings (Loss) of Subsidiaries 17,776 -
Minority Interest - 27
-------- ---------
Net Income (Loss) $ 17,776 $ (17,776)
======== =========
26
FOR THE THREE MONTHS ENDED APRIL 30, 2000
MMH HOLDINGS, INC.
(Debtors - in - Possession as of May 17, 2000)
SUPPLEMENTAL CONDENSED CONSOLIDATING BALANCE SHEET
OCTOBER 31, 1999
(Dollars in Thousands)
Non Morris Consolidated
Guarantor Guarantor Material Morris Material MMH
Subsidiaries Subsidiaries Handling, Inc. Eliminations Handling, Inc. Holdings, Inc.
------------ ------------ -------------- ------------ -------------- --------------
Revenues
Net Sales 63,298 3,240 - (333) 66,205 -
Other Income - net - - - - - -
-------- --------- --------- ----------- ----------- -----------
63,298 3,240 - (333) 66,205 -
Cost of Sales 42,421 2,595 - (333) 50,683 -
Selling, General
and Administrative expenses 19,603 912 776 - 21,291 -
-------- --------- --------- ----------- ----------- -----------
Operating Income (4,726) (267) (776) - (5,769) -
Gain on sale of business - - - - - -
Interest Expense - Net
Affiliates (1,343) (87) 1,430 - - -
Third party (208) (61) (7,347) - (7,616) -
-------- --------- --------- ----------- ----------- -----------
Loss Before Income Taxes, Equity
in Earnings (Loss of Subsidiaries and
Minority Interest (6,277) (415) (6,693) - (13,385) -
Benefit (Provision) for Income Taxes (247) - - - (247) -
Equity in Earnings (Loss) of Subsidiaries (404) - (6,928) 7,332 - (13,621)
Minority Interest - - - 11 11 -
-------- --------- --------- ----------- ----------- -----------
Net Income (Loss) $ (6,928) $ (415) $ (13,621) $ 7,343 $ (13,621) $ (13,621)
======== ========= ========= =========== =========== ===========
Consolidated
MMH
Eliminations Holdings, Inc.
----------- --------------
Revenues
Net Sales - 66,205
Other Income - net - -
-------- -----------
Cost of Sales - 66,205
Selling, General - 50,683
and Administrative expenses
Operating Income - 21,291
Gain on sale of business -------- -----------
Interest Expense - Net - (5,769)
Affiliates - -
Third party
- -
Loss Before Income Taxes, Equity - (7,616)
in Earnings (Loss of Subsidiaries and -------- -----------
Minority Interest
Benefit (Provision) for Income Taxes
Equity in Earnings (Loss) of Subsidiaries
Minority Interest - (13,385)
Net Income (Loss) - (247)
13,621 -
- 11
-------- -----------
13,621 $ (13,621)
======== ===========
26
MMH HOLDINGS, INC.
SUPPLEMENTAL CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
(UNAUDITED)
(Dollars in Thousands)
FOR THE SIX MONTHS ENDED APRIL 30, 2000
Non Morris Consolidated
Guarantor Guarantor Material Morris Material MMH
Subsidiaries Subsidiaries Handling, Inc. Eliminations Handling, Inc. Holdings, Inc.
------------ ------------ -------------- ------------ -------------- --------------
Revenues
Net Sale $131,714 $ 8,407 $ - $ (352) $ 139,769 $ -
Other Income - net 147 - - - 147 -
-------- --------- --------- ----------- ----------- -----------
131,861 8,407 - (352) 139,916 -
Cost of Sales 99,002 6,406 - (352) 105,056 -
Selling, General
and Administrative Expenses 32,786 1,826 675 - 35,287 -
-------- --------- --------- ----------- ----------- -----------
Operating Income (Loss) 73 175 (675) - (427) -
Interest (Expense) Income - net
Affiliates (3,174) (192) 3,366 - - -
Third party (350) (240) (13,886) - (14,431) -
-------- --------- --------- ----------- ----------- -----------
Loss Before Income Taxes, Equity
in Earnings (Loss) of Subsidiaries and
Minority Interest (3,406) (257) (11,195) - (14,858) -
Provision for Income Taxes (1,065) - ) - - (1,065) -
Equity in Earnings (Loss) of Subsidiaries (230) - (4,701) 4,931 - (15,896)
Minority Interest - - - 27 27 -
-------- --------- --------- ----------- ----------- -----------
Net Income (Loss) $ (4,701) $ (257) $ (15,896) $ 4,958 $ (15,896) (15,896)
======== ========= ========= =========== =========== ===========
Consolidated
MMH
Eliminations Holdings, Inc.
----------- --------------
Revenues
Net Sales $ - $ 139,769
Other Income - net - 147
-------- ---------
- 139,916
Cost of Sales - 105,056
Selling, General
and Administrative Expenses - 35,287
-------- ---------
Operating Income (Loss) - (427)
Interest (Expense) Income - net
Affiliates - -
Third party - (14,431)
-------- ---------
Loss Before Income Taxes, Equity
in Earnings (Loss) of Subsidiaries and
Minority Interest - (14,858)
Provision for Income Taxes - (1,065)
Equity in Earnings (Loss) of Subsidiaries 15,896 -
Minority Interest - 27
-------- ---------
Net Income (Loss) $ 15,896 $ (15,896)
======== =========
FOR THE THREE MONTHS ENDED APRIL 30, 2000
Non Morris Consolidated
Guarantor Guarantor Material Morris Material MMH
Subsidiaries Subsidiaries Handling, Inc. Eliminations Handling, Inc. Holdings, Inc.
------------ ------------ -------------- ------------ -------------- --------------
Revenues
Net Sales $ 67,575 $ 4,310 $ - $ (36) $ 71,849 $ -
Other Income - net 70 (25) - - 45 -
-------- --------- --------- ----------- ----------- -----------
67,645 4,285 - (36) 71,894 -
Cost of Sales 51,170 3,308 - (36) 54,442 -
Selling, General
and Administrative expenses 17,963 939 452 - 19,354 -
-------- --------- --------- ----------- ----------- -----------
Operating Income (1,488) 38 (452) - (1,902) -
Interest (Expense) Income - net
Affiliates (1,564) (97) 1,661 - - -
Third Party (174) (102) (7,247) - (7,523) -
-------- --------- --------- ----------- ----------- -----------
Loss Before Income Taxes, Equity
in Earnings (Loss) of Subsidiaries and
Minority Interest (3,226) (161) (6,038) - (9,425) -
Provision for Income Taxes (1,271) - (2,247) - (3,518) -
Equity in Earnings (Loss) of Subsidiaries (140) - (4,637) 4,777 - (12,922)
Minority Interest - - - 21 21 -
-------- --------- --------- ----------- ----------- -----------
Net Income (Loss) $ (4,637) $ (161) $ (12,922) $ 4,798 $ (12,922) $ (12,922)
======== ========= ========= =========== =========== ===========
Consolidated
MMH
Eliminations Holdings, Inc.
----------- --------------
Revenues
Net Sales $ - $ 67,575
Other Income - net - 70
-------- ---------
- 67,645
Cost of Sales - 51,170
Selling, General
and Administrative Expenses - 17,963
-------- ---------
Operating Income (Loss) - (1,488)
Interest (Expense) Income - net
Affiliates - (1,564)
Third party - (174)
-------- ---------
Loss Before Income Taxes, Equity
in Earnings (Loss) of Subsidiaries and
Minority Interest - (3,226)
Provision for Income Taxes - (1,271)
Equity in Earnings (Loss) of Subsidiaries 12,922 (140)
Minority Interest - -
-------- ---------
Net Income (Loss) $ 12,922 $ (4,637)
======== =========
27
ROZ Start here
MMH HOLDINGS, INC.
