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 July 31, 1999
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)
4915 South Howell Avenue, 2nd Floor
Milwaukee, Wisconsin 53207
(414) 486-6100
333-52527 MORRIS MATERIAL HANDLING, INC. 39-1716155
(a Delaware Corporation)
4915 South Howell Avenue, 2nd Floor
Milwaukee, Wisconsin 53207
(414) 486-6100
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 (September 10, 1999):
MMH Holdings, Inc. Nonvoting common stock, $.01 Par Value,
1,930 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 Statements:
MMH Holdings, Inc.
Condensed Balance Sheets 3
Condensed Statements of Operations and Comprehensive Income (Loss) 4
Condensed Statements of Cash Flows 5
Statements of Preferred Stock and Shareholders' Equity 6
Morris Material Handling, Inc.
Condensed Balance Sheets 7
Condensed Statements of Operations and Comprehensive Income (Loss) 8
Condensed Statements of Cash Flows 9
Statements of Shareholder's Equity 10
Notes to Financial Statements of
MMH Holdings, Inc. and
Morris Material Handling, Inc. 11
Management's Discussion and Analysis of
Financial Condition and Results of Operations of
MMH Holdings, Inc. and
Morris Material Handling, Inc. 23
Part II - Other Information:
Item 1. Legal Proceedings 32
Item 2. Changes in Securities 32
Item 3. Defaults upon Senior Securities 32
Item 4. Submission of Matters to a Vote of Security Holders 32
Item 5. Other Information 32
Item 6. Exhibits and Reports on Form 8-K 32
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.
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 to any individual Registrant is filed
by such Registrant 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. The forward looking statements include, without
limitation, the ability of the Registrants to meet their future liquidity needs.
The Registrants caution that those statements are further qualified by important
factors that could cause actual results to differ from those in the forward
looking statements. Certain factors that might cause such a difference are
detailed herein under "Management's Discussion and Analysis of Financial
Condition and Results of Operations--Cautionary Factors."
2
MMH HOLDINGS, INC.
CONDENSED BALANCE SHEETS
(Dollars in Thousands)
ASSETS
July 31, October, 31
1999 1998
----------- -----------
(Unaudited)
Current Assets
Cash and cash equivalents $ 2,153 $ 2,534
Accounts receivable-net 63,561 81,947
Inventories 43,568 42,561
Other current assets 14,798 11,467
--------- ---------
124,080 138,509
--------- ---------
Property, Plant and Equipment
Cost 70,116 67,649
Less accumulated depreciation (29,822) (26,579)
--------- ---------
40,294 41,070
--------- ---------
Other Assets
Goodwill 42,184 39,843
Debt financing costs 17,313 18,905
Deferred income taxes 65,979 65,979
Other 9,997 6,691
--------- ---------
135,473 131,418
--------- ---------
299,847 310,997
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities
Short-term notes payable and current
portion of long-term obligations (Note 5) $ 3,467 $ 2,262
Revolving Credit Facility borrowings (Note 5) 7,203 --
Bank overdrafts 1,889 1,252
Trade accounts payable 22,221 32,893
Advance payments and progress billings 10,037 9,399
Accrued interest 6,444 2,201
Other current liabilities 21,783 29,946
--------- ---------
73,044 77,953
Revolving Credit Facility Borrowings (Note 5) 18,000 1,200
Term Loans (Note 5) 49,713 52,225
Acquisition Facility Line Borrowings (Note 5) 7,430 6,194
Senior Notes 200,000 200,000
Other Long-Term Borrowings 2,572 2,205
Deferred Income Taxes 2,578 2,698
Other Long-Term Liabilities 1,487 --
Minority Interest 521 364
Commitments and Contingencies (Note 6)
Mandatorily Redeemable Preferred Stock 104,911 95,351
Shareholders' Equity (160,409) (127,193)
--------- ---------
299,847 310,997
========= =======
The accompanying notes are an integral part of the financial statements.
3
MMH HOLDINGS, INC.
CONDENSED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS)
(UNAUDITED)
(Dollars in Thousands)
For the Three Months For the Nine Months
Ended July 31, Ended July 31,
--------------------- -------------------
1999 1998 1999 1998
--------- ----------- -------- ----------
Revenues
Net Sales $ 72,709 $ 74,426 $ 212,478 $ 231,675
Other Income - Net 453 391 600 1,117
--------- --------- --------- ---------
73,162 74,817 213,078 232,792
Cost of Sales 52,210 52,152 157,266 167,324
Selling, General and
Administrative Expenses 18,298 14,582 53,585 44,096
HII Management Fee -- -- -- 1,155
Non-Recurring Employee Benefit Costs -- -- -- 1,906
--------- --------- --------- ---------
Operating Income 2,654 8,083 2,227 18,311
Interest Expense - Net
HII Affiliates -- -- -- (1,448)
Third Party (7,521) (7,013) (21,952) (9,716)
--------- --------- --------- ---------
Income (Loss) Before
Income Taxes and Minority Interest (4,867) 1,070 (19,725) 7,147
Provision for Income Taxes (576) (450) (1,641) (2,896)
Minority Interest 13 (4) 40 34
--------- --------- --------- ---------
Net Income (Loss) (5,430) 616 (21,326) 4,285
Foreign Currency Translation
Adjustments (869) (765) (2,246) (2,285)
--------- --------- --------- ---------
Comprehensive Income (Loss) $ (6,299) $ (149) $ (23,572) $ 2,000
========= ========= ========= =========
The accompanying notes are an integral part of the financial statements.
4
MMH HOLDINGS, INC.
CONDENSED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(Dollars in Thousands)
For the Nine Months
Ended July 31,
----------------------
1999 1998
----------------------
Operating Activities
Net income (loss) $ (21,326) $ 4,285
Add (deduct) - items not
affecting cash used for operating activities:
Depreciation and amortization 6,057 5,196
Amortization of debt financing costs 1,603 655
Deferred income taxes - net 41 411
Divestiture bonus -- 1,216
Other (40) (34)
Changes in working capital,
excluding the effects of acquisition
opening balance sheets:
Accounts receivable 18,212 4,246
Inventories 34 (5,563)
Other current assets (3,762) (2,466)
Trade accounts payable and bank overdrafts (10,512) (14,104)
Advance payments and progress billings 366 941
Accrued warranties (145) (1,428)
Accrued interest 4,243 6,884
Other current liabilities (6,958) (375)
Activity with parent and other affiliates-net -- 1,748
--------- ---------
Net cash provided by (used for)operating activities (12,187) 1,612
--------- ---------
Investment and Other Transactions
Capital Expenditures - net (6,208) (3,556)
Acquisition of businesses-net of cash acquired (5,070) (3,203)
Net issuance of loans to senior management (80) (900)
Other - net (570) (941)
--------- ---------
Net cash used for investment and other transactions (11,928) (8,600)
--------- ---------
Financing Activities
Changes in short-term debt,
notes payable and Revolving Credit
Facility borrowings 23,916 6,324
Proceeds from Acquisition Line borrowings 1,235 --
Proceeds from Senior Note Offering -- 200,000
Proceeds from New Credit Facility -- 55,000
Redemption of common stock and preferred stock -- (287,000)
Net proceeds from issuance of
Series A preferred stock and related common shares -- 57,094
Stock redemption transaction costs -- (3,181)
Debt financing costs -- (18,889)
Repayments of long-term obligations (1,388) (338)
--------- ---------
Net cash provided by financing activities 23,763 9,010
--------- ---------
Effect of Exchange Rate Changes on
Cash and Cash Equivalents (29) 28
--------- ---------
Increase (Decrease) in Cash and Cash Equivalents (381) 2,050
Cash and Cash Equivalents
Beginning of Period 2,534 1,532
--------- ---------
End of Period $ 2,153 $ 3,582
========= =========
The accompanying notes are an integral part of the financial statements.
5
MMH HOLDINGS, INC.
STATEMENTS OF PREFERRED STOCK AND SHAREHOLDERS' EQUITY
FOR THE NINE MONTHS ENDED JULY 31, 1999
(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, 1998 61,188 $ 59,217 5,105 $ 5,156 30,678 $ 30,978 $ 95,351
Net loss -- -- -- -- -- -- --
Change in
foreign currency translation -- -- -- -- -- -- --
Net issuance
of loans to senior management -- -- -- -- -- -- --
Preferred stock dividends 3,667 5,665 313 483 1,918 2,976 9,124
Amortization of
preferred stock discount -- 436 -- -- -- -- 436
-----------------------------------------------------------------------------------------------
Balance at July 31, 1999 64,855 $ 65,318 5,418 $ 5,639 32,596 $ 33,954 $ 104,911
===============================================================================================
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, 1998 10,889 $-- $(121,860) $ (2,741) $ (2,592) $(127,193)
Net loss -- -- -- -- (21,326) (21,326)
Change in
foreign currency translation -- -- -- (2,246) -- (2,246)
Net issuance
of loans to senior management -- -- -- -- (80) (80)
Preferred stock dividends -- -- -- -- (9,128) (9,128)
Amortization of
preferred stock discount -- -- -- -- (436) (436)
-----------------------------------------------------------------------------------------------
Balance at July 31, 1999 10,889 $-- $(121,860) $ (4,987) $ (33,562) $(160,409)
===============================================================================================
The accompanying notes are an integral part of the financial statements.
6
MORRIS MATERIAL HANDLING, INC.
