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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended October 31, 1998
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Commission Registrant; State of Incorporation; IRS EMPLOYER
File Number Address; and Telephone Number Identification No.
<S> <C> <C>
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
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SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT
None
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SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT
None
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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 No X
--- ---
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrants' knowledge in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
form 10-K. [ ]
As of January 28, 1999, 10,169 shares of MMH Holdings, Inc. Voting Common
Stock were outstanding, none of which were held by non-affiliates. In addition,
720 shares of MMH Holdings, Inc. Nonvoting Common Stock were outstanding, all of
which were held by non-affiliates. There is no established trading market for
MMH Holdings, Inc.'s Nonvoting Common Stock.
As of January 28, 1999, 100 shares of Morris Material Handling, Inc. Common
Stock were outstanding, all of which were held by MMH Holdings, Inc.
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DOCUMENTS INCORPORATED BY REFERENCE
Portions of Item 14 of Part IV are incorporated by reference to: MMH
Holdings, Inc.'s Registration Statement No. 333-52529, filed on May 13, 1998;
Morris Material Handling, Inc.'s Registration Statement No. 333-52527, filed on
May 13, 1998; Amendment No. 2 to MMH Holdings, Inc.'s Registration Statement No.
333-52529, filed on July 22, 1998; and Amendment No. 2 to Morris Material
Handling, Inc.'s Registration Statement No. 333-52527, filed on July 22, 1998.
This combined Form 10-K is separately filed by MMH Holdings, Inc. and by
Morris Material Handling, Inc. The financial statements presented in this
combined report (collectively, the "Financial Statements") include the financial
statements of MMH Holdings, Inc. as well as separate financial statements for
Morris Material Handling, Inc. Information contained herein relating to any
individual Registrant is filed by such Registrant on its own behalf.
Certain sections of this Form 10-K, including "Business" and "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."
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MMH HOLDINGS, INC.
MORRIS MATERIAL HANDLING, INC.
INDEX TO
ANNUAL REPORT ON FORM 10-K
For the Year Ended October 31, 1998
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Page
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Part I
Item 1. Business 1
Item 2. Properties 9
Item 3. Legal Proceedings 9
Item 4. Submission of Matters to a Vote of Security Holders 10
Part II
Item 5. Market for the Registrants' Common Stock and Related Stockholder Matters 11
Item 6. Selected Financial Data
MMH Holdings, Inc. 12
Morris Material Handling, Inc. 14
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations 15
Item 7A. Quantitative and Qualitative Disclosures about Market Risk 22
Item 8. Financial Statements and Supplementary Data 24
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure 60
Part III
Item 10. Directors and Executive Officers of the Registrants 61
Item 11. Executive Compensation 64
Item 12. Security Ownership of Certain Beneficial Owners and Management 68
Item 13. Certain Relationships and Related Transactions 70
Part IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K 74
Signatures 80
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PART I
ITEM 1. BUSINESS
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, Chile and Mexico. Unless the context requires
otherwise, references to the "Company" in this combined 10-K 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. The
Company's original equipment operations design and manufacture a comprehensive
line of industrial cranes, hoists and other component products, sold principally
under the P&H and Morris brand names. Through its aftermarket operations, the
Company provides a variety of related products and services, including
replacement parts, repair and maintenance services and product modernizations.
In recent years, the Company has shifted its orientation from an original
equipment-focused United States manufacturer to an international full service
provider with a significant emphasis on the high margin aftermarket business.
Recent Developments: Recapitalization
Historically, the Company conducted its business as one of several
operating units of Harnischfeger Industries, Inc. ("HII"). Until October 1997,
the core United States operations of the Company were conducted directly by
HarnCo, a wholly-owned subsidiary of HII, while the remainder of the Company's
operations (including the Company's operations in the United Kingdom and South
Africa since their acquisition in 1994) were conducted through a number of
entities owned, directly or indirectly, by HII and its affiliates. In October
1997, in connection with the anticipated sale of the Company, HarnCo transferred
the assets of its Material Handling Equipment Division ("MHE Division") to
Material Handling, LLC ("MHLLC"), a newly-created wholly-owned subsidiary of the
Company. All non-cash assets held by HarnCo and used exclusively by the MHE
Division were transferred or, in the case of leased personal property, subleased
to MHLLC or to one of its affiliates. In return, MHLLC assumed substantially all
of the liabilities of HarnCo and certain affiliates of HarnCo not engaged in the
MHE Business (the "Non-MHE HarnCo Affiliates") relating to the MHE Business.
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 various operating entities engaged in the MHE Business.
As a result of the reorganization of the MHE Business' legal entities, Holdings
and the Company became the successor companies to the MHE Business. The
Transactions are accounted for as a recapitalization for financial reporting
purposes. Accordingly, the historical basis of the Company's assets and
liabilities was not impacted by the Transactions.
In conjunction with the Recapitalization, which closed on March 30, 1998
(the "Recapitalization Closing"), Holdings sold $60.0 million of Series A Units,
consisting of $57.7 million liquidation preference of Holdings' 12% Series A
Senior Exchangeable Preferred Stock (the "Holdings Series A Senior Preferred
Stock") and 720 shares of non-voting common stock, to institutional investors.
In addition, MMH sold $200.0 million aggregate principal amount of 9 1/2% Senior
Notes due 2008 (the "Senior Notes") and entered into a senior secured credit
facility (the "New Credit Facility").
At the Recapitalization Closing, (i) MHE Investments paid HarnCo $54.0
million for 72.6% of the common stock of Holdings (the "Holdings Common Stock")
(after giving effect to the Transactions) and approximately $28.9 million
liquidation preference of the 12 1/2% Series C Junior Voting Exchangeable
Preferred Stock of Holdings (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 the 12 1/4% Series B Junior Exchangeable Preferred
Stock of Holdings (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).