(Debtors-in-Possession as of May 17, 2000)
SUPPLEMENTAL CONDENSED CONSOLIDATING STATEMENT OF CASHFLOWS
FOR THE SIX MONTHS ENDED APRIL 30, 2000
(UNAUDITED)
(Dollars in Thousands)
Non Morris Consolidated
Guarantor Guarantor Material Morris Material MMH
Subsidiaries Subsidiaries Handling, Inc. Eliminations Handling, Inc. Holdings, Inc.
------------ ------------ -------------- ------------ -------------- --------------
Operating Activities
Net income (Loss) $ (9,377) $ (734) $ (17,776) $ 10,111 $ (17,776) $ (17,776)
Add (deduct) - items not
affecting cash provided by
operating activities:
Depreciation and amortization 4,468 74 21 - 4,563 -
Amortization of debt
financing cost - - 1,174 - 1,174 -
Equity in loss of subsidiaries 707 - 9,377 (10,084) - 17,776
Gain on sale of business - - (6,380) -
Deferred income taxes - net - - - - -
Other - - - (27) (27) -
Changes in working capital, excluding
the effects of acquisition opening
balance sheets:
Accounts receivable 7,886 426 - - 8,312 -
Inventories (1,419) (79) - - (1,498) -
Other current assets (2,265) 7 250 - (2,008) -
Trade accounts payable and
bank overdrafts (6,965) 608 - - (6,357) -
Accrued interest 8 - 9,726 - 9,734 -
Other current liabilities 943 (65) 2,580 - 3,458 -
-------- --------- --------- ----------- ----------- -----------
Net cash provided by (used for)
operating activities (6,014) 237 (1,028) - (6,805) -
-------- --------- --------- ----------- ----------- -----------
Investment and Other Transactions
Fixed asset additions - net (495) 21 - - (474) -
Capitalized software (997) - - - (997) -
Net proceeds on divestiture of business 9,115 - - - 9,115 -
Other - net (115) (11) (70) - (196) -
-------- --------- --------- ----------- ----------- -----------
Net cash used for investment and
other transactions 7,508 10 (70) - 7,448 -
-------- --------- --------- ----------- ----------- -----------
Financing Activities
Changes in short-term debt and
notes payable 6,868 (28) - - 6,840 -
Proceeds from/(Repayments of)
Revolving Credit Facility borrowings - - (4,775) - (4,775) -
Repayments of Term Loans - - (3,812) - (3,812) -
Repayments of Acquisition Facility
Line borrowings - - (336) - (336) -
Distribution to parent (8,846) 99 8,747 - - -
Repayments of long-term debt (87) - - - (87) -
Payment of fees for amendment of
New Credit Facility - - (226) - (226) -
-------- --------- --------- ----------- ----------- -----------
Net cash provided by (used for)
financing activities (2,065) 71 (402) - (2,396) -
-------- --------- --------- ----------- ----------- -----------
Effect of Exchange Rate Changes on
Cash and Cash Equivalents (55) (20) - - (75) -
-------- --------- --------- ----------- ----------- -----------
Increase (Decrease) in Cash and
Cash Equivalents (626) 298 (1,500) - (1,828) -
Cash and Cash Equivalents
Beginning of Period 2,325 104 1,500 - 3,929 -
-------- --------- --------- ----------- ----------- -----------
End of Period $ 1,699 $ 402 0 - 2,101 -
======== ========= ========= =========== =========== ===========
Consolidated
MMH
Eliminations Holdings, Inc.
----------- --------------
Operating Activities
Net income (Loss) $ 17,776 $ (17,776)
Add (deduct) - items not
affecting cash provided by
operating activities:
Depreciation and amortization - 4,563
Amortization of debt
financing cost - 1,174
Equity in loss of subsidiaries (17,776) -
Gain on sale of business - (6,380)
Deferred income taxes - net - -
Other - 8,312
Changes in working capital, excluding
the effects of acquisition opening
balance sheets:
Accounts receivable
Inventories - (1,498)
Other current assets - (2,008)
Trade accounts payable and
bank overdrafts - (6,357)
Accrued interest - 9,734
Other current liabilities - 3,458
-------- ---------
Net cash provided by (used for)
operating activities - (6,805)
-------- ---------
Investment and Other Transactions
Fixed asset additions - net
Capitalized software - (474)
Net proceeds on divestiture of business - (997)
Other - net - 9,115
Net cash used for investment and
other transactions - (196)
-------- ---------
- 7,448
Financing Activities
Changes in short-term debt and
notes payable - 6,840
Proceeds from/(Repayments of)
Revolving Credit Facility borrowings - (4,775)
Repayments of Term Loans - (3,812)
Repayments of Acquisition Facility
Line borrowings - (336)
Distribution to parent - -
Repayments of long-term debt - (87)
Payment of fees for amendment of
New Credit Facility - (226)
-------- ---------
Net cash provided by (used for)
financing activities - (2,396)
-------- ---------
Effect of Exchange Rate Changes on
Cash and Cash Equivalents - (75)
-------- ---------
Increase (Decrease) in Cash and
Cash Equivalents - (1,828)
Cash and Cash Equivalents
Beginning of Period - 3,929
-------- ---------
End of Period - 2,101
======== =========
MMH HOLDINGS, INC.
(Debtors-in-Possession as of May 17, 2000)
SUPPLEMENTAL CONDENSED CONSOLIDATING STATEMENT OF CASHFLOWS
FOR THE SIX MONTHS ENDED APRIL 30, 2000
(UNAUDITED)
(Dollars in Thousands)
Non Morris Consolidated
Guarantor Guarantor Material Morris Material MMH
Subsidiaries Subsidiaries Handling, Inc. Eliminations Handling, Inc. Holdings, Inc.
------------ ------------ -------------- ------------ -------------- --------------
Operating Activities
Net income (Loss) $ (4,701) $ (257) $ (15,896) $ 4,958 $ (15,896) $ (15,896)
Add (deduct) - items not
affecting cash provided by
operating activities:
Depreciation and amortization 3,707 146 - - 3,853 -
Amortization of debt
financing cost - - 1,048 - 1,048 -
Equity in loss of subsidiaries 230 - 4,701 (4,931) - 15,896
Deferred income taxes - net - - 31 - 31 -
Other - - - (27) (27) -
Changes in working capital, excluding
the effects of acquisition opening
balance sheets:
Accounts receivable 17,901 1,384 - - 19,285 -
Inventories 1,846 (584) - - 1,262 -
Other current assets (6,201) (1,269) 3,407 - (4,063) -
Trade accounts payable and
bank overdrafts (8,197) 72 - - (8,125) -
Accrued interest 144 - (544) - (400) -
Other current liabilities (12,581) 128 8,080 - (4,373) -
-------- --------- --------- ----------- ----------- -----------
Net cash provided by (used for)
operating activities (7,852) (380) 827 - (7,405) -
-------- --------- --------- ----------- ----------- -----------
Investment and Other Transactions
Fixed asset additions - net (4,585) (159) - - (4,744) -
Capitalized software - - - - - -
Acquisition of businesses - net
of cash acquired (5,070) - - - (5,070) -
Repayment of loans by senior
management - - 70 - 70 -
Other - net (421) 176 - - (245)
-------- --------- --------- ----------- ----------- -----------
Net cash (used for) provided by
investment and other transactions (10,076) 17 70 - (9,989) -
-------- --------- --------- ----------- ----------- -----------
Financing Activities
Changes in short-term debt and
notes payable 8,147 120 - - 8,267 -
(Repayments of)/Proceeds from
Revolving Credit Facility borrowings - - 8,784 - 8,784 -
Proceeds from Aquisitions Facility
Line borrowings - - 1,235 - 1,235 -
Distribution to parent 10,241 - (10,241) - - -
Repayments of long-term debt - - (675) - (675) -
-------- --------- --------- ----------- ----------- -----------
Net cash provided by (used for)
financing activities 18,388 120 (897) - 17,611 -
-------- --------- --------- ----------- ----------- -----------
Effect of Exchange Rate Changes on
Cash and Cash Equivalents 45 (6) - - 39 -
-------- --------- --------- ----------- ----------- -----------
Increase (Decrease) in Cash and
Cash Equivalents 505 (249) - - 256 -
Cash and Cash Equivalents
Beginning of Period 2,214 320 - - 2,534 -
-------- --------- --------- ----------- ----------- -----------
End of Period $ 2,719 71 - - 2,790 -
======== ========= ========= =========== =========== ===========
Consolidated
MMH
Eliminations Holdings, Inc.