CONDENSED BALANCE SHEETS
(Dollars in Thousands)
July 31, October 31,
1999 1998
------------ -------------
(Unaudited)
ASSETS
Current Assets
Cash and cash equivalents $ 2,153 $ 2,534
Accounts receivable-net 63,561 81,947
Inventories 43,568 42,561
Other current assets 14,798 11,467
--------- ---------
124,080 138,509
--------- ---------
Property, Plant and Equipment
Cost 70,116 67,649
Less accumulated depreciation (29,822) (26,579)
--------- ---------
40,294 41,070
--------- ---------
Other Assets
Goodwill 42,184 39,843
Debt financing costs 17,313 18,905
Deferred income taxes 65,979 65,979
Other 9,997 6,691
--------- ---------
135,473 131,418
--------- ---------
$ 299,847 $ 310,997
========= =========
LIABILITIES AND SHAREHOLDER'S EQUITY
Current Liabilities
Short-term notes payable and current
portion of long-term obligations (Note 5) $ 3,467 $ 2,262
Revolving Credit Facility borrowings (Note 5) 7,203 --
Bank overdrafts 1,889 1,252
Trade accounts payable 22,221 32,893
Advance payments and progress billings 10,037 9,399
Accrued interest 6,444 2,201
Other current liabilities 21,783 29,946
--------- ---------
73,044 77,953
Revolving Credit Facility Borrowings (Note 5) 18,000 1,200
Term Loans (Note 5) 49,713 52,225
Acquisition Facility Line Borrowings (Note 5) 7,430 6,194
Senior Notes 200,000 200,000
Other Long-Term Borrowings 2,572 2,205
Deferred Income Taxes 2,578 2,698
Other Long-Term Liabilities 1,487 --
Minority Interest 521 364
Commitments and Contingencies (Note 6)
Shareholder's Equity (55,498) (31,842)
--------- ---------
$ 299,847 $ 310,997
========= =========
The accompanying notes are an intergral part of the financial statements
7
MORRIS MATERIAL HANDLING, INC.
CONDENSED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS)
(UNAUDITED)
(Dollars in Thousands)
For the Three Months For the Nine Months
Ended July 31, Ended July 31,
----------------------- ----------------------
1999 1998 1999 1998
----------- ---------- --------- ----------
Revenues
Net Sales $ 72,709 $ 74,426 $ 212,478 $ 231,675
Other Income - Net 453 391 600 1,117
--------- --------- --------- ---------
73,162 74,817 213,078 232,792
Cost of Sales 52,210 52,152 157,266 167,324
Selling, General and
Administrative Expenses 18,298 14,582 53,585 44,096
HII Management Fee -- -- -- 1,155
Non-Recurring Employee Benefit Costs -- -- -- 1,906
--------- --------- --------- ---------
Operating Income 2,654 8,083 2,227 18,311
Interest Expense - Net
HII Affiliates -- -- -- (1,448)
Third Party (7,521) (7,013) (21,952) (9,716)
--------- --------- --------- ---------
Income (Loss) Before
Income Taxes and Minority Interest (4,867) 1,070 (19,725) 7,147
Provision for Income Taxes (576) (450) (1,641) (2,896)
Minority Interest 13 (4) 40 34
--------- --------- --------- ---------
Net Income (Loss) (5,430) 616 (21,326) 4,285
Foreign Currency Translation
Adjustments (869) (765) (2,246) (2,285)
--------- --------- --------- ---------
Comprehensive Income (Loss) $ (6,299) $ (149) $ (23,572) $ 2,000
========= ========= ========= =========
The accompanying notes are an integral part of the financial statements.
8
MORRIS MATERIAL HANDLING, INC.
CONDENSED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(Dollars in Thousands)
For the Nine Months
Ended July 31,
1999 1998
-----------------------
Operating Activities
Net income (loss) $ (21,326) $ 4,285
Add (deduct) - items not affecting cash
used for operating activities:
Depreciation and amortization 6,057 5,196
Amortization of debt financing costs 1,603 655
Deferred income taxes - net 41 411
Divestiture bonus -- 1,216
Other (40) (34)
Changes in working capital, excluding the effects
of acquisition opening balance sheets:
Accounts receivable 18,212 4,246
Inventories 34 (5,563)
Other current assets (3,762) (2,466)
Trade accounts payable and bank overdrafts (10,512) (14,104)
Advance payments and progress billings 366 941
Accrued warranties (145) (1,428)
Accrued interest 4,243 6,884
Other current liabilities (6,958) (375)
Activity with parent and other affiliates-net -- 1,748
--------- ---------
Net cash provided by (used for) operating activities (12,187) 1,612
--------- ---------
Investment and Other Transactions
Capital expenditures - net (6,208) (3,556)
Acquisition of businesses - net of cash acquired (5,070) (3,203)
Net issuance of loans to senior management (80) (900)
Other - net (570) (941)
--------- ---------
Net cash used for investment and other transactions (11,928) (8,600)
--------- ---------
Financing Activities
Changes in short-term debt, notes
payable and Revolving Credit
Facility borrowings 23,916 6,324
Proceeds from Acquisition Facility Line borrowings 1,235 --
Proceeds from Senior Note Offering -- 200,000
Proceeds from New Credit Facility -- 55,000
Dividend to and redemption of shares held by Holdings -- (233,087)
Debt Financing Costs -- (18,889)
Repayments of long-term obligations (1,388) (338)
--------- ---------
Net cash provided by financing activities 23,763 9,010
--------- ---------
Effect of Exchange Rate Changes on
Cash and Cash Equivalents (29) 28
--------- ---------
Increase (Decrease) in Cash and Cash Equivalents (381) 2,050
Cash and Cash Equivalents
Beginning of Period 2,534 1,532
--------- ---------
End of Period $ 2,153 $ 3,582
========= =========
The accompanying notes are an integral part of the financial statements.
9
MORRIS MATERIAL HANDLING, INC.
STATEMENT OF SHAREHOLDER'S EQUITY
FOR THE NINE MONTHS ENDED JULY 31, 1999
(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, 1998 100 $-- $(33,392) $ (2,741) $ 4,291 $(31,842)
Net loss -- -- -- -- (21,326) (21,326)
Change in foreign
currency translation -- -- -- (2,246) -- (2,246)
Distribution to Holdings -- -- -- -- (4) (4)
Net issuance of loans to
senior management -- -- -- -- (80) (80)
----------------------------------------------------------------------------------
Balance at July 31, 1999 100 $-- $(33,392) $ (4,987) $(17,119) $(55,498)
==================================================================================
The accompanying notes are an integral part of the financial statements.
10
MMH HOLDINGS, INC.
MORRIS MATERIAL HANDLING, INC.
NOTES TO FINANCIAL STATEMENTS
UNAUDITED
(Dollar amounts in thousands unless indicated)
Note 1 - 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 2, 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, MMH Holdings, Inc. ("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.
For periods prior to the Recapitalization Closing, the financial statements
presented represent the combined financial statements of the entities comprising
the MHE Business. For purposes hereof, it is assumed that Holdings has
historically owned the capital stock of MMH, that all of the assets of the MHE
Business were owned by subsidiaries of MMH and that, immediately prior to the
consummation of the Recapitalization, the historical combined financial
statements of Holdings were identical to those of the Company.
All significant intercompany balances and transactions have been eliminated.
Payables and receivables with HII and affiliates prior to the Recapitalization
are recorded as a component of parent investment.
The accompanying unaudited financial statements should be read in conjunction
with the combined 1998 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 months and nine months ended
July 31, 1999, respectively, are not, however, indicative of the results which
may be expected for fiscal 1999.
Note 2 - 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
11
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 9 1/2% senior notes due 2008 (the "Senior Notes") and
entered into a senior secured credit facility (the "New Credit Facility") (See
Notes 5 and 6). MMH also entered into a surety arrangement (the "Surety
Arrangement") to provide credit support for its post-Recapitalization Closing
operations. 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 on a combined basis 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 were 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 July 31, 1999, MHE Investments owned approximately 72.6% of the common stock
of Holdings and $32.6 million liquidation preference of the Series C Junior
Voting Preferred Stock and HarnCo owned approximately 20.8% of the common stock
of Holdings and $5.4 million liquidation preference of the Series B Junior
Preferred Stock. The remaining equity interests were held by institutional
investors and consisted of non-voting stock representing approximately 6.6% of
the outstanding common stock of Holdings and $64.9 million liquidation
preference of the Series A Senior Preferred Stock.
Note 3 - Acquisitions
During the nine months ended July 31, 1999, the Company completed one
acquisition with an aggregate purchase price of $3,158, net of cash acquired.
During 1998, the Company completed several acquisitions for an aggregate
purchase price of $8,891, net of cash acquired. These acquisitions were related
to the Company's aftermarket business and were accounted for as purchase
transactions with the purchase prices allocated to the fair value of specific
assets acquired and liabilities assumed. Resultant goodwill of the transactions,
$1,934 for the 1999 transaction and $8,343 for the 1998 transactions, is being
amortized over 30 to 40 years. The 1999 acquisition and one 1998 acquisition
were partially financed by the sellers, resulting in deferred purchase price
which will be paid in 2004 and 2005 (in the case of the 1999 acquisition) and in
installments through 2006 (in the case of one 1998 acquisition).