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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 pre-Recapitalization 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). See "Certain
Relationships and Related Transactions--Relationship with Harnischfeger." 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 HarnCo and its affiliates (approximately $33.3 million as
of October 31, 1998). MMH paid a pro-rated fee of $290,000 for calendar year
1998 at the Recapitalization Closing. 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") at the
Recapitalization Closing 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
commencing March 30, 1999.
For income tax purposes, Holdings and MMH were deemed to acquire the assets
of the MHE Business pursuant to Code Section 338(h)(10) in connection with the
Transactions. Accordingly, the Recapitalization increased the tax basis of
certain assets and created tax-deductible goodwill, which will generate
significant future tax deductions to reduce taxable income.
Company and Industry Overview
Industrial cranes and hoists are critical to the operations of most
businesses that require the movement of large or heavy objects. The steel,
aluminum, paper and forest products, aerospace, foundry, and automotive
industries, among others, rely on "through-the-air" material handling equipment
as one of the most flexible and efficient methods of transporting materials
within a plant while maximizing the use of available space. Through-the-air
material handling equipment provides more efficient space and capacity
utilization than fixed conveyors and traditional forklifts. Despite global
demand, the industrial crane and hoist industry remains highly fragmented, with
four global participants and a large number of regional and local players.
The industry is comprised of original equipment cranes and hoists, and
aftermarket parts, service and modernizations. The United States market for
industrial overhead cranes and hoist products is estimated to be approximately
$800 million per year and the potential aftermarket for such products is
estimated to be approximately $1.2 billion per year. Management estimates that
the global market is several times larger. In mature industrialized economies,
original equipment growth is driven by the need for upgrades and replacements as
well as capacity expansion. Technological innovations such as more compact,
space efficient cranes, built in diagnostic systems and sophisticated motors and
transmissions, improve operating efficiency and fuel the replacement/upgrade
market. In emerging economies, however, the market for overhead cranes is tied
principally to industrial development. Demand for aftermarket products and
services is driven by general wear and tear of equipment and increases as a
result of growth in the installed base of cranes and hoists. Industrial cranes,
which typically last 20 to 50 years, require significant aftermarket support in
the form of replacement parts, machine modernizations and upgrades, repairs and
inspection and maintenance services. Management
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believes that the global market for outsourced crane maintenance and repair
services is continuing to grow as more companies focus on core competencies and
use outsourced suppliers.
PRODUCTS AND SERVICES
The Company's core business was founded in 1884 and material handling
machinery and related equipment have been sold under the well-recognized P&H and
Morris brand names since the 1890s. The Company has developed a large global
installed base of equipment, having sold an aggregate of over a half million
cranes and hoists according to management estimates. Management believes that
the Company is one of the leading suppliers of industrial overhead cranes in
North America, the United Kingdom and South Africa. Management also believes
that the Company is one of the largest global providers of aftermarket products
and services to the industrial crane industry. Sales outside of North America
accounted for 31% of fiscal 1998 net sales, with Western Europe representing 15%
and the Pacific Rim representing 4% of net sales. For additional geographical
information, see the Financial Statements and notes thereto appearing elsewhere
herein.
The Company operates through two distinct but interrelated business groups:
(i) original equipment and (ii) aftermarket products and services.
ORIGINAL EQUIPMENT
The Company's original equipment operations design, manufacture and
distribute a broad range of standard and engineered overhead and gantry cranes,
hoists and related products. The Company's original equipment products have a
reputation for quality, durability and technological innovation.
ENGINEERED CRANES. Management attributes the Company's position as a
leading manufacturer of industrial cranes to its reputation for reliability and
engineering sophistication. The Company's engineered cranes are used by
customers with unique performance requirements that cannot be achieved with a
standard overhead crane. The Company's engineered cranes are individually
designed for specific applications in a wide variety of demanding environments
and typically have a high load capacity. Each unit is highly engineered,
incurring between 300 and 4,500 hours of engineering, and is generally priced
between $60,000 and $6.0 million. The Company markets engineered cranes under
the P&H and Morris brand names.
Within the engineered crane market, performance is often the most critical
purchase criterion for a customer. Given the premium placed on technological
sophistication and specific product performance, customers purchasing highly
engineered cranes tend to be less sensitive to the length of time between order
and delivery than most standard overhead crane customers. Overall lead times for
engineered cranes typically range between 20 and 40 weeks and include on-site
inspection of customer needs, in-house engineering and development,
manufacturing, product testing and installation. Many engineered crane projects
are completed pursuant to contracts on which the Company receives progress
payments and for which the Company occasionally must post performance bonds.
Engineered cranes provide particularly valuable aftermarket opportunities
since they often operate in harsh environments and require frequent replacement
parts and a high degree of ongoing inspection and maintenance services.
Management believes that the Company is well positioned to provide these
services for its customers as a result of its product knowledge, expertise and
local technical support.
Due to the advanced design of an engineered crane, these products are
generally manufactured at one of the Company's facilities located in Oak Creek,
Wisconsin, Loughborough, England or Johannesburg, South Africa. Each of these
facilities maintains advanced manufacturing capabilities, sophisticated
engineering skills, project management and inspection capabilities.
STANDARD CRANES. The Company's standard cranes, which utilize
pre-engineered components, are adaptable to a wide variety of uses. While the
cranes are configured to meet each customer's particular needs, the degree of
specific engineering is typically limited to less than 100 hours and most often
falls within the 20 to 60 hour range. These cranes typically range in price from
$10,000 to $200,000. The Company markets various standard cranes under the P&H,
Morris, and various other brand names throughout the world.