----------- --------------
Operating Activities
Net income (Loss) $ 15,896 $ (15,896)
Add (deduct) - items not
affecting cash provided by
operating activities:
Depreciation and amortization - 3,853
Amortization of debt
financing cost - 1,048
Equity in loss of subsidiaries - -
Deferred income taxes - net (15,896) 31
Other - (27)
Changes in working capital, excluding
the effects of acquisition opening
balance sheets:
Accounts receivable - 19,285
Inventories - 1,262
Other current assets - (4,063)
Trade accounts payable and
bank overdrafts - (8,125)
Accrued interest - (400)
Other current liabilities - (4,373)
-------- ---------
Net cash provided by (used for)
operating activities - (7,405)
-------- ---------
Investment and Other Transactions
Fixed asset additions - net - (4,744)
Capitalized software - -
Acquisition of businesses - net
of cash acquired - (5,070)
Repayment of loans by senior
management - 70
Other - net - (245)
-------- ---------
Net cash (used for) provided by
investment and other transactions - (9,989)
-------- ---------
Financing Activities
Changes in short-term debt and
notes payable - 8,267
(Repayments of)/Proceeds from
Revolving Credit Facility borrowings - 8,784
Proceeds from Aquisitions Facility
Line borrowings - 1,235
Distribution to parent - -
Repayments of long-term debt - (675)
-------- ---------
Net cash provided by (used for)
financing activities - 17,611
-------- ---------
Effect of Exchange Rate Changes on
Cash and Cash Equivalents - 39
-------- ---------
Increase (Decrease) in Cash and
Cash Equivalents - 256
Cash and Cash Equivalents
Beginning of Period - 3,534
-------- ---------
End of Period - 2,790
======== =========
29
NOTE 12 - SUBSEQUENT EVENTS
- ---------------------------
On May 17, 2000, the Debtors filed voluntary petitions for reorganization under
Chapter 11 of the Bankruptcy Code in the United States Bankruptcy Court for the
District of Delaware. The Debtors will continue to implement cost savings
initiatives to bring their costs in line with market requirements. In connection
with the filing, the Debtors have received court approval of
debtor-in-possession financing of $35 million and are authorized to continue to
utilize their collections in the operation of their business. See Note 1,
Reorganization under Chapter 11, Note 4, Liquidity and Capital Resources and
Note 7, Indebtedness.
29
MMH HOLDINGS, INC.
MORRIS MATERIAL HANDLING, INC.
(Debtors - in - Possession as of May 17, 2000)
MANAGEMENT DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
THE FOLLOWING DISCUSSION SHOULD BE READ IN CONJUNCTION WITH THE FINANCIAL
STATEMENTS AND THE RELATED NOTES THERETO INCLUDED PREVIOUSLY IN THIS DOCUMENT.
THE COMPANY'S FISCAL YEAR ENDS OCTOBER 31. CONSEQUENTLY, ANY REFERENCE TO ANY
PARTICULAR FISCAL YEAR MEANS THE FISCAL YEAR ENDED OCTOBER 31 OF SUCH YEAR. AS
USED HEREIN, UNLESS THE CONTEXT OTHERWISE REQUIRES, THE TERM "COMPANY" REFERS TO
MMH HOLDINGS, INC., AND ITS SUBSIDIARIES, INCLUDING MORRIS MATERIAL HANDLING,
INC.
GENERAL
On May 17, 2000, MMH Holdings, Inc. and its domestic operating subsidiaries
filed voluntary petitions for reorganization under Chapter 11 of the Bankruptcy
Code in the United States Bankruptcy Court for the District of Delaware in an
action that covers the parent company and its U.S. based operating subsidiaries.
The Debtors are currently operating their businesses as debtors-in-possession
pursuant to the Bankruptcy Code. Pursuant to the Bankruptcy Code, actions to
collect certain prepetition indebtedness of the Debtors and other obligations
against the Debtors may not be enforced. These claims will be reflected in
subsequent filings in the balance sheet as "liabilities subject to compromise".
In addition, under the Bankruptcy Code, the Debtors may assume or reject
executory contracts, including leases. Additional claims may arise from such
rejection, and from the determination by the court (or agreed by the parties in
interest) to allow claims for contingencies and other disputed amounts. However,
the Debtors have not yet completed their review of all their prepetition
executory contracts and leases for assumption or rejection.
The Company is an international provider of "through-the-air" material handling
products and services used in most manufacturing industries. The Company's
original equipment operations design and manufacture a comprehensive line of
industrial cranes, hoists and component products. Through its aftermarket
operations, the Company provides a variety of related products and services,
including replacement parts, repair and maintenance services and product
modernizations. In recent years, the Company has shifted its orientation from an
original equipment-focused United States manufacturer to an international full
service provider with a significant emphasis on the high margin aftermarket
business. The Company's revenues are derived principally from the sale of
industrial overhead cranes, component products and aftermarket products and
services.
RECAPITALIZATION. Historically, the Company conducted its business as one of
several operating units of Harnischfeger Industries, Inc. ("HII"). Prior to
March 30, 1998, the core United States operations of the Company were conducted
directly by HarnCo, while the remainder of the Company's operations throughout
the world were conducted through a number of entities owned, directly or
indirectly, by HII and its affiliates.
On January 28, 1998, HII reached an agreement with MHE Investments, Inc. ("MHE
Investments"), a newly formed affiliate of Chartwell Investments Inc., for the
sale of an approximately 80 percent common ownership interest in the MHE
Business. Pursuant to this agreement, HarnCo and other HII affiliates effected a
number of transactions (the "Transactions" or the "Recapitalization") that
resulted in Holdings, a preexisting company engaged in the MHE Business,
acquiring, through MMH, its newly formed wholly-owned subsidiary, the equity
interests of all of the operating entities engaged in the MHE Business. As a
result of the reorganization of the MHE Business' legal entities, Holdings and
the Company became the successor companies to the MHE Business. The Transactions
are accounted for as a recapitalization for financial reporting purposes.
Accordingly, the historical basis of the Company's assets and liabilities was
not impacted by the Transactions.
In conjunction with the Recapitalization, which closed on March 30, 1998 (the
"Recapitalization Closing"), Holdings sold $60.0 million of Series A Units,
consisting of $57.7 million liquidation preference of Holdings' 12% Series A
Senior Exchangeable Preferred Stock (the "Holdings Series A Senior Preferred
Stock") and 720 shares of non-voting common stock, to institutional investors.
In addition, MMH sold $200.0 million aggregate principal amount of its 9 1/2%
Senior Notes due 2008 (the "Senior Notes") and entered into a senior secured
credit facility (the "New Credit Facility"). The New Credit Facility includes
$55.0 million of term loans (the "Term Loans"), a revolving credit facility (the
"Revolving Credit
31
Facility") and an acquisition facility (the "Acquisition Facility"). The
Revolving Credit Facility initially provided the Company with up to $70.0
million of available borrowings for working capital, acquisitions and other
corporate purposes, subject to compliance with certain conditions. The
Acquisition Facility initially permitted the Company to borrow up to $30.0
million until the third anniversary of the Recapitalization Closing to finance
acquisitions, subject to compliance with certain conditions. The New Credit
Facility was amended on August 2, 1999. See "Liquidity and Capital Resources."
As amended, the Revolving Credit Facility provided $50.7 million of available
borrowings ($10.0 million of which was required to be reserved for issuance of
letters of credit), and the Acquisition Facility provided for $12.4 million of
borrowings ($7.4 million of which was previously funded by the lenders under the
New Credit Facility and $5.0 million of which was funded by indirect equity
holders in Holdings) for acquisitions and general corporate purposes. No
additional borrowings under the Acquisition Facility are available from lenders
under the New Credit Facility.