During the nine months ended July 31, 1999, the Company made final consideration
payments of $1,507 related to two 1998 acquisitions. With respect to a 1995
acquisition, the Company made a final contingent consideration payment of $1,413
in the nine months ended July 31, 1999. Additionally, a payment of $100 was made
toward the 1998 acquisition that was partially financed by the seller. On a pro
forma basis, the 1999 and 1998 acquisitions were not material to results of
operations reported for the nine months ended July 31, 1999 and accordingly,
such information is not presented.
Note 4 - Inventories
Inventories consisted of the following:
July 31, October 31,
1999 1998
--------------- ------------
Raw material $ 16,997 $ 14,517
Work-in-process 22,547 20,545
Finished parts 11,171 14,910
--------- --------
50,715 49,972
Less excess of current cost
over stated LIFO value (7,147) (7,411)
========== ========
$ 43,568 $ 42,561
========== ========
12
Note 5 - Indebtedness
The New Credit Facility and the indenture governing the Senior Notes (the "Note
Indenture") contain a number of covenants that, among other things, limit
Holdings' and its subsidiaries' ability to prepay subordinated indebtedness,
dispose of certain assets, create liens, make capital expenditures, make certain
investments or acquisitions and otherwise restrict corporate activities. In
addition, the New Credit Facility limits Holdings' and its subsidiaries' ability
to incur indebtedness and the Note Indenture limits the Company's and its
subsidiaries' ability to incur indebtedness. The New Credit Facility also
requires Holdings and its subsidiaries to comply with certain financial ratios
and borrowing condition tests based on quarterly measurements of the latest
twelve months results of operations, under which Holdings and its subsidiaries
are required to achieve and maintain certain financial and operating results. A
breach of any of these covenants would result in a default under the Note
Indenture or the New Credit Facility, or both. In the event of any such default,
the lenders under the New Credit Facility and/or the holders of the Senior Notes
could elect to declare all amounts borrowed under the New Credit Facility and/or
the Senior Notes, as applicable, together with accrued interest thereon, to be
due and payable which would also result in an event of default under the Surety
Arrangement.
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 through
August 2, 1999. The waiver 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 has repaid subsequent to January 31, 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 the
financial covenants until April 2001. The Company is in compliance with the
financial covenants under the New Credit Facility, as amended. 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 September 8,
1999, after giving effect to the Amendment, the Company has, subject to certain
conditions, the ability to borrow up to approximately $40.7 million under the
Revolving Credit Facility, of which $19.1 million is outstanding. In addition,
the Company has the ability to obtain letters of credit, bid bonds and
performance bonds in an amount not to exceed $10.0 million in the aggregate of
which $6.3 million have been issued.
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 10% of the then outstanding common stock of Holdings
and, subject to certain conditions, the right to receive additional shares of
non-voting common stock of Holdings on December 3, 1999 for a total of 25% of
the outstanding common stock of Holdings.
The Company incurred significant indebtedness in connection with the
Recapitalization. As of September 8, 1999, the Company had approximately $279.4
million of indebtedness outstanding. Since the Recapitalization, the Company has
been able to satisfy its cash requirements from cash generated by operations and
borrowings under the Revolving Credit Facility. However, in order to have
sufficient cash flow to satisfy its future cash needs for operations and debt
service, the Company needs to be able to borrow under the Revolving Credit
Facility in sufficient amounts and will have to materially improve cash
generated from operations in the near future. The Company also anticipates
incurring $2.0 million of cash expenditures during the fourth quarter of fiscal
1999 for severance and reorganization charges associated with continued
restructuring of the Company's operations, in addition to cash needed for
operations and capital expenditures.
Note 6 - Commitments and Contingencies
To secure the performance of sales contracts related to the Company's
operations, MMH was contingently liable to financial institutions and others for
the following at July 31, 1999: (i) $7.1 million of outstanding letters of
credit and surety bonds under the New Credit Facility, (ii) $1.8 million under
the Surety Arrangement for outstanding surety bonds and (iii) $3.8 million of
surety bonds with other institutions. Prior to the Recapitalization Closing, HII
and its affiliates (the "HII Group") provided credit support for the MHE
13
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 July 31,
1999, approximately $27.0 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 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.
HarnCo has been and is currently a defendant in 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 United States Bankruptcy
Code (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.
In October 1998, the Company received a request to arbitrate a claim from a
former customer which arose out of an accident that occurred in Ireland
involving two cranes sold by the Company in 1992. The claim alleges direct
damages of approximately $12.8 million plus lost revenue due to business
interruption. In addition, the Company has been notified by the port operator of
its intention to pursue a claim against the Company for its damages (which it
estimates are between $4 million and $5 million) arising from the accident.
Management intends to vigorously defend this matter. 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 claim. The Company is continuing to work with its
insurance broker to determine the availability of additional insurance coverage,
if any. The contract between the Company and the claimant provides that the
contract is governed by Irish law and that all disputes are to be resolved by
arbitration in Ireland. While the Company believes it will obtain a favorable
resolution, no assurances can be made as to the final outcome of the claim. If
the Company were found liable for the full amount of the claim, there could be a
material adverse effect on the Company's operations and financial performance.
14
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 Holdings or 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.
Note 7 - Income Taxes
Realization of deferred tax assets is dependent on generating sufficient taxable
income prior to expiration of net operating loss carryforwards. During the
second quarter, the Company re-estimated its future operating results and
determined its deferred tax asset valuation allowance required an increase of
$5.9 million which was recognized as income tax expense. Additional valuation
allowance provisions of $1.9 million were recorded during the third quarter.
Although realization is not assured, management believes it is more likely than
not that the net deferred tax assets recorded will be realized. The amount of
the deferred tax assets not considered realizable, however, could be increased
in the near term if estimates of future taxable income are reduced.
Note 8 - Geographical Information
Geographical information for the nine months ended July 31, 1999 and 1998,
respectively, are as follows:
Sales to Operating End of Period
Total Interarea Unaffiliated Income Identifiable
Net Sales Sales Customers (Loss) Assets
---------------------------------------------------------------
July 31, 1999
United States $ 130,985 $ -- $ 130,985 $ 2,230 $ 202,038
Europe 36,889 (4,146) 32,743 (3,542) 51,012
Other Foreign 48,750 -- 48,750 3,539 46,797
Interearea
Eliminations (4,146) 4,146 -- -- --
---------------------------------------------------------------
$ 212,478 $ -- $ 212,478 $ 2,227 $ 299,847
===============================================================
Sales to Operating End of Period
Total Interarea Unaffiliated Income Identifiable
Net Sales Sales Customers (Loss) Assets
---------------------------------------------------------------
July 31, 1998
United States $ 146,876 $ -- $ 146,876 $ 14,240 $ 204,826
Europe 54,647 (9,154) 45,493 683 58,888
Other Foreign 39,306 -- 39,306 3,388 33,431
Interearea
Eliminations (9,154) 9,154 -- -- --
---------------------------------------------------------------
$ 231,675 $ -- $ 231,675 $ 18,311 $ 297,145
===============================================================
15
Note 9 - 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.
16
SUPPLEMENTAL CONDENSED CONSOLIDATING BALANCE SHEET
JULY 31, 1999
(UNAUDITED)
(Dollars in Thousands)
Consolidated
Morris Morris Consolidated
Non Material Material MMH MMH
Guarantor Guarantor Handling Handling Holdings Holdings
Subsidiares Subsidiares Inc. Eliminations Inc. Inc. Eliminations Inc.
------------------------------------------------------------------------------------------
ASSETS
Current Assets
Cash and cash equivalents $2,046 $107 $- $- $2,153 $- $- $2,153
Accounts receivable - net 59,494 4,067 - - 63,561 - - 63,561
Intercompany accounts receivable 24,163 - 4,500 (28,663) - - - -
Inventories 40,474 3,094 - - 43,568 - - 43,568
Other current assets 7,913 742 6,143 - 14,798 - - 14,798
------------------------------------------------------------------------------------------
134,090 8,010 10,643 (28,663) 124,080 - - 124,080
------------------------------------------------------------------------------------------
Property, Plant and Equipment 37,557 2,737 - - 40,294 - - 40,294
------------------------------------------------------------------------------------------
Other Assets
Goodwill 39,458 2,726 - - 42,184 - - 42,184
Debt financing costs - - 17,313 - 17,313 - - 17,313
Noncurrent intercompany receivable 3,770 - 89,406 (93,176) - - - -
Investment in affiliates (34) - 64,937 (64,903) - (55,498) 55,498 -
Deferred income taxes - - 65,979 - 65,979 - - 65,979
Other 9,965 - 32 - 9,997 - - 9,997
------------------------------------------------------------------------------------------
53,159 2,726 237,667 (158,079) 135,473 (55,498) 55,498 135,473
------------------------------------------------------------------------------------------
$224,806 $13,473 $248,310 $(186,742) $299,847 $(55,498) $55,498 $299,847
==========================================================================================
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities
Short-term notes payable and current
portion of long-term obligations $202 $40 $3,225 $- $3,467 $- $- $3,467
Revolving credit facility borrowings 7,203 - - - 7,203 - - 7,203
Bank overdrafts 13 1,876 - - 1,889 - - 1,889
Trade accounts payable 21,159 1,062 - - 22,221 - - 22,221
Intercompany accounts payable 4,500 4,698 19,465 (28,663) - - - -
Advance payments and progress billings 10,037 - - - 10,037 - - 10,037
Accrued interest - - 6,444 - 6,444 - - 6,444
Other current liabilities 21,575 942 (734) - 21,783 - - 21,783
------------------------------------------------------------------------------------------
64,689 8,618 28,400 (28,663) 73,044 - - 73,044
Revolving Credit Facility Borrowings - - 18,000 - 18,000 - - 18,000
Term Loans - - 49,713 - 49,713 - - 49,713
Acquisition Facility Line Borrowings - - 7,430 - 7,430 - - 7,430
Senior Notes - - 200,000 200,000 200,000
Other Long-Term Borrowings 1,974 598 - - 2,572 - - 2,572
Noncurrent Intercompany Payable 89,406 3,770 - (93,176) - - - -
Deferred Income Taxes 2,578 - - - 2,578 - - 2,578
Other Long-Term Liabilities 1,222 265 1,487 1,487
Minority Interest - - - 521 521 - - 521
Mandatorily Redeemable Preferred Stock - - - - - 104,911 - 104,911
Stockholders' Equity 64,937 487 (55,498) (65,424) (55,498) (160,409) 55,498 (160,409)
------------------------------------------------------------------------------------------
$224,806 $13,473 $248,310 $(186,742) $299,847 $(55,498) $55,498 $299,847
==========================================================================================
17
SUPPLEMENTAL CONDENSED CONSOLIDATING BALANCE SHEET
OCTOBER 31, 1998
(Dollars in Thousands)
Consolidated
Morris Morris Consolidated
Non Material Material MMH MMH
Guarantor Guarantor Handling Handling Holdings Holdings
Subsidiares Subsidiares Inc. Eliminations Inc. Inc. Eliminations Inc.