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While engineered cranes have typically been produced by larger
manufacturers, local crane builders have historically supplied significant
numbers of standard cranes. Delivery time and price are key purchase criteria.
The Company has successfully grown its standard crane sales by expanding local
assembly operations to shorten delivery times and reduce costs.
HOISTS. The Company manufactures electric wire rope and chain hoists,
manual chain hoists and ratchet lever hoists. The Company's hoists range in
capacity from 1/8 of a ton to 60 tons and feature a variety of electrical
control technologies. Customers select a specific type of hoist based on the
number of lifts to be performed per day and the average load capacity. Hoist
product prices range from $100 to $150,000, with most sold in the $1,000 to
$8,000 range. The Company markets its industrial hoists under the P&H brand name
in North and South America and under the Morris brand name in the United
Kingdom, South Africa, South America and Southeast Asia. Through the acquisition
of Morris Ltd. in 1994, the Company significantly strengthened its position in
the hoist marketplace. In 1994, a portion of the Company's Loughborough, England
facility used to manufacture electric hoists was destroyed by a fire. The
Company rebuilt the facility as a state-of-the-art hoist manufacturing and
assembly plant.
OTHER COMPONENTS. Over the past several years, the Company has
significantly expanded its product breadth through strategic acquisitions and
the focused application of its technical expertise to complementary component
products. Industrial brakes and winches represent two important component
products manufactured by the Company and marketed to end-users and/or to other
industrial equipment manufacturers.
AFTERMARKET PRODUCTS AND SERVICES
The Company's aftermarket business consists of replacement parts, repairs,
inspection and maintenance services, and modernizations for products
manufactured by both the Company and its competitors. The Company's network of
Company-owned distribution and service centers ("DSCs") and independent
distributors located around the world is the platform for the Company's
aftermarket sales activities, serving as distribution centers for its original
equipment and replacement parts as well as the focal point for service
activities.
PARTS AND COMPONENTS. The Company manufactures a wide range of replacement
parts and components necessary to maintain cranes and hoists manufactured by
both the Company and its competitors. These parts are sold through both DSCs and
independent distributors and agents.
Given the long useful life of an overhead crane, which ranges from 20 to 50
years, the Company's installed base of equipment provides a strong foundation
for the Company's aftermarket business. Parts sales are generated by customer
requests and through service personnel during scheduled inspections, appraisals
and service calls.
The Company markets both proprietary and commercially available parts for
its equipment. Proprietary parts command premium prices because they either have
unique design attributes that make them prohibitively expensive to reverse
engineer or are critical parts where an inadequate substitute could have
catastrophic consequences.
SERVICE. The Company provides installation, repair, inspection and
maintenance services, primarily through its DSC network. The Company provides
these services under highly recognized trade names including CRANE AID (South
Africa) and UK CRANE SERVICE (United Kingdom).
The Company has expanded its service offerings as a strategic response to
customers' increased interest in outsourcing the repair, inspection and
maintenance of overhead cranes and hoists. Currently, management estimates that
more than 30% of the Company's total repair and maintenance net sales are from
services performed upon cranes and hoists manufactured by its competitors.
Management believes that there is significant opportunity to leverage its
growing service operations to provide similar services on significantly more of
the cranes and hoists manufactured by its competitors.
In addition to responding to service calls from clients, the Company has
expanded its portfolio of services to include inspections for regulatory
compliance purposes (such as OSHA) as well as an innovative Crane
Appraisal/Repair Evaluation (CARE) program. The CARE program thoroughly assesses
the condition and performance of a crane and provides a concise reference
document for restoring the equipment to optimal operating performance. Each of
these inspection programs sends a highly-trained service technician into
customers' factories to evaluate the overall condition of the crane or hoist,
and allows the technician to recommend preventive maintenance and replacement
components. See "Sales, Marketing and Distribution."
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MODERNIZATIONS. Crane modernizations provide an attractive opportunity for
the Company to generate additional revenue from the entire installed base of
equipment. By upgrading the electrical and mechanical systems on existing
cranes, the Company can help its customers to optimize crane performance and
improve the capacity and efficiency of their operations. The cost of modernizing
an older crane typically ranges between 10% and 60% of the cost of a new
product.
SALES, MARKETING AND DISTRIBUTION
Due to the diverse nature of its product lines and customer requests, the
Company uses multiple sales approaches to serve its large customer base. A
majority of sales are generated by Company employees and DSCs. In addition, the
Company utilizes a number of independent agents and distributors in certain
markets. In many markets, the members of the Company's sales staff specialize in
either original equipment or aftermarket products and services. These employees
have the ability to effectively identify and service the original equipment and
aftermarket needs of the customer, thereby positioning the Company as a single
source provider.
With the exception of very sophisticated original equipment projects, the
Company's selling efforts occur primarily at the regional level. For
sophisticated original equipment, the Company uses dedicated worldwide product
or engineering specialists to "team sell" the products. In this process, the
team provides written specifications, design concept consulting, project scope
development and project financial planning.
In order to develop stronger and more knowledgeable customer relationships,
the Company has developed a DSC network, bringing the Company's parts and
service operations closer to the customer. The Company's DSC network provides
three distinct yet integrated functions: (i) a distribution network for parts;
(ii) a sales organization for original equipment; and (iii) an installation,
repair, inspection and maintenance service operation. The Company has
significantly expanded its DSC network in recent years through both acquisitions
of previously independent distributors as well as the start-up of new DSCs.
The Company's DSC network consists of 68 locations, including 40 in North
America. Over the past four years, the Company has built a DSC network in the
United Kingdom with 12 locations that operate under the UK Crane Service trade
name. The Company's DSC network in South Africa presently consists of 10
locations that operate under the Crane Aid trade name.