At the Recapitalization Closing, (i) MHE Investments paid HarnCo $54.0 million
for 72.6% of Holdings' common stock (the "Holdings Common Stock") (after giving
effect to the Transactions) and approximately $28.9 million liquidation
preference of Holdings' 12 1/2% Series C Junior Voting Exchangeable Preferred
Stock (the "Holdings Series C Junior Voting Preferred Stock"), (ii) Holdings
redeemed certain shares of Holdings Common Stock and Holdings Series C Junior
Voting Preferred Stock from HarnCo for $282.0 million in cash (subject to
potential post-Recapitalization adjustments as to which an additional $5.0
million was provided to HarnCo) and approximately $4.8 million liquidation
preference of Holdings' 12 1/4% Series B Junior Exchangeable Preferred Stock
(the "Holdings Series B Junior Preferred Stock"), and (iii) HarnCo retained
approximately 20.8% of the Holdings Common Stock (after giving effect to the
Transactions).
At the Recapitalization Closing, MMH entered into a number of agreements
pursuant to which HII and its affiliates continued to provide to MMH and to its
subsidiaries located in the United States, on an interim basis and under
substantially the same terms and conditions as before the closing, certain
products and services. In addition, HII and MMH entered into a credit
indemnification agreement (the "Credit Indemnification Agreement") pursuant to
which HII will maintain in place the credit support obligations in existence at
the Recapitalization Closing but have no further duty to extend, renew or enter
into any new credit support obligations (except as to the MHE Business
obligations existing at the Recapitalization Closing). Under the Credit
Indemnification Agreement, MMH is required to pay HII, in advance, an annual fee
equal to 1% of the amounts outstanding under each letter of credit and bond
provided by HII and its affiliates (approximately $11.6 million as of April 30,
2000). MMH accrued a fee of $111,510 for the first half of 2000. HII is required
to refund the Company on a quarterly basis a pro-rata portion of the annual fee
for any reductions in the outstanding amount of credit that occurred during such
quarter. In addition, the Company will reimburse HII for certain future fees and
expenses. The Company also entered into a surety arrangement (the "Surety
Arrangement") to provide credit support for its post-Recapitalization Closing
operations.
In connection with the Recapitalization, the Company also entered into a
trademark license agreement (the "Trademark License Agreement") with an
affiliate of HarnCo, pursuant to which the Company has the right to use the P&H
trademark with respect to all MHE Business products on a worldwide exclusive
basis from the date of the Recapitalization Closing until 15 years after the
earlier to occur of a sale of Holdings to a third party or a public offering of
the common stock of Holdings, the Company or their parents or successors (and
for an additional seven years thereafter for aftermarket products and services).
The royalty fee for use of the trademark is 0.75% of the aggregate net sales of
the MHE Business for the ten year period commencing March 30, 1999. The Company
accrued $2,355,000 of expenses for royalty fees in the period from March 30,
1999 to April 30, 2000, including $1,002,000 for the six months ended April 30,
2000. The Company elected to defer the payment of the royalty fee for the period
ended October 31, 1999 ($1,353,000), which was payable January 30, 2000,
pursuant to the terms of the Trademark License Agreement. The Trademark License
Agreement provides that the annual royalty fee may be deferred for up to two
years if the Company does not meet certain financial criteria. The Company can
only defer up to two payments during the term of the agreement. In addition,
interest accrues at 12% per year on the deferred fee payments.
As discussed below, the Company could be materially adversely affected by the
fact that HII and certain of its United States affiliates filed for bankruptcy
protection.
For income tax purposes, Holdings and MMH were deemed to acquire the assets of
the MHE Business pursuant to Code Section 338(h)(10) in connection with the
Transactions. Accordingly, the Recapitalization increased the tax basis of
certain assets and created tax-deductible goodwill.
FINANCIAL COVENANT VIOLATIONS. The Company did not meet certain financial
covenants contained in the New Credit Facility for the quarter ended April 30,
2000 and anticipates that it will not meet them in the foreseeable future. The
Company
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entered into several Amendments and Waivers under the New Credit Facility, dated
as of January 31, 2000 through April 28, 2000, whereby, among other matters, the
lenders waived compliance by the Company with such financial covenants, for the
period from January 31, 2000 until 5:00 p.m. May 26, 2000 (the "Waivers"). The
Waivers permitted the Company, subject to certain conditions, to make additional
borrowings under the Revolving Credit Facility and issue additional letters of
credit, above levels in existence on January 28, 2000, in an aggregate amount of
up to $12.4 million, during the period to which the Waivers apply.
In connection with, and as a condition to, the lenders under the New Credit
Facility entering into the August 2, 1999 Amendment to the New Credit Facility,
certain of the current indirect equity holders in Holdings purchased, through
Martin Crane L.L.C. ("Martin Crane"), a newly formed limited liability company,
a $5.0 million participation in the New Credit Facility and received shares of
non-voting common stock of Holdings, in consideration therefor. As a result, at
April 30, 2000, MHE Investments owned approximately 54.5% of the Holdings Common
Stock, HarnCo owned approximately 15.6% of the Holdings Common Stock,
institutional investors own approximately 4.9% of the Holdings Common Stock and
Martin Crane owns approximately 25.0% of the Holdings Common Stock.
CHAPTER 11 FILING. As discussed above, on May 17, 2000, Holdings and its
domestic operating subsidiaries filed voluntary petitions for reorganization
under Chapter 11 of the U.S. Bankruptcy Code. On May 18, 2000, the Bankruptcy
Court entered an order approving $10.0 million in interim debtor-in-possession
financing to the Debtors and authorizing the Debtors to utilize their
collections in the operation of their business. This $10 million amount
represented the initial portion under a commitment by the lenders to provide $35
million in financing (including a letter of credit facility) in connection with
the Debtors' Chapter 11 cases. The full $35 million facility was approved by the
Bankruptcy Court on June 15, 2000. This new facility has an initial maturity
date of December 1, 2000, which date, absent a default, shall be automatically
extendable to June 1, 2001 if a sale of the Debtors shall not have been
consummated prior to December 1, 2000.
The Company believes that the filing provides the Debtors with the opportunity
to restructure its indebtedness. The Company plans to continue with
implementation of its cost savings initiatives to bring costs in line with
market requirements. Although no material adverse effects have occurred to date,
disruption of operations relating to the Chapter 11 reorganization could
adversely affect the Debtors' relationships with their creditors, customers,
suppliers or employees.
HII BANKRUPTCY PETITION. On June 7, 1999, (the "Petition Date") HII and certain
of its United States affiliates (including HarnCo) filed voluntary petitions for
relief under Chapter 11 of the Bankruptcy Code in the United States Bankruptcy
Court for the District of Delaware. Certain provisions of the Bankruptcy Code
allow a debtor to avoid, delay and/or reduce its contractual and other
obligations to third parties. There can be no assurance that HII and its
affiliates will not attempt to utilize such provisions to cease performance
under their agreements and arrangements with the Company. The inability of the
Company to receive the benefits of one or more of these agreements or the
termination of ongoing arrangements between the Company and affiliates of HII
(including those relating to the provision of services and materials by HII and
its affiliates to the Company) could materially adversely affect the Company's
operations and financial performance. In the event that any of the liabilities
retained by HII and its affiliates in connection with the Recapitalization
remain unsatisfied as of the Petition Date, the Company's right to
indemnification for any such amounts it has paid on behalf of HII and its
affiliates may also be avoided, delayed or reduced.
Each of HII and certain of its affiliates on the one hand, and the Company and
certain of its affiliates, on the other hand, have receivables and payables to
the other that may be affected by the HII Bankruptcy.