------------------------------------------------------------------------------------------
ASSETS
Current Assets
Cash and cash equivalents $2,214 $320 $- $- $2,534 0 0 $2,534
Accounts receivable - net 76,000 5,947 - - 81,947 81,947
Intercompany accounts receivable 20,687 - 6,915 (27,602) - -
Inventories 39,749 2,812 - - 42,561 42,561
Other current assets 5,218 384 5,865 - 11,467 11,467
---------------------------------------------------------------------------------------
143,868 9,463 12,780 (27,602) 138,509 - - 138,509
---------------------------------------------------------------------------------------
Property, Plant and Equipment 38,295 2,775 - - 41,070 41,070
---------------------------------------------------------------------------------------
Other Assets
Goodwill 37,767 2,076 - - 39,843 39,843
Debt financing costs - - 18,905 - 18,905 18,905
Noncurrent intercompany receivable 3,853 - 83,416 (87,269) - -
Investment in affiliates 331 - 66,732 (67,063) - (31,842) 31,842 -
Deferred income taxes - - 65,979 - 65,979 65,979
Other 6,691 - - - 6,691 6,691
---------------------------------------------------------------------------------------
48,642 2,076 235,032 (154,332) 131,418 (31,842) 31,842 131,418
---------------------------------------------------------------------------------------
$230,805 $14,314 $247,812 $(181,934) $310,997 $(31,842) $31,842 $310,997
=======================================================================================
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities
Short-term notes payable and current
portion of long-term obligations $122 $40 $2,100 $2,262 $2,262
Bank overdrafts - 1,252 - 1,252 1,252
Trade accounts payable 30,539 2,354 - 32,893 32,893
Intercompany accounts payable 6,915 4,130 16,557 (27,602) - -
Advance payments and progress billings 9,394 5 - 9,399 9,399
Accrued interest - - 2,201 2,201 2,201
Other current liabilities 29,763 1,329 (1,146) 29,946 29,946
---------------------------------------------------------------------------------------
76,733 9,110 19,712 (27,602) 77,953 - - 77,953
---------------------------------------------------------------------------------------
Revolving Credit Facility Borrowings - - 1,200 1,200 1,200
Term loans - - 52,225 - 52,225 52,225
Acquisition Facility Line Borrowings - - 6,194 - 6,194 6,194
Senior Notes - - 200,000 - 200,000 200,000
Other Long-Term Obligations 1,226 656 323 - 2,205 2,205
Noncurrent Intercompany Payable 83,416 3,853 - (87,269) - -
Deferred Income Taxes 2,698 - - - 2,698 2,698
Minority Interest - - - 364 364 364
Mandatorily Redeemable Preferred Stock - - - - - 95,351 95,351
Stockholders' Equity 66,732 695 (31,842) (67,427) (31,842) (127,193) 31,842 (127,193)
---------------------------------------------------------------------------------------
$154,072 $14,314 $247,812 $(181,934) $310,997 $(31,842) $31,842 $310,997
=======================================================================================
18
SUPPLEMENTAL CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
(UNAUDITED)
(Dollars in Thousands)
FOR THE NINE MONTHS ENDED JULY 31, 1999
------------------------------------------------------------------------------------------
Consolidated
Morris Morris Consolidated
Non Material Material MMH MMH
Guarantor Guarantor Handling Handling Holdings Holdings
Subsidiares Subsidiares Inc. Eliminations Inc. Inc. Eliminations Inc.
------------------------------------------------------------------------------------------
Revenues
Net Sales $ 200,730 $ 12,347 $ - $ (599) $ 212,478 $- $- $ 212,478
Other Income - net 600 -- -- -- 600 -- -- 600
-------------------------------------------------------------------------------------------
201,330 12,347 -- (599) 213,078 -- -- 213,078
Cost of Sales 148,388 9,477 -- (599) 157,266 -- -- 157,266
Selling, General and
Administrative Expenses 49,340 2,743 1,502 -- 53,585 -- -- 53,585
-------------------------------------------------------------------------------------------
Operating Income (Loss) 3,602 127 (1,502) -- 2,227 -- -- 2,227
Interest (Expense) Income - net
Affiliates (4,719) (281) 5,000 -- -- -- -- --
Third Party (542) (342) (21,068) -- (21,952) -- -- (21,952)
-------------------------------------------------------------------------------------------
Loss Before Income Taxes, Equity in
Earnings (Loss) of Subsidiaries and
Minority Interest (1,659) (496) (17,570) -- (19,725) -- -- (19,725)
Provision for Income Taxes (1,641) -- -- -- (1,641) -- -- (1,641)
Equity in Earnings (Loss) of Subsidiaries (456) -- (3,756) 4,212 -- (21,326) 21,326 --
Minority Interest -- -- -- 40 40 -- -- 40
-------------------------------------------------------------------------------------------
Net Income (Loss) $ (3,756) $ (496) $ (21,326) $ 4,252 $ (21,326) $ (21,326) $ 21,326 $(21,326)
===========================================================================================
FOR THE THREE MONTHS ENDED JULY 31, 1999
-------------------------------------------------------------------------------------------
Consolidated
Morris Morris Consolidated
Non Material Material MMH MMH
Guarantor Guarantor Handling Handling Holdings Holdings
Subsidiares Subsidiares Inc. Eliminations Inc. Inc. Eliminations Inc.
-------------------------------------------------------------------------------------------
Revenues
Net Sales $ 69,016 $ 3,940 $- $ (247) $ 72,709 $- $- $ 72,709
Other Income - net 453 -- -- -- 453 -- -- 453
-------------------------------------------------------------------------------------------
69,469 3,940 -- (247) 73,162 -- -- 73,162
Cost of Sales 49,386 3,071 -- (247) 52,210 -- -- 52,210
Selling, General and
Administrative Expenses 16,554 917 827 -- 18,298 -- -- 18,298
-------------------------------------------------------------------------------------------
Operating Income (Loss) 3,529 (48) (827) -- 2,654 -- -- 2,654
Interest (Expense) Income - net
Affiliates (1,545) (89) 1,634 -- -- -- -- --
Third Party (237) (102) (7,182) -- (7,521) -- -- (7,521)
-------------------------------------------------------------------------------------------
Loss Before Income Taxes, Equity in
Earnings (Loss) of Subsidiaries and
Minority Interest 1,747 (239) (6,375) -- (4,867) -- -- (4,867)
Provision for Income Taxes (576) -- -- -- (576) -- -- (576)
Equity in Earnings(Loss)of Subsidiaries (226) -- 945 (719) -- (5,430) 5,430 --
Minority Interest -- -- -- 13 13 -- -- 13
-------------------------------------------------------------------------------------------
Net Income (Loss) $ 945 $ (239) $ (5,430) $ (706) $ (5,430) $ (5,430) $ 5,430 $ (5,430)
===========================================================================================
19
SUPPLEMENTAL CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
(UNAUDITED)
(Dollars in Thousands)
FOR THE NINE MONTHS ENDED JULY 31, 1998
-------------------------------------------------------------------------------------------
Consolidated
Morris Morris Consolidated
Non Material Material MMH MMH
Guarantor Guarantor Handling Handling Holdings Holdings
Subsidiares Subsidiares Inc. Eliminations Inc. Inc. Eliminations Inc.