The DSC network maintains an inventory of fast-moving parts and deploys
fully equipped service technicians, to provide product support to local
customers. Certain of the Company's DSCs also build small, standardized original
equipment cranes, which has enabled the Company to increase its penetration of
the standard crane market. The Company's goal is to have a DSC in each key
industrial market in North America. In certain customer locations, the Company
has technicians permanently on site to provide immediate technical support or
routine preventive maintenance.
The following table outlines the Company's current DSC network:
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Location Principal Trade Names Number
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North America P&H Material Handling Center 40
United Kingdom UK Crane Service 12
South Africa Crane Aid 10
Southeast Asia Morris Blooma 1
Australia Morris Powerlec and Morris JDN 3
Chile Morris Chile 2
</TABLE>
The Company's distribution and service operations are also supported by
distributor and agent relationships in more than 50 countries, many of which are
unwritten arrangements that may be terminated at any time.
MANUFACTURING
The Company employs high-quality, technically advanced manufacturing at its
core facilities. The Company utilizes specialized manufacturing facilities in
combination with regional assembly to balance the different operational
requirements faced by a full service participant in the overhead crane and hoist
industry.
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The specialized manufacturing facilities build highly engineered cranes and
utilize advanced technology throughout the manufacturing process. These
facilities support the regional DSC crane assembly operations by providing
high-quality, standardized components which are manufactured using processes
which are not economical for smaller, regional facilities. For example, due to
the specialized nature of the machining and assembly processes associated with
hoists and brake systems, focused manufacturing facilities located in
Loughborough (hoists) and Toronto (brakes) are used to produce the majority of
these components for distribution to the Company's facilities throughout the
world. This centralization allows the Company to take advantage of economies of
scale and focused engineering resources while supporting the Company's objective
of standardizing component design and manufacturing.
By providing light manufacturing and assembly of standardized overhead
crane products on a regional basis, the Company addresses customers' demand for
cost effective products and shorter lead-times. This regional manufacturing
strategy also benefits the Company's new product development efforts since the
regional DSC manufacturers have a better understanding of end-users' performance
needs.
RAW MATERIALS
The Company maintains strong relationships with a large number of suppliers
both domestically and abroad. Typically, the Company will source raw materials
from a local supplier in the region of the manufacturing facility, often
entering into a blanket purchase order or an equivalent arrangement to reduce
costs. Under certain circumstances, however, the Company will establish a
long-term supply arrangement, either in an attempt to secure product consistency
or to take advantage of volume discounts. Some of the materials most frequently
purchased by the Company include steel, electric motors, castings and forgings,
electrical controls and components, and power transmission and related
components. Substantially all of the materials purchased by the Company are
available from a variety of sources within the country of manufacture or abroad.
BACKLOG
The Company's backlog of orders at October 31, 1998 was approximately $97.3
million compared to approximately $97.7 million at October 31, 1997. Bookings
for the year ended October 31, 1998 were $317.5 million as compared to $318.5
million for the year ended October 31, 1997. The Company's orders for standard
hoist products are usually shipped within 3 to 12 weeks. Overall lead times for
products that are manufactured to customer's specifications typically range
between 12 and 40 weeks. The backlog of orders that will not be shipped in
fiscal 1999 is estimated to be approximately $1.5 million.
WARRANTIES
The Company generally provides a warranty on its products for periods of
one to two years. At October 31, 1998, the Company had accrued warranties of
approximately $2.3 million.
TRADEMARKS AND BRAND NAMES
The Company offers its equipment and services primarily under the P&H and
MORRIS brand names. The P&H and MORRIS trademarks, which have been consistently
used for over 100 years, are recognized in important markets around the world.
P&H is currently used on above-ground mining equipment manufactured by HarnCo,
mobile construction cranes manufactured by Terex (the successor to the former
mobile construction crane division of HarnCo), as well as on the crane and hoist
products manufactured by the Company or related services offered by the Company.
HarnCo has licensed to the Company the sole and exclusive right to use the P&H
trademark on a worldwide basis in connection with "through-the-air" material
handling original equipment 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 in connection with aftermarket
products and services. The royalty fee for use of the trademark is 0.75% of the
aggregate net sales of the MHE Business for the ten year period commencing March
30, 1999. See "Certain Relationships and Related Transactions."
The Company also sells products under the KAVERIT and MONDEL trademarks in
Canada and the Powerlec and JDN Monocrane trademarks in Australia. It provides
aftermarket service under the UK CRANE SERVICE trademark in the United Kingdom
and the CRANE AID trademark in South Africa. The Company also uses a variety of
other marks in different
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countries. There are no known conflicts or third party rights which would
materially impact the Company's limited use of the P&H trademark in connection
with the Company's business activities for the life of the license agreement or
use of its other trademarks.
PATENTS
The Company owns 62 United States patents and pending patent applications
and 89 foreign patents and pending patent applications, primarily in Canada,
Japan, Mexico and the United Kingdom. The Company has acquired patents
pertaining to improvements in stacker cranes, portal cranes, anti-sway cable
reeving systems for cranes, automation and controls, and crane wheel and rail
configurations to prevent skewing of rail-mounted cranes. Most of the products
manufactured by the Company are proprietary in design and the Company is not
aware of any subsisting patents held by others which would be infringed by the
manufacture and sale of the Company's current lines of crane and hoist products.
Patents are important to the Company because, among other things, they prevent
competitors from using the Company's proprietary inventions and designs. The
Company believes this provides a competitive advantage in the marketplace.
However, the Company's overall competitive position is not dependent upon a
particular patent, nor would the loss of any particular patent have a material
impact upon the Company's competitive or financial position. Nonetheless, the
Company expects to continue to protect its proprietary technology through
patents and other forms of intellectual property. The Company has aggressively
pursued infringement of its proprietary rights and intends to continue to do so
should the need arise. The Company's patents have a duration ranging from
approximately one to eighteen years, depending on the filing dates of the patent
applications.