ACQUISITIONS AND DIVESTITURES
ACQUISITIONS - During the six months ended April 30, 2000, the Company did not
make any acquisitions. During the six months ended April 30, 1999, the Company
completed one acquisition with an aggregate purchase price of $3.1 million, net
of cash acquired, including approximately $1.0 million financed by the seller.
This acquisition was related to the Company's aftermarket business and was
accounted for as a purchase transaction with the purchase price allocated to the
fair value of specific assets acquired and liabilities assumed. Resultant
goodwill of $1.8 million is being amortized over 40 years. This acquisition was
partially financed by the seller, resulting in a deferred purchase price which
will be paid in 2004 and 2005. During the six months ended April 30, 1999, the
Company made final consideration payments of $1.5 million related to two 1998
acquisitions. In addition, with respect to a 1995 acquisition, the Company was
required to make a contingent consideration payment of $1.4 million in the six
months ended April 30, 1999. Additionally, a payment of $100 was made in each of
the six month periods ended April 30, 2000 and 1999 toward a fiscal 1998
purchase which was partially financed
33
by the seller. On a pro forma basis, the fiscal 1999 acquisition was not
material to results of operations reported for the six months ended April 30,
1999 and accordingly, such information is not presented.
DIVESTITURES-On December 16, 1999, the Company completed the sale of the Brake
Business located in Mississauga, Ontario, Canada, for a net sale price of $6.8
million after deduction of certain transaction-related items, including taxes.
During the first quarter of fiscal year 2000, the Brake Business contributed
$0.5 million in sales and no operating income to the Company's results. A
pre-tax gain of $6.4 million was recognized on this transaction.
RESULTS OF OPERATIONS
The following table sets forth certain financial data for the periods indicated.
SUPPLEMENTAL DATA
(DOLLARS IN MILLIONS)
THREE MONTHS ENDED THREE MONTHS ENDED SIX MONTHS ENDED SIX MONTHS ENDED
-------------------- ---------------------- ---------------------- ---------------------
APRIL 30, 2000 APRIL 30, 1999 APRIL 30, 2000 APRIL 30, 1999
-------------------- ---------------------- ---------------------- ---------------------
Percent of Percent of Percent of Percent of
$ NET SALES $ NET SALES $ NET SALES $ NET SALES
-------- ---------- -------- ---------- -------- ---------- -------- ----------
Net Sales $ 66.2 100.0% $71.9 100.0% $ 132.9 100.0% $139.8 100.0%
Other income - net - - - - - - .1 .1%
Cost of sales 50.7 76.6% 54.4 75.7% 101.6 76.4% 105.1 75.2%
Selling, general and
Administrative expenses 21.3 32.2% 19.4 27.0% 38.1 28.7% 35.3 25.3%
Operating income (loss) (5.8) -8.8% (1.9) -2.7% (6.8) -5.1% (.5) -.4%
Gain on sale of business - - - - 6.4 4.8% - -
Interest expense (7.6) -11.5% (7.5) -10.4% (15.4) -11.6% (14.4) -10.3%
Tax benefit (expense) (.2) -.3% (3.5) -4.9% (2.0) -1.5% (1.0) -.7%
Net loss (13.6) -20.6% (12.9) -18.0% (17.8) -13.4% (15.9) -11.4%
SIX MONTHS ENDED APRIL 30, 2000 COMPARED TO SIX MONTHS ENDED APRIL 30, 1999
Net sales for the six months ended April 30, 2000 ("First Half 2000") decreased
$6.9 million or 4.9% to $132.9 million from $139.8 million for the six months
ended April 30, 1999 ("First Half 1999"). The decrease in net sales was
primarily caused by the following: (i) $4.4 million decrease in U.S. engineered
crane sales due to a slow down in new orders during First Half 2000; (ii) $3.1
million lower service sales in the U.S., primarily in the west, due to heavy
competition and lack of service technicians; and (iii) $1.5 million decrease in
South African engineered crane sales where a large project was being performed
during the same period in the prior year. These decreases were partially offset
by: (i) a $1.5 million increase in hoists for southeast Asia as that market
begins to show renewed activity; and (ii) increased parts sales of $1.1 million
with improvement in the U.S. from wider spread coverage resulting from
Company-owned distribution operations.
Cost of sales decreased to $101.6 million in First Half 2000 compared to $105.1
million for the First Half 1999. Cost of sales increased as a percentage of net
sales from 75.2% in First Half 1999 to 76.4% in First Half 2000 due to lower
selling prices in the engineered crane, hoist and service markets as a result of
competitive pressures.
Selling, general and administrative expenses increased $2.9 million or 8.2% to
$38.2 million in First Half 2000 from $35.3 million in First Half 1999. The
primary causes of the increase were: (i) professional fees related to the
restructuring of the Company's operations and capital structure; (ii) the
accrued royalty to HII for use of the P&H trademark; (iii) increased goodwill
amortization due to the fiscal 1999 fourth quarter change in the amortization
period for the goodwill related to the Company's international operations; (iv)
increases due to a fiscal 1999 acquisition subsequent to the first quarter of
1999; (v) additional contract related costs associated with the port crane
business in the United Kingdom; and (vi) the writeoff of accounts receivable due
from a Malaysian joint venture. These increases were partially offset by
approximately $1.0 million of savings realized due to the fiscal 1999
restructuring of the United Kingdom and United States administrative functions.
Approximately $15.4 million in interest expense, including $1.2 million in
amortization of related financing costs, was recorded in First Half 2000
compared to $14.4 million, including $1.0 million in amortization of related
financing costs, in
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First Half 1999. The Company paid $4.4 million and $13.8 million of interest and
commitment fees during First Half 2000 and First Half 1999, respectively.
Tax expense of $2.0 million recorded in First Half 2000 related primarily to the
estimated tax recorded on the sale of the Brake Business in December 1999 and
profitable operations in Canada.
The Company's backlog of orders at April 30, 2000 was approximately $78.2
million compared to $97.2 million at April 30, 1999. Bookings in First Half 2000
were $133.8 million compared to $139.7 million in First Half 1999. The overall
backlog is lower primarily due to the completion of several large orders that
were in backlog a year ago and the normal variability in booking patterns for
highly engineered cranes.
THREE MONTHS ENDED APRIL 30, 2000 COMPARED TO THREE MONTHS ENDED APRIL 30, 1999
Net sales for the three months ended April 30, 2000 ("Second Quarter 2000")
decreased $5.7 million or 7.9% to $66.2 million from $71.9 million for the three
months ended April 30, 1999 ("Second Quarter 1999"). The decrease in net sales
was primarily caused by the following: (i) a decrease of $5.1 million in the
sale of engineered cranes in the U.S. reflecting the lower level of orders in
recent months; (ii) a decrease in service sales of $2.2 million in North America
due to competitive pressures and turnover in service technicians; and (iii) a
$1.9 million decrease in the sale of engineered cranes in the Company's
international market. These decreases were partially offset by: (i) an increase
of $3.9 million in the sale of standard cranes caused by continued growth of the
U.S. regional crane builders; (ii) an increase in hoists and components of $1.9
million tied to the increase in standard crane sales; and (iii) an increase in
overall parts sales of $0.5 million resulting from improved coverage in
territories formerly covered by independent dealers.
Cost of sales decreased to $50.7 million in Second Quarter 2000 compared to
$54.4 million for the Second Quarter 1999. Cost of sales increased as a
percentage of net sales from 75.7% in Second Quarter 1999 to 76.6% in Second
Quarter 2000 due to lower selling prices in the engineered crane and service
markets as a result of competitive pressures.
Selling, general and administrative expenses increased $1.9 million or 9.8% to
$21.3 million in Second Quarter 2000 from $19.4 million in Second Quarter 1999.
The primary causes were: (i) professional fees related to the Company's
restructuring; (ii) the accrued royalty to HII for use of the P&H trademark;
(iii) increased goodwill amortization due to the fiscal 1999 fourth quarter
change in the amortization period for the goodwill related to the Company's
international operations; (iv) additional contract related costs associated with
the port crane business in the United Kingdom; and (vi) the writeoff of accounts
receivable due from a Malaysian joint venture. These increases were partially
offset by savings realized due to the fiscal 1999 restructuring of the United
Kingdom and United States administrative functions.