--------------------------------------------------------------------------------------------
Revenues
Net Sales $ 219,633 $ 16,449 $ -- $ (4,407) $ 231,675 $ -- $ -- $ 231,675
Other Income - net 1,117 -- -- 1,117 -- -- 1,117
-------------------------------------------------------------------------------------------
220,750 16,449 -- (4,407) 232,792 -- -- 232,792
Cost of Sales 158,828 12,903 -- (4,407) 167,324 -- -- 167,324
Selling, General and
Administrative Expenses 40,507 3,256 333 -- 44,096 -- -- 44,096
HII Management Fee 1,155 -- -- -- 1,155 -- -- 1,155
Non-Recurring Employee Benefit Costs 690 -- 1,216 -- 1,906 -- -- 1,906
-------------------------------------------------------------------------------------------
Operating Income (Loss) 19,570 290 (1,549) -- 18,311 -- -- 18,311
Interest (Expense) Income - net
Affiliates (3,726) (124) 2,402 -- (1,448) -- -- (1,448)
Third Party (204) (401) (9,111) -- (9,716) -- -- (9,716)
-------------------------------------------------------------------------------------------
Income (Loss) Before Income
Taxes, Equity in Earnings (Loss)
of Subsidiaries and Minority Interest 15,640 (235) (8,258) -- 7,147 -- -- 7,147
Provision for Income Taxes (2,896) -- -- -- (2,896) -- -- (2,896)
Equity in Earnings(Loss)of Subsidiaries (201) -- 12,543 (12,342) -- 4,285 (4,285) --
Minority Interest -- -- -- 34 34 -- -- 34
-------------------------------------------------------------------------------------------
Net Income (Loss) $ 12,543 $ (235) $ 4,285 $ (12,308) $ 4,285 $ 4,285 $ (4,285) $ 4,285
===========================================================================================
FOR THE THREE MONTHS ENDED JULY 31, 1998
-------------------------------------------------------------------------------------------
Consolidated
Morris Morris Consolidated
Non Material Material MMH MMH
Guarantor Guarantor Handling Handling Holdings Holdings
Subsidiares Subsidiares Inc. Eliminations Inc. Inc. Eliminations Inc.
------------------------------------------------------------------------------------------
Revenues
Net Sales $ 70,422 $ 5,135 $ -- $ (1,131) $ 74,426 $ -- $ -- $ 74,426
Other Income - net 391 -- -- -- 391 -- -- 391
-------------------------------------------------------------------------------------------
70,813 5,135 -- (1,131) 74,817 -- -- 74,817
Cost of Sales 49,252 4,031 -- (1,131) 52,152 -- -- 52,152
Selling, General and
Administrative Expenses 13,400 932 250 -- 14,582 -- -- 14,582
HII Management Fee -- -- -- -- -- -- -- --
Non-Recurring Employee
Benefit Costs -- -- -- -- -- -- -- --
-------------------------------------------------------------------------------------------
Operating Income (Loss) 8,161 172 (250) -- 8,083 -- -- 8,083
Interest (Expense) Income-net
Affiliates (1,651) (37) 1,688 -- -- -- -- --
Third Party (6) (119) (6,888) -- (7,013) -- -- (7,013)
-------------------------------------------------------------------------------------------
Income (Loss) Before Income
Taxes, Equity in Earnings (Loss)
of Subsidiaries and Minority Interest 6,504 16 (5,450) -- 1,070 -- -- 1,070
Benefit (Provision) for
Income Taxes (450) -- -- -- (450) -- -- (450)
Equity in Earnings(Loss)of Subsidiaries 12 -- 6,066 (6,078) -- 616 (616) --
Minority Interest -- -- -- (4) (4) -- -- (4)
-------------------------------------------------------------------------------------------
Net Income (Loss) $ 6,066 $ 16 $ 616 $ (6,082) $ 616 $ 616 $ (616) $ 616
==========================================================================================
20
SUPPLEMENTAL CONDENSED CONSOLIDATING STATEMENT OF
CASH FLOWS
FOR THE NINE MONTHS ENDED JULY 31, 1999
(UNAUDITED)
(Dollars in Thousands)
-------------------------------------------------------------------------------------------
Consolidated
Morris Morris Consolidated
Non Material Material MMH MMH
Guarantor Guarantor Handling Handling Holdings Holdings
Subsidiares Subsidiares Inc. Eliminations Inc. Inc. Eliminations Inc.
------------------------------------------------------------------------------------------
Operating Activities
Net income (loss) $ (3,756) $ (496) $(21,326) $ 4,252 $(21,326) $(21,326) $ 21,326 $(21,326)
Add (deduct) - items not
affecting cash used
for operating activities:
Depreciation and amortization 5,837 220 -- -- 6,057 -- -- 6,057
Amortization of debt financing costs -- -- 1,603 -- 1,603 -- -- 1,603
Equity in (earnings) loss of subsidiaries 456 -- 3,756 (4,212) -- 21,326 (21,326) --
Deferred income taxes - net -- -- 41 -- 41 -- -- 41
Other -- -- -- (40) (40) -- -- (40)
Changes in working capital,
excluding the effects of acquisition opening
balance sheets:
Accounts receivable 17,410 802 -- -- 18,212 -- -- 18,212
Inventories 404 (370) -- -- 34 -- -- 34
Other current assets (5,528) (367) 2,133 -- (3,762) -- -- (3,762)
Trade accounts payable and
bank overdrafts (10,075) (437) -- -- (10,512) -- -- (10,512)
Accrued interest -- -- 4,243 -- 4,243 -- -- 4,243
Other current liabilities (10,358) 302 3,319 -- (6,737) -- -- (6,737)
------------------------------------------------------------------------------------------
Net cash provided by (used for)
operating activities (5,610) (346) (6,231) -- (12,187) -- -- (12,187)
------------------------------------------------------------------------------------------
Investment and Other Transactions
Capital expenditures - net (6,117) (91) -- -- (6,208) -- -- (6,208)
Acquisition of businesses -
net of cash acquired (5,070) -- -- -- (5,070) -- -- (5,070)
Net issuance of loans to
senior management -- -- (80) -- (80) -- -- (80)
Other - net (841) 271 -- -- (570) -- -- (570)
------------------------------------------------------------------------------------------
Net cash used for investment
and other transactions (12,028) 180 (80) -- (11,928) -- -- (11,928)
------------------------------------------------------------------------------------------
Financing Activities
Changes in short-term debt, notes payable
and Revolving Credit Facility borrowings 7,149 (31) 16,798 -- 23,916 -- -- 23,916
Proceeds from Acquisition
Facility Line borrowings -- -- 1,235 -- 1,235 -- -- 1,235
Distribution from parent 10,334 -- (10,334) -- -- -- -- --
Repayments of long-term obligations -- -- (1,388) -- (1,388) -- -- (1,388)
------------------------------------------------------------------------------------------
Net cash provided by (used for)
financing activities 17,483 (31) 6,311 -- 23,763 -- -- 23,763
------------------------------------------------------------------------------------------
Effect of Exchange Rate
Changes on Cash and Cash Equivalents (13) (16) -- -- (29) -- -- (29)
------------------------------------------------------------------------------------------
Decrease in Cash and Cash Equivalents (168) (213) -- -- (381) -- -- (381)
Cash and Cash Equivalents
Beginning of Period 2,214 320 -- -- 2,534 -- -- 2,534
------------------------------------------------------------------------------------------
End of Period $ 2,046 $ 107 $ -- $ -- $ 2,153 $ -- $ -- $ 2,153
==========================================================================================
21
SUPPLEMENTAL CONDENSED CONSOLIDATING STATEMENT
OF CASH FLOWS
FOR THE NINE MONTHS ENDED JULY 31, 1998
(UNAUDITED)
(Dollars in Thousands)
------------------------------------------------------------------------------------------
Consolidated
Morris Morris Consolidated
Non Material Material MMH MMH
Guarantor Guarantor Handling Handling Holdings Holdings
Subsidiares Subsidiares Inc. Eliminations Inc. Inc. Eliminations Inc.
------------------------------------------------------------------------------------------
Operating Activities
Net income (loss) $ 12,543 $ (235) $ 4,285 $ (12,308) $ 4,285 $ 4,285 $ (4,285) $ 4,285
Add (deduct) - items not
affecting cash used for
operating activities:
Depreciation and amortization 4,857 339 -- -- 5,196 -- -- 5,196
Amortization of debt financing costs -- -- 655 -- 655 -- -- 655
Equity in (earnings) loss of subsidiaries 201 -- (12,543) 12,342 -- (4,285) 4,285 --
Deferred income taxes-net 411 -- -- -- 411 -- -- 411
Divestiture bonus -- -- 1,216 -- 1,216 -- -- 1,216
Other -- -- -- (34) (34) -- -- (34)
Changes in working capital, excluding the
effects of acquisition opening balance sheets:
Accounts receivable 2,771 1,475 -- -- 4,246 -- -- 4,246
Inventories (7,011) 1,448 -- -- (5,563) -- -- (5,563)
Other current assets (639) (1,090) (737) -- (2,466) -- -- (2,466)
Trade accounts payable and
bank overdrafts (11,446) (2,658) -- -- (14,104) -- -- (14,104)
Accrued interest -- -- 6,884 -- 6,884 -- -- 6,884
Other current liabilities (2,262) 1,400 -- -- (862) -- -- (862)
Activity with parent and
other affiliates-net 4,745 (595) (2,402) -- 1,748 -- -- 1,748
------------------------------------------------------------------------------------------
Net cash provided by (used for)
operating activities 4,170 84 (2,642) -- 1,612 -- -- 1,612
------------------------------------------------------------------------------------------
Investment and Other Transactions
Capital expenditures - net (3,450) (106) -- -- (3,556) -- -- (3,556)
Acquisition of businesses -
net of cash acquired (3,203) -- -- -- (3,203) -- -- (3,203)
Net issuance of loans to
senior management -- -- (900) -- (900) -- -- (900)
Other - net (1,147) 206 -- -- (941) -- -- (941)
------------------------------------------------------------------------------------------
Net cash provided by (used for)
investment and other transactions (7,800) 100 (900) -- (8,600) -- -- (8,600)
------------------------------------------------------------------------------------------
Financing Activities
Changes in short-term debt,
notes payable and Revolving
Credit Facility borrowings 6,361 (37) -- -- 6,324 -- -- 6,324
Proceeds from Senior Note Offering -- -- 200,000 -- 200,000 -- -- 200,000
Proceeds from New Credit Facility -- -- 55,000 -- 55,000 -- -- 55,000
Redemption of shares held by Holdings -- -- (233,087) -- (233,087) 233,087 -- --
Redemption of common stock and
preferred stock -- -- -- -- -- (287,000) -- (287,000)
Net proceeds from issuance of
Series A preferred stock and
related common shares -- -- -- -- -- 57,094 -- 57,094
Stock redemption transactions costs -- -- -- -- -- (3,181) -- (3,181)
Debt financing costs -- -- (18,889) -- (18,889) -- -- (18,889)
Distribution from parent (856) -- 856 -- -- -- -- --
Repayments of long-term obligations -- -- (338) -- (338) -- -- (338)
------------------------------------------------------------------------------------------
Net cash provided by (used for)
financing activities 5,505 (37) 3,542 -- 9,010 -- -- 9,010
------------------------------------------------------------------------------------------
Effect of Exchange Rate Changes on Cash
and Cash Equivalents 38 (10) -- -- 28 -- -- 28
------------------------------------------------------------------------------------------
Increase in Cash and Cash Equivalents 1,913 137 -- -- 2,050 -- -- 2,050
Cash and Cash Equivalents
Beginning of Period 1,393 139 -- -- 1,532 -- -- 1,532
------------------------------------------------------------------------------------------
End of Period $ 3,306 $ 276 $ -- $ -- $ 3,582 $ -- $ -- $ 3,582
==========================================================================================
22
MMH HOLDINGS, INC.