COMPETITION
The industrial crane and hoist industry is highly fragmented, with four
global participants and many regional and local players. Therefore, the markets
in which the Company operates are highly competitive, and the Company faces
competition from a number of different manufacturers in each of its product
areas and geographic markets, both domestic and foreign. Globally, the Company
believes it is one of the four largest manufacturers of industrial overhead
cranes and one of the largest providers of related aftermarket products and
services. Other global competitors include Mannesmann Dematic AG, a subsidiary
of Mannesmann AG; Columbus McKinnon Corp.; and KCI Konecranes International
Corp. Within specific geographic and product markets, the market share of the
top participants often varies.
GOVERNMENTAL REGULATION
ENVIRONMENTAL REGULATION
The Company's operations and properties worldwide are subject to extensive
and changing legal requirements and regulations pertaining to environmental
matters. In 1998, expenditures in connection with the Company's compliance with
federal, state, local and foreign environmental laws and regulations did not
have a material adverse effect on the Company's earnings or competitive
position.
The principal environmental compliance issues that arise in connection with
the Company's manufacturing facilities are hazardous/solid waste disposal and
air emissions (primarily paint and welding). The Company's DSCs do not create
environmental conditions that materially affect the Company's operations.
The Resource Conservation and Recovery Act ("RCRA") requires the Company to
manage and recycle or dispose properly of the wastes it generates from its
manufacturing operations. Similar foreign hazardous waste laws and regulations
apply to the Company's facilities outside the United States. RCRA and these
other hazardous waste laws and regulations include storage, management and
manifest provisions, among others. The Company has agreements worldwide with
hazardous waste management firms to recycle or dispose properly of generated
hazardous wastes. Many of the Company's regional distribution centers have a
"parts washer sink" on-site, and the spent solvents generated from these minor
cleaning activities are managed, collected and recycled under contracts with
waste management firms. The Company is not aware of any material non-compliance
with applicable hazardous waste laws and regulations at its facilities or
operations.
Under the Clean Air Act, the States have adopted an array of control
measures and programs to minimize certain hazardous air pollutants and
particulate matter. The Company has obtained necessary permits for any affected
facilities. Foreign clean air laws and regulations address many of the same
pollutants and issues. Considerable regulatory activity is expected in the next
ten years with the implementation of 1997 changes to the national ambient air
quality standards for
7
<PAGE>
ozone and particulate matter. The Company has made a number of select
investments in equipment at its primary manufacturing sites in anticipation of
these changes. The adoption of some of these additional clean air regulations
might require the Company to make further capital expenditures not currently
anticipated and that may be material.
In connection with the ownership of its properties and operation of its
business, the Company may also be subject to liability under various federal,
state, local and foreign laws, regulations and ordinances relating to clean-up
and removal of hazardous substances on, under or in such properties. Certain
laws, such as the Comprehensive Environmental Response, Compensation and
Liability Act, typically impose liability whether or not the owner or operator
knew of, or was responsible for, the presence of such hazardous substances.
Persons who arrange, or are deemed to have arranged, for the disposal or
treatment of hazardous substances also may be liable for the costs of removal
and remediation of such substances at the treatment or disposal site, regardless
of whether such site is owned or operated by such person. 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 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.
The Company has undergone significant expansion in recent years through
acquisitions, and management has decided that it is important for the Company's
operations to adopt a "proactive" compliance management approach to
environmental matters. The Company hired a manager of safety, health and
environmental affairs in September 1996 to oversee worldwide compliance, and
staff have been designated to lead compliance activities at each facility. The
Company also is developing an "Annual Compliance Calendar" matrix for all
required facility reports and an audit system for all environmental, safety and
health issues. A key component of the Company's environmental strategic
management plan is training for managers and employees.
It is likely that situations will arise from time to time requiring the
Company to incur expenditures in order to ensure continuing regulatory
compliance. The Company is not aware of any environmental condition or any
operation at any of its properties or facilities, either individually or in the
aggregate, which would cause expenditures that would result in a material
adverse effect on the Company's results of operations, financial condition, or
competitive position. There could be future, unknown environmental regulatory
changes that could have a material effect.
In connection with the Transactions, an environmental assessment of certain
of the Company's properties and operations at which the Company may have
potential environmental liabilities was conducted. This environmental assessment
indicated that no environmental matters or compliance issues exist that would
have a material adverse effect on the Company's earnings or competitive
position. The Company has followed up on certain of the recommendations made in
the environmental assessment with respect to both United States and foreign
properties. There can be no assurance that unknown conditions at the Company's
facilities will not result in potential liabilities that may be material.
The Loughborough, England facility is subject to an air emissions permit,
the limits of which became enforceable in April 1998. The Company has retained a
consultant who has conducted tests to determine if the facility complies with
such limits. The test results indicated that the Company exceeded emission
limits in one area. Operational changes have been implemented. The Company has
submitted a proposal to the Charnwood Borough Counsel and is awaiting a formal
response. At this time it is not anticipated that material expenditures will be
required.
OTHER REGULATION
The Company's operations also are subject to many other laws and
regulations, including those relating to workplace safety and worker health
(principally OSHA and regulations thereunder in the United States and similar
laws in most other countries). The Company believes it is in material compliance
with these laws and regulations and does not believe that future compliance with
such laws and regulations will have a material adverse effect on its cash flow,
results of operations or financial condition.