Approximately $7.6 million in interest expense, including $0.6 million in
amortization of related financing costs, was recorded in Second Quarter 2000
compared to $7.5 million, including $0.5 million in amortization of related
financing costs, in the Second Quarter 1999. The Company paid $2.8 million and
$12.2 million of interest and commitment fees during the Second Quarter 2000 and
Second Quarter 1999, respectively.
Tax expense of $0.2 million recorded in the Second Quarter 2000 was the result
of profitable operations in Canada as well as state tax liabilities.
The Company's backlog of orders at April 30, 2000 was approximately $78.2
million compared to $97.2 million at April 30, 1999. Bookings in Second Quarter
2000 were $56.5 million compared to $76.6 million in Second Quarter 1999. The
overall backlog is lower primarily due to the completion of several large orders
that were in backlog a year ago and the normal variability in booking patterns
for highly engineered cranes.
LIQUIDITY AND CAPITAL RESOURCES
The majority of the Company's sales of products and services are recorded as
products are shipped or services are rendered. Revenue on certain long-term
contracts is recorded using the percentage-of-completion method. Net cash flow
from operations is affected by the volume of, and timing of the payments under,
percentage-of-completion long-term contracts.
34
Net cash flow used for operating activities for First Half 2000 and First Half
1999 was $6.8 million and $7.4 million, respectively.
Net cash provided by investment and other transactions for First Half 2000 was
$7.4 million compared to net cash used for investment and other transactions of
$10.0 million for First Half 1999. During First Half 2000, $9.1 million of cash,
net of transaction costs, was provided by the sale of the Canadian brake
business. This was partially offset by $0.1 million of cash used for deferred
payments on previous acquisitions. During First Half 1999, $5.1 million was used
for an acquisition related to the Company's distribution and service center
network and payments made with respect to three earlier acquisitions.
Additionally, capital expenditures decreased to $1.5 million in First Half 2000
from $4.7 million in First Half 1999. The First Half 2000 expenditures included
computers and manufacturing equipment. The First Half 1999 expenditures included
computers and upgrades, new operating system software, office and warehouse
consolidations and manufacturing equipment.
Net cash used for financing activities was $2.4 million in First Half 2000
compared to net cash provided by financing activities of $17.6 million in First
Half 1999. Net repayments in First Half 2000 included $4.8 million under the
Revolving Credit Facility in the United States and United Kingdom. The Company
also paid $4.1 million of principal on the Term Loan A, Term Loan B, and
Acquisition Facility from the net proceeds from the sale of the Canadian brake
business.
The Company did not meet certain of the financial covenants under the New Credit
Facility for the period ended January 31, 1999 and did not meet such financial
covenants and certain additional financial covenants for the period ended April
30, 1999. The Company obtained waivers of such financial covenants through
August 2, 1999. The waivers permitted the Company to borrow certain amounts
under the Revolving Credit Facility to meet its working capital requirements;
however the Company could not, without prior lender consent, (i) borrow any
amounts under the Acquisition Facility, (ii) borrow any amounts under the
Revolving Credit Facility in excess of the aggregate amount of the Revolving
Credit Facility borrowings that the Company had repaid subsequent to March 2,
1999, or (iii) request the issuance of letters of credit, bid bonds or
performance bonds in an aggregate amount after March 2, 1999 in excess of $5.0
million.
On August 2, 1999, the Company obtained an amendment to the New Credit Facility
(the "Amendment") which cured past financial covenant violations and reset
financial covenants under the New Credit Facility until April 2001. The
Amendment increased the cash availability under the Revolving Credit Facility
from $35.7 million under the previous waiver agreement to $40.7 million. At the
end of Second Quarter 2000, the Company had $30.0 million of outstanding
Revolving Credit Facility borrowings. In addition, the Amendment permitted the
Company to obtain letters of credit, bid bonds and performance bonds in an
amount not to exceed $10.0 million in the aggregate of which $5.3 million have
been issued.
In connection with, and as a condition to the New Credit Facility lenders
entering into, the Amendment, certain of the current indirect equity holders in
Holdings, through Martin Crane, purchased a $5.0 million participation in the
New Credit Facility and received certain non-voting equity interests in
Holdings, consisting of 25% of the then outstanding Holdings Common Stock.
The Company did not meet certain financial covenants contained in the New Credit
Facility for the quarter ended April 30, 2000 and anticipates that it will not
meet them in the foreseeable future. The Company entered into several Amendments
and Waivers under the New Credit Facility, dated as of January 31, 2000 through
April 28, 2000, whereby, among other matters, the lenders waived compliance by
the Company with such financial covenants, for the period from January 31, 2000
until 5:00 p.m. May 26, 2000 (the "Waivers"). The Waivers permitted the Company,
subject to certain conditions, to make additional borrowings under the Revolving
Credit Facility and issue additional letters of credit, above levels in
existence on January 28, 2000, in an aggregate amount of up to $12.4 million,
during the period to which the Waivers apply.
Holdings' current primary cash needs are for administrative expenses and for the
payment of income taxes of Holdings and its affiliates related to the MHE
Business. Holdings is a holding company that conducts all of its operations
through its subsidiaries. Consequently, Holdings' ability to meet its cash needs
depends entirely upon receiving dividends, loans, advances or other payments
from its subsidiaries. If for the reasons outlined above or otherwise, the
Company is unable to continue as a going concern, Holdings also will not be able
to continue to operate as a going concern. The New Credit Facility and the
Indenture generally restrict the ability of Holdings' subsidiaries to transfer
funds to Holdings, other than for administrative fees and expenses (subject to a
general limit) and other than for the payment of income taxes. Under the terms
of the Indenture, the Company is generally restricted from paying dividends or
making other restricted payments to Holdings unless, among other things, the
ratio of the Company's EBITDA to Consolidated Interest Expense (as defined in
the Indenture) for the four most recent consecutive fiscal quarters is at least
2 to 1. Moreover, the terms of the Holdings Series A
35
Senior Preferred Stock, as well as the Holdings Series B Junior Preferred Stock
and the Holdings Series C Junior Voting Preferred Stock, restrict the ability of
Holdings and its subsidiaries to incur additional indebtedness. There are no
current material restrictions on the ability of the Company's subsidiaries to
pay dividends or otherwise make payments to the Company. In addition, the
Company anticipates that there will not be any material economic restrictions or
adverse tax effects with respect to the Company's ability to repatriate foreign
assets. There can be no assurance, however, that such limitations will not exist
in the future. As a result of these restrictions and the Company's current
financial condition outlined above, it is unlikely that Holdings will have
available to it sufficient cash resources to pay cash dividends on the Holdings
Series A Senior Preferred Stock (or on the Holdings Series B Junior Preferred
Stock and the Holdings Series C Junior Voting Preferred Stock) commencing
October 1, 2003. In addition, all issues of Holdings' preferred stock are
manditorily redeemable.
On May 17, 2000, Holdings and its domestic operating subsidiaries filed
voluntary petitions for reorganization under Chapter 11 of the U.S. Bankruptcy
Code. On May 18, 2000, the Bankruptcy Court entered an order approving $10.0
million in interim debtor-in-possession financing to the Debtors and authorizing
the Debtors to utilize their collections in the operation of their business.
This $10 million amount represented the initial portion under a commitment by
the lenders to provide $35 million in financing (including a letter of credit
facility) in connection with the Debtors' Chapter 11 cases. The full $35 million
facility was approved by the Bankruptcy Court on June 15, 2000. This new
facility has an initial maturity date of December 1, 2000, which date, absent a
default, shall be automatically extendable to June 1, 2001 if a sale of the
Debtors shall not have been consummated prior to December 1, 2000.