MORRIS MATERIAL HANDLING, INC.
MANAGEMENT'S 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.
General
The Company is a leading 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 a full service
international 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' 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 included
$55.0 million of term loans, a revolving credit facility (the "Revolving Credit
Facility") and an acquisition facility (the "Acquisition Facility"). The
Revolving Credit Facility provided the Company with up to $70.0 million of
available borrowings (of which $15.0 million is required under the indenture
that governs the Senior Notes (the "Note Indenture") to be reserved for issuance
of letters of credit) for working capital, acquisitions and other corporate
purposes, subject to compliance with certain conditions. The Acquisition
Facility 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. As discussed below, the New Credit Facility
was amended on August 2, 1999. See "Liquidity and Capital Resources." As
amended, the New Credit Facility provides $52.9 million of term loans, the
Revolving Credit Facility provides $50.7 million of available borrowings ($10.0
million of which is required to be reserved for issuance of letters of credit),
and the Acquisition Facility provides 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.
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
23
preference of Holdings' 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' 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).
On August 27, 1999, Holdings issued additional shares of its non-voting common
stock in connection with the August 2, 1999 amendment of the New Credit
Facility. As a result, at September 8, 1999, MHE Investments owns approximately
65.3% of the Holdings Common Stock, HarnCo owns approximately 18.7% of the
Holdings Common Stock, institutional investors own approximately 6.0% of the
Holdings Common Stock, and certain indirect equity holders in MHE Investments
own approximately 10.0% of the Holdings Common Stock.
Until the Recapitalization Closing, HII and HarnCo performed a number of
functions necessary to the operations of the Company in accordance with past
practices, including manufacturing certain products and providing certain
information systems, administrative services and credit support. Holdings' and
MMH's historical financial statements include charges allocated to the MHE
Business by HII for these products and services. Because the Company operates
independently of HII since the Recapitalization Closing, however, Holdings' and
MMH's historical performance may not be indicative of future financial results.
At the Recapitalization Closing, MMH entered into a number of agreements
pursuant to which HII and its affiliates will continue 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 $27.0 million as of July 31,
1999). MMH estimates that the amount to be paid for calendar year 1999 is
$223,000. MMH paid a pro-rated fee of $290,000 for calendar year 1998. 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 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
which commenced March 30, 1999. The Company accrued $778,000 of expenses for
royalty fees in the period from March 30, 1999 to July 31, 1999.
As discussed below, however, the Company could be materially adversely affected
by the fact that HII and certain of its United States affiliates have recently
filed for bankruptcy protection. See "Recent Developments."
For income tax purposes, Holdings and MMH were deemed to acquire the assets of
the MHE Business pursuant to Section 338(h)(10) of the Internal Revenue Code of
1986, as amended, in connection with the Transactions. Accordingly, the
Recapitalization increased the tax basis of certain assets and created
tax-deductible goodwill, which will generate significant future tax deductions
to reduce taxable income.
Acquisitions
During the nine months ended July 31, 1999, the Company completed one
acquisition with an aggregate purchase price of $3.2 million, net of cash
acquired. During 1998, the Company completed several acquisitions for an
aggregate purchase price of $8.9 million, net of cash acquired. These
acquisitions were related to the Company's aftermarket business and were
accounted for as purchase transactions with the purchase prices allocated to the
24
fair value of specific assets acquired and liabilities assumed. Resultant
goodwill of the transactions, $1.9 million for the 1999 transaction and $8.3
million for the 1998 transactions, is being amortized over 30 to 40 years. The
1999 acquisition and one 1998 acquisition were partially financed by the
sellers, resulting in deferred purchase price which will be paid in 2004 and
2005 (in the case of the 1999 acquisition) and in installments through 2006 (in
the case of one 1998 acquisition).
During the nine months ended July 31, 1999, the Company made final consideration
payments of $1.5 million related to two 1998 acquisitions. With respect to a
1995 acquisition, the Company made a final contingent consideration payment of
$1.4 million in the nine months ended July 31, 1999. Additionally, a payment of
$100,000 was made toward the 1998 acquisition that was partially financed by the
seller. On a pro forma basis, the 1999 and 1998 acquisitions were not material
to results of operations reported for the nine months ended July 31, 1999 and
accordingly, such information is not presented.
Recent Developments
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 United States Bankruptcy Code (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. The Company estimates
that a net amount of approximately $0.7 million of receivables due it and its
affiliates may be so affected.
Results of Operations
The following table sets forth certain financial data for the periods indicated.
SUPPLEMENTAL FINANCIAL DATA
(Dollars in Millions)
Three Months Ended Three Months Ended Nine Months Ended Nine Months Ended
July 31, 1999 July 31, 1998 July 31, 1999 July 31, 1998
------------------- ------------------- ------------------- ------------------
------------------- ------------------- ------------------- ------------------
Percent of Percent of Percent of Percent of
$ net sales $ net sales $ net sales $ net sales
------------------- ------------------- ------------------- ------------------
------------------- ------------------- ------------------- ------------------
Net sales 72.7 100.0% 74.4 100.0% 212.5 100.0% 231.7 100.0%
Other income - net 0.5 0.7% 0.4 0.5% 0.6 0.3% 1.1 0.5%
Cost of sales 52.2 71.8% 52.2 70.2% 157.3 74.0% 167.3 72.2%
Selling, general and
administrative expenses 18.3 25.2% 14.6 19.6% 53.6 25.2% 44.1 19.0%
Other costs -- 0.0% -- 0.0% -- 0.0% 3.1 1.3%
Operating income 2.7 3.7% 8.1 10.9% 2.2 1.0% 18.3 7.9%
Interest expense (7.5) -10.3% (7.0) -9.4% (22.0) -10.4% (11.2) -4.8%
Tax provision (0.6) -0.8% (0.5) -0.7% (1.6) -0.8% (2.9) -1.3%
Net income (loss) (5.4) -7.4% 0.6 0.8% (21.3) -10.0% 4.3 1.9%
Nine months ended July 31, 1999 as Compared to Nine months ended July 31, 1998
Net sales for the nine months ended July 31, 1999 ("First Nine Months 1999")
decreased $19.2 million or 8.3% to $212.5 million from $231.7 million for the
nine months ended July 31, 1998 ("First Nine Months 1998"). The decrease in net
sales was primarily caused by the following: (i) a decrease of $9.4 million in
engineered crane sales worldwide largely due to the fact that First Nine Months
25
1998 included $8.4 million in container crane sales in the United Kingdom
without any corresponding sales in First Nine Months 1999; (ii) a decrease of
$9.2 million in hoists and component sales primarily resulting from a softness
in certain European and Asian markets; (iii) a $3.1 million decrease in standard
crane sales primarily caused by decreased sales in Europe and South Africa,
offset, in part, by increased sales in the United States, Mexico and Australia;
(iv) a decrease in overall parts sales of $2.7 million caused primarily by
delays by certain suppliers; and (v) a decrease in modernization sales of $0.9
million. These decreases were partially offset by an increase in service sales
of $6.1 million.
Cost of sales decreased $10.0 million or 6.0% to $157.3 million in First Nine
Months 1999 from $167.3 million in First Nine Months 1998 primarily due to the
lower sales volumes described above. However, cost of sales increased as a
percentage of net sales from 72.2% in First Nine Months 1998 to 74.0% in First
Nine Months 1999 due to the lower level of volume in manufacturing operations
tied to the decrease in machine sales. Additionally, the Company experienced
$1.6 million in special charges during First Nine Months 1999 related to revised
estimates of inventory obsolescence, warranty reserves and contract completion
costs.