EMPLOYEES
At October 31, 1998, the Company employed 2,028 persons, of whom 878 were
hourly and 1,150 were salaried personnel. Approximately 66.7% of the Company's
hourly employees are represented by unions. The Company's unionized employees in
the United states are covered by a collective bargaining agreement with the
United Steelworkers of America, Local 1114, which expires August 31, 2002. In
addition, the Company is a party to several agreements with
8
<PAGE>
unions representing certain of its employees in Mexico, South Africa and the
United Kingdom. These agreements all have one year terms. The Company believes
that its relations with its employees are good.
ITEM 2. PROPERTIES
The Company maintains its corporate headquarters in Milwaukee, Wisconsin
and conducts its principal operations at the following facilities:
<TABLE>
<CAPTION>
Square
Location Utilization Footage Owned/Leased
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Loughborough, U.K. Crane/hoist manufacturing 420,000 Owned (a)
Oak Creek, WI Crane/hoist/winch manufacturing 277,000 Owned
Johannesburg, S.A. Crane/hoist manufacturing 124,000 Owned
Franklin, OH Regional fabrication/remanufacturing 75,000 Owned
Mexico City, Mexico Crane/hoist manufacturing/distribution/service 65,000 Owned
Edmonton, Canada Crane/hoist regional manufacturing/service 58,300 Owned
Ontario, Canada Crane manufacturing/distribution/service 20,000 Owned
Windsor/Madison, WI Crane/hoist remanufacturing 55,000 Leased (b)
Mauldin/Greenville, SC Regional crane assembly/service 40,400 Leased (c)
Birmingham, AL Regional crane assembly/service 36,500 Owned/Leased (d)
Melbourne, Australia Crane/hoist manufacturing/service 30,000 Leased (e)
Singapore, Singapore Parts warehouse/crane assembly/hoist distribution 21,200 Licensed (f)
Toronto, Canada Brake systems and parts manufacturing 17,600 Leased (g)
Sydney, Australia Material handling equipment distribution/service 14,000 Leased (h)
</TABLE>
- ----------
(a) Unused portions are leased to unrelated third parties.
(b) Lease expires May 31, 2002.
(c) Lease expires December 31, 2004.
(d) The Company owns the property with the exception of a portion thereof
leased (with an option to purchase) from the Industrial Revenue Board of
Birmingham.
(e) Lease expires August 4, 2003.
(f) The property is held under a license granted pursuant to a building
agreement with the Jurong Town Corporation of Singapore. Subject to
compliance with certain stipulated conditions in such agreement, the
Company is to be granted a 30-year lease of the property from April 1,
1994.
(g) Lease expires February 15, 2000.
(h) Lease expires June 30, 2003.
The Company also leases a number of other properties as DSCs in the United
States, Canada, the United Kingdom, South Africa, Australia, Chile and Mexico.
The Company believes that its properties have been adequately maintained,
are in generally good condition, and are suitable for the Company's business as
presently conducted. The Company believes its existing facilities provide
sufficient production capacity for its present needs and for its anticipated
needs in the foreseeable future. The Company also believes that upon the
expiration of its current leases, it either will be able to secure renewal terms
or enter into leases for alternative locations at market terms.
ITEM 3. LEGAL PROCEEDINGS
In October 1998, the Company received a request to arbitrate a claim from a
former customer, arising 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. The
Company is working with its insurance broker to determine the availability of
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. Given the recent nature of the claim, it
is not possible to reasonably estimate the range of any potential loss in the
event that insurance coverage is not available. Management intends to vigorously
defend the matter.
9
<PAGE>
The Company is also involved from time to time in various other routine
litigation incident to its operations. Although the outcome of those matters
cannot be predicted with certainty, management believes that any such pending or
threatened litigation will not have a material adverse effect on its
consolidated results of operations and financial condition.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
10
<PAGE>
PART II
ITEM 5. MARKET FOR REGISTRANTS' COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
There is no established public trading market for Holdings' Voting
Common Stock, par value $.01 per share (the "Holdings Voting Common Stock"),
or Holdings' Nonvoting Common Stock, par value $.01 per share (the "Holdings
Nonvoting Common Stock"). As of January 26, 1999, there were two holders of
Holdings Voting Common Stock and eight holders of Holdings Nonvoting Common
Stock.
Holdings has not paid or declared any cash dividends during the last two
fiscal years and does not anticipate paying cash dividends on the Holdings
Voting Common Stock or Holdings Nonvoting Common Stock in the foreseeable
future. The ability of Holdings to obtain cash resources to pay cash dividends
on its capital stock is restricted by the terms of the New Credit Facility and
the Note Indenture. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations--Liquidity and Capital Resources."
There is no established public trading market for MMH's Common Stock, par
value $.01 per share (the "MMH Common Stock"). Holdings owns all of the issued
and outstanding MMH Common Stock.
MMH paid a $5.0 million dividend to Holdings in connection with the
Recapitalization on March 30, 1998. In addition, MMH paid an aggregate of $2.5
million in dividends to Holdings during the remainder of fiscal 1998.
On March 29, 1998, Holdings issued 100,000 shares of its new common stock
and 30,000 shares of Holdings Series C Junior Voting Preferred Stock to HarnCo
in exchange for the 450 shares of its old Class A common stock then issued and
outstanding to HarnCo. On March 30, 1998, Holdings issued 4,809 shares of $1,000
liquidation preference Holdings Series B Junior Preferred Stock to HarnCo in
connection with the redemption of 89,831 shares of its common stock and 1,145
shares of Holdings Series C Junior Voting Preferred Stock. No underwriter was
involved in either transaction, both of which were exempt from registration
under Section 4(2) of the Securities Act.