The Company believes that the filing provides the Debtors with the opportunity
to restructure its indebtedness. The Company plans to continue to implement its
cost savings initiatives to bring costs in line with market requirements.
Although no material adverse effects have occurred to date, disruption of
operations relating to the Chapter 11 reorganization could adversely affect the
Debtors' relationships with their creditors, customers, suppliers or employees.
The Company is currently seeking, and is engaged in discussions regarding, its
strategic alternatives. The Company has engaged in discussions with its bank
lenders and representatives of the holders of Senior Notes concerning the
possible restructuring of the Company's capital structure, including a possible
sale of the Company to a third party in connection therewith. There can be no
assurance that the Company will be able to successfully pursue strategic
alternatives or that the results of its discussions with its creditors will be
successful. As discussed above, if the Company fails in the near future to
resolve its critical liquidity issues, the Company may be unable to continue as
a going concern.
EURO CONVERSION
On January 1, 1999, eleven of the fifteen member countries of the European
Monetary Union (the "participating countries") began a three-year transition
from their national currencies to a new common currency, the "euro". As of that
date, the participating countries no longer control their own monetary policies
by directing independent interest rates for their national currency. The
national currencies will remain legal tender and can be used in commercial
transactions until January 1, 2002. Beginning January 1, 2002, the participating
countries will issue new euro currency and withdraw their respective national
currencies which will no longer be used as legal tender. The Company's only
significant operations in member countries of the European Monetary Union are in
the United Kindgom, which is not a participating country. As such, management
does not believe that the euro conversion will have a significant impact on the
operations, cash flows or financial position of the Company, unless and until
the United Kingdom adopts the euro.
CAUTIONARY FACTORS
This report contains or may contain forward looking statements by or on behalf
of Holdings and the Company. Such statements are based upon management's current
expectations and are subject to risks and uncertainties that could cause the
Company's actual results to differ materially from those contemplated in the
statements. Readers are cautioned not to place undue reliance on these forward
looking statements. In addition to the assumptions and other factors referred to
specifically in connection with such statements, factors that could cause the
Company's actual results to differ materially from those contemplated include,
among others, the following:
o LIQUIDITY STATUS - The Company did not meet certain of the financial
covenants under the New Credit Facility for the period ended January 31,
1999 and did not meet such financial covenants and certain additional
financial covenants for the period ended April 30, 1999. The Company
obtained a waiver of such financial covenants
36
through August 2, 1999. On August 2, 1999, the Company entered into the
Amendment which cured past financial covenant violations and reset
financial covenants until April 2001. The Amendment increased the cash
availability under the Revolving Credit Facility from $35.7 million
under the previous waiver agreement to $40.7 million. In addition, the
Amendment permitted the Company to obtain letters of credit, bid bonds
and performance bonds in an amount not to exceed $10.0 million in the
aggregate of which $5.3 million have been issued.
The Company did not meet certain financial covenants contained in the
New Credit Facility for the quarter ended April 30, 2000 and anticipates
that it will not meet them in the foreseeable future. The Company
entered into several Amendments and Waivers under the New Credit
Facility, dated as of January 31, 2000 through April 28, 2000, whereby,
among other matters, the lenders waived compliance by the Company with
such financial covenants, for the period from January 31, 2000 until
5:00 p.m. May 26, 2000 (the "Waivers"). The Waivers permitted the
Company, subject to certain conditions, to make additional borrowings
under the Revolving Credit Facility and issue additional letters of
credit, above levels in existence on January 28, 2000, in an aggregate
amount of up to $12.4 million, during the period as to which the Waivers
apply.
On May 17, 2000, Holdings and its domestic operating subsidiaries filed
voluntary petitions for reorganization under Chapter 11 of the U.S.
Bankruptcy Code. See Note 1, Reorganization under Chapter 11 and Note
12, Subsequent Events. On May 18, 2000, the Bankruptcy Court entered an
order approving $10.0 million in interim debtor-in-possession financing
to the Debtors and authorizing the Debtors to utilize their collections
in the operation of their business. This $10 million amount represented
the initial portion under a commitment by the lenders to provide $35
million in financing (including a letter of credit facility) in
connection with the Debtors' Chapter 11 cases. The full $35 million
facility was approved by the Bankruptcy Court on June 15, 2000. This new
facility has an initial maturity date of December 1, 2000, which date,
absent a default, shall be automatically extendable to June 1, 2001 if a
sale of the Debtors shall not have been consummated prior to December 1,
2000.
The Company believes that the filing provides the Debtors with the
opportunity to restructure its indebtedness. The Company plans to
continue to implement its cost savings initiatives to bring costs in
line with market requirements. Although no material adverse effects have
occurred to date, disruption of operations relating to the Chapter 11
reorganization could adversely affect the Debtors' relationships with
their creditors, customers, suppliers or employees.
As of the end of the second quarter of 2000, the Company had $306.7
million of indebtedness outstanding, including $90.9 million under the
New Credit Facility (including accrued interest) and $211.1 million
evidenced by the Senior Notes (including accrued interest).
The Company is currently seeking, and is engaged in discussions
regarding, its strategic alternatives. The Company has engaged in
discussions with its bank lenders and representatives of the holders of
Senior Notes concerning the possible restructuring of the Company's
capital structure, including a possible sale of the Company to a third
party in connection therewith. There can be no assurance that the
Company will be able to successfully pursue strategic alternatives or
that the results of its discussions with its creditors will be
successful. As discussed above, if the Company fails in the near future
to resolve its critical liquidity issues, the Company may be unable to
continue as a going concern.
o POTENTIAL MATERIAL ADVERSE EFFECT OF HII BANKRUPTCY - On June 7, 1999,
HII and certain of its United States affiliates (including HarnCo) filed
voluntary petitions for relief under Chapter 11 of the Bankruptcy Code
in the United States Bankruptcy Court for the District of Delaware.
Certain provisions of the Bankruptcy Code allow a debtor to avoid, delay
and/or reduce its contractual and other obligations to third parties.
There can be no assurance that HII and its affiliates will not attempt
to utilize such provisions to cease performance under their agreements
and arrangements with the Company. The inability of the Company to
receive the benefits of one or more of these agreements or the
termination of ongoing arrangements between the Company and affiliates
of HII (including those relating to the provision of services and
materials by HII and its affiliates to the Company) could materially
adversely affect the Company's operations and financial performance. In
the event that any of the liabilities retained by HII and its affiliates
in connection with the Recapitalization remain unsatisfied as of the
Petition Date, the Company's right to indemnification for any such
amounts it has paid on behalf of HII and
37
its affiliates may also be avoided, delayed or reduced. Each of HII and
certain of its affiliates on one hand, and the Company and certain
affiliates on the other hand, have receivables and payables to the other
which may be affected by the HII Bankruptcy.
o RISKS ASSOCIATED WITH LARGE CRANE PROJECTS - The Company's principal
business includes designing, manufacturing, marketing and servicing
large cranes for the capital goods industries. Long periods of time are
often necessary to plan, design and build these machines. With respect
to these machines, there are risks of customer acceptance and start-up
or performance problems. Large amounts of capital are required to be
devoted by some of the Company's customers to purchase these machines
and to finance the steel mills, paper mills and other facilities that
use these machines. The Company's success in obtaining and managing
sales opportunities can affect the Company's financial performance. In
addition, some projects are located in undeveloped or developing
economies where business conditions are less predictable. Finally, the
market for large cranes is down substantially and the outlook is not
expected to improve for the foreseeable future.