Selling, general and administrative expenses increased $9.5 million or 21.5% to
$53.6 million in First Nine Months 1999 from $44.1 million in First Nine Months
1998. The primary cause was $3.3 million of special charges related to
provisions for certain delinquent accounts receivable and changes in management
(severance and recruiting costs). Additional causes were: (i) the increased
administrative resources necessary to replace functions formerly performed by
HII and their affiliates, including information systems and certain accounting
and human resource functions; (ii) increased consulting costs; and (iii)
increases due to the fiscal 1999 and 1998 acquisitions. Selling, general and
administrative expenses in First Nine Months 1999 also included approximately
$0.7 million of management fees compared to $0.3 million in First Nine Months
1998. Additionally, selling, general and administrative expenses in First Nine
Months 1999 included approximately $0.8 million in royalties owed to HII for use
of the P&H trademark after March 30, 1999. These increases were offset by
savings incurred due to the fiscal 1998 restructuring of the United Kingdom and
United States manufacturing operations and other cost-reduction measures. The
Company also anticipates incurring $2.0 million of cash expenditures during the
fourth quarter of fiscal 1999 for severance and reorganization charges
associated with continued restructuring of the Company's operations, in addition
to cash needed for operations and capital expenditures.
Parent management fees allocated by HII (prior to the Recapitalization), which
represented an allocation of HII's corporate expenses, were $1.2 million in
First Nine Months 1998. Additionally, $1.2 million of incentives to certain
members of management and $0.7 million of non-recurring employee benefit costs,
both related to the Recapitalization and restructuring of the Company, were
recognized in First Nine Months 1998.
Approximately $22.0 million in interest expense was recorded in First Nine
Months 1999. The components include $17.7 million related to the debt issued in
connection with the Recapitalization and related commitment fees, $1.8 million
related to borrowings for working capital and acquisition funding, a $0.4
million fee paid in conjunction with the waiver of the debt covenant violations,
$0.4 million related to other borrowings, $1.6 million in amortization of
financing costs recognized during the Recapitalization and $0.1 in amortization
of a credit support fee payable to HII. Interest expense for First Nine Months
1998 included $1.5 million related to borrowings from HII and affiliates (prior
to the Recapitalization), $8.2 million related to the debt issued in connection
with the Recapitalization, $0.6 million on borrowings for working capital, $0.7
million in amortization of financing costs and $0.2 million in amortization of a
credit support fee payable to HII. The Company paid $16.0 million in interest,
waiver fees and commitment fees during First Nine Months 1999.
Realization of deferred tax assets is dependent on generating sufficient taxable
income prior to expiration of net operating loss carryforwards. During First
Nine Months 1999, the Company re-estimated its future operating results and
determined its deferred tax asset valuation allowance required an increase of
$7.8 million which was recognized as income tax expense. Although realization is
not assured, management believes it is more likely than not that the net
deferred tax assets recorded will be realized. The amount of deferred tax assets
not considered realizable, however, could be increased in the near term if
estimates of future taxable income are reduced.
The tax expense recorded of $1.6 million resulted primarily from profitable
operations in Canada and from state income tax liabilities.
The Company's backlog of orders at July 31, 1999 was approximately $94.2 million
compared to approximately $83.3 million at July 31, 1998. Bookings in First Nine
Months 1999 were $209.3 million compared to $217.3 million in First Nine Months
1998.
26
Three Months Ended July 31, 1999 as Compared to Three Months Ended July 31, 1998
Net sales for the three months ended July 31, 1999 ("Third Quarter 1999")
decreased $1.7 million or 2.3% to $72.7 million from $74.4 million for the three
months ended July 31, 1998 ("Third Quarter 1998"). The decrease in net sales was
primarily caused by the following: (i) a decrease of $2.2 million in hoists and
component sales primarily resulting from a softness in particular Asian markets;
(ii) a $1.7 million decrease in modernization sales; and (iii) a decrease of
$1.1 million in engineered crane sales worldwide due to decreases in container
crane sales in the United Kingdom. These decreases were partially offset by
increases in standard cranes ($1.3 million), overall service sales ($1.1
million) and overall parts sales ($0.9 million).
Cost of sales remained consistent at $52.2 million in Third Quarter 1999
compared to Third Quarter 1998 despite the lower sales volumes described above.
Cost of sales increased as a percentage of net sales from 70.2% in Third Quarter
1998 to 71.8% in Third Quarter 1999 due to the lower level of volume in
manufacturing operations tied to the decrease in machine sales. Additionally,
the Company experienced $0.2 million in special charges related to contract
completion costs.
Selling, general and administrative expenses increased $3.7 million or 25.3% to
$18.3 million in Third Quarter 1999 from $14.6 million in Third Quarter 1998.
The primary causes were the increased administrative resources necessary to
replace functions, formerly performed by HII and their affiliates, including
information systems and certain accounting and human resource functions and
increases due to the fiscal 1999 and 1998 acquisitions. Also, selling, general
and administrative expenses in Third Quarter 1999 included approximately $0.6
million in royalties owed to HII for use of the P&H trademark and $0.4 million
in special severance charges related to continued company restructuring. These
increases were offset by savings incurred due to the fiscal 1998 restructuring
of the United Kingdom and United States manufacturing operations and other
cost-reduction measures.
Approximately $7.5 million in interest expense was recorded in Third Quarter
1999. The components included $5.9 million related to the debt issued in
connection with the Recapitalization and related commitment fees, $0.8 million
related to borrowings for working capital and acquisition funding, $0.1 million
related to other borrowings, $0.6 million in amortization of financing costs
recognized during the Recapitalization and $0.1 in amortization of a credit
support fee payable to HII. Interest expense for Third Quarter 1998 consisted of
$6.1 million related to the debt issued in connection with the Recapitalization,
$0.1 million for working capital, $0.6 million in amortization of financing
costs and $0.2 in amortization of a credit support fee payable to HII. The
Company paid $2.2 million in interest, waiver fees and commitment fees during
Third Quarter 1999.
The tax expense recorded of $0.6 million in Third Quarter 1999 resulted
primarily from profitable operations in Canada and from state income tax
liabilities.
The Company's backlog of orders at July 31, 1999 was approximately $94.2 million
compared to approximately $83.3 million at July 31, 1998. Bookings in Third
Quarter 1999 were $69.7 million compared to $54.2 million in Third Quarter 1998.
The change in bookings was primarily due to several large orders in Third
Quarter 1999 which did not occur in Third Quarter 1998.
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 the timing of payments under,
percentage-of-completion long-term contracts.
Net cash used for operating activities was $12.2 million in First Nine Months
1999 compared to net cash flow provided by operating activities of $1.6 million
in First Nine Months 1998. The $13.8 million decrease in operating cash flow was
due primarily to a $25.6 million decrease in net income, offset by an $11.6
million increase in cash flow resulting from a net decrease in working capital
and a $1.8 million increase in depreciation and amortization.
Net cash used for investment and other transactions for First Nine Months 1999
and First Nine Months 1998 was $11.9 million and $8.6 million, respectively.
During the First Nine Months 1999, $5.1 million of cash was used for an
acquisition related to the Company's aftermarket business and for payments made
with respect to three earlier acquisitions versus $3.2 million used for 1998
acquisitions. Additionally, capital expenditures increased to $6.2 million in
First Nine Months 1999 from $3.6 million in First Nine Months 1998. The First
Nine Months 1999 expenditures included computers and upgrades, new operating
system software, office and warehouse consolidations and manufacturing
equipment.
27
Net cash provided by financing activities was $23.8 million in First Nine Months
1999 versus net cash provided by financing activities of $9.0 million in First
Nine Months 1998. Net borrowings included $22.6 million under the Revolving
Credit Facility in the United States, Canada and the United Kingdom. The Company
also borrowed $1.2 million under the Acquisition Credit Facility.
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 through
August 2, 1999. The waiver 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 has repaid subsequent to January 31, 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 the
financial covenants until April 2001. The Company is in compliance with the
financial covenants under the New Credit Facility, as amended. 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 September 8,
1999, after giving effect to the Amendment, the Company has, subject to certain
conditions, the ability to borrow up to approximately $40.7 million under the
Revolving Credit Facility, of which $19.1 million is outstanding. In addition,
the Company has the ability to obtain letters of credit, bid bonds and
performance bonds in an amount not to exceed $10.0 million in the aggregate of
which $6.3 million have been issued.
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 10% of the then outstanding Holdings Common Stock and,
subject to certain conditions, the right to receive additional shares of
non-voting Common Stock of Holdings on December 3, 1999 for a total of 25% of
the outstanding Holdings Common Stock.
The Company incurred significant indebtedness in connection with the
Recapitalization. As of September 8, 1999, the Company had approximately $279.4
million of indebtedness outstanding. The Company also anticipates incurring $2.0
million of cash expenditures during the fourth quarter of fiscal 1999 for
severance and reorganization charges associated with continued restructuring of
the Company's operations, in addition to cash needed for operations and capital
expenditures. Since the Recapitalization, the Company has been able to satisfy
its cash requirements from cash generated by operations and borrowings under the
Revolving Credit Facility. However, in order to have sufficient cash flow to
satisfy its future cash needs for operations and debt service, the Company needs
to be able to borrow under the Revolving Credit Facility in sufficient amounts
and will have to materially improve cash generated from operations in the near
future. The limitations on the Company's ability to borrow under the Revolving
Credit Facility under the terms of the amended New Credit Facility could
constrain the Company's growth and result in the Company not having sufficient
cash flow to satisfy its future cash needs for operations and debt service.