Holdings sold 57,710 shares of $1,000 liquidation preference of Holdings
Series A Senior Preferred Stock to CIBC Oppenheimer Corp. ("CIBC") in a private
placement to finance the Recapitalization on March 30, 1998. The private
placement of the Holdings Series A Senior Preferred Stock was in reliance on
Regulation D under the Securities Act and/or on Section 4(2) of the Securities
Act. The underwriting discount was $2.9 million. CIBC re-sold the Holdings
Series A Senior Preferred Stock as part of the Series A Units in an offering
exempt from registration under Rule 144A of the Securities Act.
Holdings also sold 720 shares of Holdings Nonvoting Common Stock to CIBC
Oppenheimer Corp. in a private placement for $2.3 million on March 30, 1998. The
private placement of the Holdings Nonvoting Common Stock was in reliance on
Regulation D under the Securities Act and/or Section 4(2) of the Securities Act.
The underwriting discount was $91,600. CIBC re-sold the Holdings Nonvoting
Common Stock as part of the Series A Units in an offering exempt from
registration under Rule 144A of the Securities Act.
On March 4, 1998, MMH issued 10 shares of its common stock to Holdings for
$10. On March 24, 1998, MMH issued an additional 190 shares of its common stock
to Holdings, in exchange for the contribution by Holdings to MMH of all of the
Holdings' equity interests in the entities engaged in the MHE Business. No
underwriter was involved in either transaction, which were exempt from
registration under Section 4(2) of the Securities Act.
Appropriate legends were affixed to the stock certificates issued in the
above transactions.
11
<PAGE>
Item 6. Selected Financial Data
For the purposes of this Form 10-K, it is assumed that Holdings has
historically owned the capital stock of MMH, that all 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.
MMH Holdings, Inc.
Selected Financial Data
(dollars in thousands)
<TABLE>
<CAPTION>
Fiscal Year Ended October 31,
---------------------------------------------------------
1998 1997 1996 1995 1994(a)
--------- --------- --------- --------- --------
(unaudited)
<S> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Net Sales $ 317,857 $ 353,350 $ 323,735 $ 243,169 $109,429
Gross profit 90,866 92,556 76,176 56,765 N/A
Other income - net 1,331 2,649 1,149 3,766 N/A
Selling, general and
administrative expenses 61,355 56,806 44,968 36,931 N/A
HII Management fee 1,155 2,862 2,341 1,878 N/A
Nonrecurring employee
benefit costs (b) 3,013 0 0 0 N/A
Direct expenses (c) 97,335
--------- --------- --------- --------- --------
Operating income 26,674 35,537 30,016 21,722 N/A
Excess of revenues over
direct expenses 12,094
Net income 4,291 $ 20,853 $ 18,446 $ 13,476 N/A
--------- --------- --------- --------
--------- --------- --------- --------
Dividends on preferred stock (6,545)
Amortization of preferred
stock discount (338)
--------
Net loss attributable
to Common Stock ($ 2,592)
--------
--------
</TABLE>
<TABLE>
<CAPTION>
As of October 31,
-------------------------------------------------------
1998 1997 1996 1995 1994(a)
-------- -------- -------- -------- ---------
(unaudited)
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Total assets $310,997 $199,600 $189,058 $151,168
Divisional assets (d) $128,465
Total debt 265,338 6,088 2,044 4,704 N/A
Mandatorily redeemable
preferred stock 95,351 0 0 0 0
</TABLE>
12
<PAGE>
(a) Prior to 1995, the Company did not determine its financial position or
results of operations on a stand alone basis as its financial and
management reporting information was commingled with other operating
divisions of HII. As a result, the Company's summary data as of and for the
year ended October 31, 1994 is limited and certain historical financial
data is not available.
(b) Represents severance costs associated with restructuring the Company's
United Kingdom and United States manufacturing operations of $1,797 and
incentives to certain members of management of $1,216. While the cost of
the incentive payments appear on the Company's income statement, HII, the
Company's former parent, not the Company, was responsible for paying these
incentives.
(c) Direct expenses are those costs of goods sold, selling expenses and general
and administrative expenses associated with the division.
(d) Divisional assets include property, plant and equipment, cash, accounts
receivable, unbilled receivables, inventories and intangible assets.
13
<PAGE>
Morris Material Handling, Inc.
Selected Financial Data
(dollars in thousands)
<TABLE>
<CAPTION>
Fiscal Year Ended October 31,
----------------------------------------------------
1998 1997 1996 1995 1994(a)
-------- -------- -------- -------- --------
(unaudited)
<S> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Net Sales $317,857 $353,350 $323,735 $243,169 $109,429
Gross profit 90,866 92,556 76,176 56,765 N/A
Other income - net 1,331 2,649 1,149 3,766 N/A
Selling, general and
administrative expenses 61,355 56,806 44,968 36,931 N/A
HII Management fee 1,155 2,862 2,341 1,878 N/A
Nonrecurring employee
benefit costs (b) 3,013 0 0 0 N/A
Direct expenses (c) 97,335
-------- -------- -------- -------- --------
Operating income 26,674 35,537 30,016 21,722 N/A
Excess of revenues over
direct expenses 12,094
Net income $ 4,291 $ 20,853 $ 18,446 $ 13,476 N/A
-------- -------- -------- -------- --------
-------- -------- -------- -------- --------
</TABLE>
<TABLE>
<CAPTION>
As of October 31,
----------------------------------------------------
1998 1997 1996 1995 1994(a)
-------- -------- -------- -------- --------
(unaudited)
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Total assets $310,997 $199,600 $189,058 $151,168
Divisional assets (d) $128,465
Total debt 265,338 6,088 2,044 4,704 N/A
</TABLE>
(a) Prior to 1995, the Company did not determine its financial position or
results of operations on a stand alone basis as its financial and
management reporting information was commingled with other operating
divisions of HII. As a result, the Company's summary data as of and for the
year ended October 31, 1994 is limited and certain historical financial
data is not available.