o RISKS ASSOCIATED WITH INTERNATIONAL OPERATIONS - The Company has
operations and assets located in Canada, Mexico, Chile, the United
Kingdom, South Africa, Thailand, Australia and Singapore and is
establishing joint ventures in Malaysia and Saudi Arabia. The Company
also sells its products through distributors and agents in over 50
countries, some of which are merely ad hoc arrangements and may be
terminated at any time. The Company's international operations
(including Canada, Mexico, Chile, South Africa, Singapore, Thailand,
Australia and the United Kingdom) accounted for 37.7% and 40.4% of the
Company's aggregate net sales for the six months ended April 30, 2000
and 1999, respectively. Although historically, exchange rate
fluctuations and other international factors have not had a material
impact on the Company's business, financial condition or results of
operations, international operations expose the Company to a number of
risks, including currency exchange rate fluctuations, trade barriers,
exchange controls, risk of governmental expropriation, political and
legal risks and restrictions, foreign ownership restrictions and risks
of increases in taxes. The inability of the Company, or limitations on
its ability, to conduct its foreign operations or distribute its
products internationally could adversely affect the Company's operations
and financial performance.
o COMPETITION - The markets in which the Company operates are highly
competitive. Both domestically and internationally, the Company faces
competition from a number of different manufacturers in each of its
product lines, some of which have greater financial and other resources
than the Company. The principal competitive factors affecting the
Company include performance, functionality, price, brand recognition,
customer service and support, financial strength and stability, and
product availability. The current depressed level of new equipment
orders has increased the intensity of competition and has reduced
selling prices and margins on new equipment bookings. There can be no
assurance that the Company will be able to compete successfully with its
existing competitors or with new competitors. Failure to compete
successfully could have a material adverse effect on the Company's
financial condition, liquidity and results of operations. In addition,
the Company's ability to compete successfully will likely be adversely
affected by the Company's liquidity crisis.
o MARKET RISKS - The Company's business is affected by the state of the
United States and global economy in general, and by the varying economic
cycles of the industries in which its products are used. There can be no
assurance that any future condition of the United States economy or the
economies of the other countries in which the Company does business will
not have an adverse effect on the Company's business, operations or
financial performance.
YEAR 2000 COMPLIANCE
The Company has not experienced any significant disruption in operations as a
result of the Year 2000 issue, although there remains a potential for Year 2000
problems to occur after January 1, 2000. Management, however, believes that any
potential problems would not have a significant impact on operations of the
Company.
The potential Year 2000 problems exist as a result of computer programs written
and systems designed using two digits rather than four to define the applicable
year. Consequently, such software has the potential to recognize a date using
"00" as the year 1900 rather than the year 2000. This could result in a system
failure or miscalculations causing disruptions of operations, including, among
other things, a temporary inability to process transactions, send invoices, or
engage in similar normal business activities.
38
Since 1996, the Company has been engaged in resolving its Year 2000 issues,
first as a subsidiary of HII, and now on its own as an independent entity. After
the Recapitalization, the Company established its own Year 2000 teams. These
teams performed site audits at each of the Company's operations in order to
identify and address all Year 2000 issues related to both information technology
("IT") systems and internally used manufacturing and administrative equipment.
Hardware and software technology guidelines were implemented worldwide in order
to ensure that all systems were Year 2000 compliant before January 1, 2000. All
material IT and non-IT equipment, processes and software were compliant and
resulted in no material Year 2000 issues through June 28, 2000.
The Company also assessed and addressed Year 2000 issues with significant
vendors. The Company sought assurances from all of its vendors with respect to
Year 2000 issues. The Company does not, however, control the systems of other
companies, and cannot assure that these systems were timely converted and, if
not converted, would not have an adverse effect on the Company's business
operations. In the event that the Company's significant vendors or suppliers did
not complete their Year 2000 compliance efforts, the Company could have
experienced disruptions in its operations. Disruptions in the economy generally
resulting from Year 2000 issues also could have affected the Company. With
respect to products sold by the Company, management continues to believe that
any liability for Year 2000 compliance will not be material.
FUTURE ACCOUNTING CHANGES
In June 1998, the Financial Accounting Standards Board (FASB) has issued
Statement of Accounting Standards ("SFAS") No. 133 "Accounting for Derivative
Instruments and Hedging Activities." It requires all derivative instruments to
be recorded in the statements of financial position at fair value. In June 1999,
the statement's effective date was delayed by one year, and it will be effective
for the year ending October 31, 2001. Interim reporting for this standard will
be required. Due to the Company's current limited use of derivative instruments,
the adoption of this statement is not expected to have a material effect on the
Company's financial condition or results of operations.
39
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company is potentially exposed to market risk asssociated with changes in
foreign exchange and interest rates. From time to time the Company will enter
into derivative financial instruments to hedge these exposures. An instrument
will be treated as a hedge if it is effective in offsetting the impact of
volatility in the Company's underlying interest rate and foreign exchange rate
exposures. The Company does not enter into derivatives for speculative purposes.
There have been no material changes in the Company's market risk exposures as
compared to those discussed in the Company's 1999 Annual Report on Form 10-K,
except for the termination of the Company's interest rate swap during the
quarter ended April 30, 2000.
40
PART II. OTHER INFORMATION
Item 1. legal Proceedings
-----------------
On October 28, 1996, a strong windstorm caused significant damage to the
Belview container-handling terminal at the Port of Waterford in Ireland. One
container-handling crane sold by the Company's United Kingdom subsidiary was
destroyed and another was seriously damaged. The two cranes were sold to the
Waterford Harbour Commissioners in 1992 and commissioned for use in 1993. On
October 19, 1998, the Waterford Harbour Commissioners wrote to the Company and
provided a notice of arbitration, asserting breach of contract, negligence and
breach of duty against the Company's United Kingdom subsidiary in connection
with the destroyed and damaged cranes. The Waterford Harbour Commissioners
claimed direct damages of IR(pound)8.5 million ($11.5 million based on exchange
rates at January 31, 2000) and unspecified consequential damages. The port
operator, Bell Lines, Limited, filed a similar claim against the Company's
United Kingdom subsidiary in October 1999, asserting unspecified damages.
Management intends to vigorously defend both matters. One of the Company's
insurance carriers has agreed to provide defense coverage for one of the two
cranes involved in the accident and limited indemnification if the Company is
unsuccessful in defending the claims. The Company is continuing to work with its
insurance broker to determine the availability of additional insurance coverage,
if any. While the Company believes that it will obtain a favorable resolution
(either by successfully defending the claim or by obtaining insurance coverage
thereon), no assurances can be made as to the final outcome of the claims. If
the Company is found liable for the claims and is unable to obtain insurance
coverage therefor, there could be a material adverse effect on the Company's
operations and financial performance. Based upon the current status of this
matter, no related liability has been accrued at April 30, 2000.
The Company is also involved from time to time in various other routine
litigation incident to its operations. Although the outcome of those matters
cannot be predicted with certainty, management believes that any such pending or
threatened litigation will not have a material adverse effect on its
consolidated results of operations and financial condition.
Item 2. Changes in Securities
---------------------
Not applicable.
Item 3. DEFAULTS UPON SENIOR SECURITIES
-------------------------------
In advance of the Chapter 11 bankruptcy filings described in Item 2 -
Management's Discussion and Analysis of Financial Condition and Results of
Operations of Part I, the Debtors were unable to pay the interest on the
Senior Notes.
Item 4. Submission of Matters to a Vote of Security Holders
---------------------------------------------------
Not applicable.
Item 5. Other Information
-----------------
Not applicable.
Item 6. Exhibits and Reports On Form 8-K
--------------------------------
(a) Exhibits
Exhibit 27 Financial Data Schedule
(b) Reports on Form 8-K
The Registrants filed no reports on Form 8-K during the quarter ended
April 30, 2000.
41
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrants have duly caused this report to be signed on their behalf by the
undersigned thereunto duly authorized.
MMH HOLDINGS, INC.
Date: June 28, 2000 /S/ DAVID D. SMITH
-------------------
David D. Smith
Vice President - Finance
(Principal Financial Officer)
MORRIS MATERIAL HANDLING, INC.
Date: June 28, 2000 /S/ DAVID D. SMITH
-------------------
David D. Smith
Vice President - Finance
(Principal Financial Officer)
42
EXHIBIT
NUMBER EXHIBIT DESCRIPTION
- -------- -------------------
27.1 Financial Data Schedule
27.2 Financial Data Schedule
43