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 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 through August 2, 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
28
Credit Facility from $35.7 million under the previous waiver agreement to
$40.7 million. At September 8, 1999, after giving effect to the Amendment,
the Company has, subject to certain conditions, the ability to borrow up to
approximately $40.7 million under the Revolving Credit Facility, of which
$19.1 million is outstanding. In addition, the Company has the ability to
obtain letters of credit, bid bonds and performance bonds in an amount not
to exceed $10.0 million in the aggregate of which $6.3 million have been
issued. The Company will need to significantly improve operations in order
to meet the original financial covenants under the New Credit Facility when
these take effect again in April 2001. In the event the Company's financial
results do not improve significantly and the Company is unable to negotiate
additional amendments or obtain satisfactory waivers of the financial
covenants under the New Credit Facility for periods after April 2001, the
lenders under the New Credit Facility could elect to declare all amounts
borrowed under the New Credit Facility, together with accrued interest
thereon, to be due and payable, which would result in an event of default
under the Note Indenture and the Surety Arrangement and permit acceleration
of the Company's obligations thereunder. In such event, there can be no
assurance that the Company would have sufficient assets to pay indebtedness
then outstanding under the New Credit Facility, the Senior Notes and
obligations under the Surety Arrangement. Additionally, such an event could
have a material adverse effect on the Company's ability to obtain certain
customer orders.
o The Company incurred significant indebtedness in connection with the
Recapitalization. As of September 8, 1999, the Company had approximately
$279.4 million of indebtedness outstanding. The Company also anticipates
incurring $2.0 million of cash expenditures during the fourth quarter of
fiscal 1999 for severance and reorganization charges associated with
continued restructuring of the Company's operations, in addition to cash
needed for operations and capital expenditures. Since the Recapitalization,
the Company has been able to satisfy its cash requirements from cash
generated by operations and borrowings under the Revolving Credit Facility.
However, in order to have sufficient cash flow to satisfy its future cash
needs for operations and debt service, the Company needs to be able to
borrow under the Revolving Credit Facility in sufficient amounts and will
have to materially improve cash generated from operations in the near
future. The limitations on the Company's ability to borrow under the
Revolving Credit Facility under the terms of the amended New Credit
Facility could constrain the Company's growth and result in the Company not
having sufficient cash flow to satisfy its future cash needs for operations
and debt service.
o 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 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.
o 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.
o 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
29
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, Australia and the United Kingdom) accounted for 36.2%,
41.8% and 36.1% of the Company's aggregate net sales in 1998, 1997 and
1996, respectively, and 38.4% and 36.6% in First Nine Months 1999 and First
Nine Months 1998, 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 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. 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.
o 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 Year 2000 issue arises as a result of computer programs having been written,
and systems having been 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.
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 have been implemented worldwide in
order to ensure that all systems are Year 2000 compliant before January 1, 2000.
In addition, management periodically monitors the status of the Company's Year
2000 remediation plans. The Company has now completed its internal assessment
phase and is in the process of carrying out its internal remediation phase.
With respect to non-IT systems, such as heating and ventilation systems,
security systems and machine tools, the Company has sought representations from
the relevant vendors that the systems are Year 2000 compliant. The Company has
received such assurances from a number of non-IT system vendors and does not
expect to encounter any significant unresolved Year 2000 issues with respect to
such systems. In addition, in the event that there are any unresolved Year 2000
issues with respect to its non-IT systems, the Company believes it could obtain
replacement services either internally or from third parties without significant
disruptions to its operations.
During Third Quarter 1999, the Company's operations in Oak Creek, Wisconsin
replaced their existing business system, formerly shared with HarnCo. The
decision to replace the system was based solely on the need to move off of the
shared system. The vendor of the replacement system has represented to the
Company that the new system is Year 2000 compliant (which representation has
been confirmed by an outside consultant). The Company has sought and received
30
representations from the applicable vendors that the business systems used in
the United Kingdom, South Africa, Australia, Singapore, Canada, and Mexico are
either already Year 2000 compliant or will be before January 1, 2000. The
operating system used in the North American distribution and service business
was made compliant during the second fiscal quarter by applying the vendor
supplied upgrade.
The Company is also engaged in assessing and addressing Year 2000 issues with
significant vendors. The Company has sought, and continues to seek, 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 will be timely converted and, if not converted, would not have an
adverse effect on the Company's business operations. In the event that the
Company and/or its significant vendors or suppliers do not complete their Year
2000 compliance efforts, the Company could experience disruptions in its
operations. Disruptions in the economy generally resulting from Year 2000 issues
also could affect the Company. With respect to products sold by the Company,
management believes that any liability for Year 2000 compliance will not be
material.
The Company has used and will continue to use all necessary internal resources
to resolve any Year 2000 issues. The Company plans to complete its Year 2000
remediation by September 30, 1999. Total expenses on the project through July
31, 1999 were approximately $1.5 million and were primarily related to expenses
for repair or replacement of software and hardware, expenses associated with
facilities, products and supplier reviews and project management expenses.
Expected incremental costs related to Year 2000 are $0.3 million.
The costs of the project and the date on which the Company plans to complete its
Year 2000 remediation are based on management's estimates, which were derived
from utilizing numerous assumptions of future events including the continued
availability of certain resources, third party modification plans and other
factors. However, there can be no guarantee that these estimates will be
achieved and actual results could differ significantly from those plans.
Specific factors that might cause differences from management's estimates
include, but are not limited to, the availability and cost of personnel trained
in this area, the ability to locate and correct relevant computer codes, and
similar uncertainties. Management believes that the Company is devoting the
necessary resources to identify and resolve significant Year 2000 issues in a
timely manner.
Future Accounting Changes
The Financial Accounting Standards Board (FASB) has issued SFAS No. 133
"Accounting for Derivative Instruments and Hedging Activities" which is
effective for periods beginning after June 15, 2000. 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. SFAS No. 131, "Disclosures about Segments of an
Enterprise and Related Information," was also issued by the FASB and is
effective for fiscal years beginning after December 15, 1997. This statement
establishes standards for the way that business enterprises report information,
financial and descriptive, about operating segments in annual financial
statements and requires that those enterprises report selected information about
operating segments in interim financial reports issued to shareholders. It also
establishes standards for related disclosures about products and services,
geographic areas and major customers. The Company is in the process of
evaluating the effect of SFAS No. 131 on its financial statements. In February
1998, the FASB issued SFAS No. 132, "Employers' Disclosures about Pensions and
Other Postretirement Benefits" which is effective for fiscal years beginning
after December 31, 1997. This standard's objective is to improve pension and
other postretirement benefits disclosures.
Quantitative and Qualitative Disclosures about Market Risk
The Company is potentially exposed to market risk associated 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 1998 Annual Report on Form 10-K.
31
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
In October 1998, the Company received a request to arbitrate a claim from a
former customer which arose out of an accident that occurred in Ireland
involving two cranes sold by the Company in 1992. The claim alleges direct
damages of approximately $12.8 million plus lost revenue due to business
interruption. In addition, the Company has been notified by the port operator of
its intention to pursue a claim against the Company for its damages (which it
estimates are between $4 million and $5 million) arising from the accident.
Management intends to vigorously defend this matter. 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 claim. The Company is continuing to work with its
insurance broker to determine the availability of additional insurance coverage,
if any. The contract between the Company and the claimant provides that the
contract is governed by Irish law and that all disputes are to be resolved by
arbitration in Ireland. While the Company believes it will obtain a favorable
resolution, no assurances can be made as to the final outcome of the claim. If
the Company were found liable for the full amount of the claim, there could be a
material adverse effect on the Company's operations and financial performance.
The Company is also involved from time to time in various other routine
litigation incident to its operations, including product liability and other
claims. 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
Not applicable.
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 Exhibit Description
Number
4.17 Amendment No. 2 dated as of August 2, 1999 to the Credit
Agreement dated as of March 30, 1998 among (i) MMH Holdings,
Inc., (ii) Morris Material Handling, Inc., (iii) Morris
Material Handling, LLC, (iv) Morris Material Handling
Equipment Limited, (v) Mondel ULC, (vi) Kaverit Steel and
Crane ULC, (vii) the Banks referred to therein, (viii) the
New York branch of Credit Agricole Indosuez, as syndication
agent, (ix) BankBoston, N.A., as documentation agent and (x)
Canadian Imperial Bank of Commerce, as administrative agent
and collateral agent.
4.18 Subordination and Participation Agreement dated as of August
2, 1999 among (i) Canadian Imperial Bank of Commerce; (ii)
the Selling Banks listed therein; (iii) Martin Crane L.L.C.;
(iv) MMH Holdings, Inc.; (v) Morris Material Handling, Inc.
and Morris Material Handling, LLC; and (vi) the Subsidiaries
listed therein.
32
27.1 Financial Data Schedule
27.2 Financial Data Schedule
(b) Reports on Form 8-K
The Registrants filed no reports on Form 8-K during the
quarter ended July 31, 1999
33
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: September 14, 1999 /s/ David D. Smith
-------------------
David D. Smith
Vice President - Finance
(Principal Financial Officer)
MORRIS MATERIAL HANDLING, INC.
Date: September 14, 1999 /s/ David D. Smith
-------------------
David D. Smith
Vice President - Finance
(Principal Financial Officer)
34