(b) Represents severance costs associated with restructuring the Company's
United Kingdom and United States manufacturing operations of $1,797 and
incentives to certain members of management of $1,216. While the cost of
the incentive payments appear on the Company's income statement, HII, the
Company's former parent, not the Company, was responsible for paying these
incentives.
(c) Direct expenses are those costs of goods sold, selling expenses and general
and administrative expenses associated with the division.
(d) Divisional assets include property, plant and equipment, cash, accounts
receivable, unbilled receivables, inventories and intangible assets.
14
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATION
THE FOLLOWING DISCUSSION SHOULD BE READ IN CONJUNCTION WITH THE FINANCIAL
STATEMENTS AND THE RELATED NOTES THERETO INCLUDED ELSEWHERE 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 an
international full service provider with a significant emphasis on the high
margin aftermarket business. The Company's revenues are derived principally from
the sale of industrial overhead cranes, component products and aftermarket
products and services.
RECAPITALIZATION. Historically, the Company conducted its business as one
of several operating units of 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 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
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,
Holdings sold $60.0 million of Series A Units, consisting of $57.7 million
liquidation preference of 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 Senior Notes and entered
into the New Credit Facility.
At the Recapitalization Closing, (i) MHE Investments paid HarnCo $54.0
million for 72.6% of the Holdings Common Stock (after giving effect to the
Transactions) and approximately $28.9 million liquidation preference of 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 liquidation preference of 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).
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 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
15
<PAGE>
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 $33.3 million as of October 31, 1998). MMH paid a
pro-rated fee of $290,000 for calendar year 1998 at the Recapitalization
Closing. 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 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
commencing March 30, 1999.
For income tax purposes, Holdings and MMH were deemed to acquire the assets
of the MHE Business pursuant to Code Section 338(h)(10) in connection with the
Transactions. Accordingly, the Recapitalization increased the tax basis of
certain assets and created tax-deductible goodwill, which will generate
significant future tax deductions to reduce taxable income.
ACQUISITIONS
During fiscal year 1998, the Company completed the purchase of four
businesses, one in Arizona, one in Ontario, Canada and two in Australia. The
combined purchase price for these four acquisitions was $11.2 million, including
cash consideration paid subsequent to October 31, 1998. These four acquisitions,
which are primarily related to the Company's aftermarket business, contributed
approximately $3.7 million in sales and $0.2 million in EBITDA to the Company's
results during fiscal 1998.
RESULTS OF OPERATIONS
FISCAL 1998 AS COMPARED TO FISCAL 1997
Net sales in fiscal 1998 decreased $35.5 million or 10.0% to $317.9 million
from $353.4 million in fiscal 1997. The decrease in net sales was primarily the
result of a decrease in engineered crane sales worldwide as fiscal 1997 included
the completion of several large projects in both the United States and the
United Kingdom without a corresponding level of projects in fiscal 1998. The
decline in engineered crane sales was largely due to a downturn in orders in the
United Kingdom container crane business and the failure to win certain large
projects in the United States. This decrease was offset, in part, by an increase
in (i) standard crane sales due to a product mix shift away from engineered
cranes, new product sales (trolleys) and the continued expansion of the
Company's DSC network, (ii) modernization sales due to the completion of several
large projects and (iii) sales of parts, service, hoists and components also due
to the expanded DSC network. These increases also were due, in part, to a full
year's operation of a DSC in Ohio acquired in February 1997 and to sales of the
four acquisitions made during 1998.
Other income - net decreased from $2.6 million in fiscal 1997 to $1.3
million in fiscal 1998 primarily due to the recognition of a $2.0 million gain
in fiscal 1997 on an insurance claim relating to a fire at the Morris Mechanical
Handling Ltd. facility in the United Kingdom in fiscal 1995. Other income - net
in fiscal 1998 includes a gain of approximately $0.3 million on the sale of
certain fixed assets, including a building.
Cost of sales decreased $33.8 million or 13.0% to $227.0 million in fiscal
1998 from $260.8 million in fiscal 1997 primarily due to the lower sales volumes
described above. Cost of sales as a percentage of net sales also decreased, from
73.8% in fiscal 1997 to 71.4% in fiscal 1998. This improvement is a result of a
shift in the Company's sales mix toward the higher margin standard cranes and
aftermarket products and away from engineered cranes.
16
<PAGE>
Selling, general and administrative expenses increased $4.6 million or 8.1%
to $61.4 million in fiscal 1998 from $56.8 million in fiscal 1997 due to
expenses related to the businesses acquired in 1997 and 1998, unabsorbed
engineering costs due to lower engineered crane sales, additional costs
associated with the separation from HII, including the staffing of corporate tax
and treasury functions and rent on new corporate headquarters, and management
fees included in fiscal 1998 for periods subsequent to the Recapitalization.
As a result of the Recapitalization, the Company experienced a series of
non-recurring employee benefit costs. These costs included severance costs of
$1.8 million associated with restructuring the Company's United States and
United Kingdom manufacturing operations and incentive payments of $1.2 million
to certain members of management. While the cost of these incentive payments
appears on the Company's income statements, HII, the Company's former parent,
paid these incentives.
Approximately $16.5 million in third party interest expense was recorded in
fiscal 1998, including $14.5 million in interest expense on the Senior Notes and
under the New Credit Facility and $1.2 million of amortization of related
deferred financing costs. The Company also incurred $0.8 million in interest
expense on other borrowings outstanding.
The provision for income taxes was approximately 50.9% of income before
income taxes and minority interest for fiscal 1998 as compared to 39.9% for
fiscal 1997. This increase is due in large part to higher foreign effective tax
rates, the nondeductible divestiture bonus expense charge and the effect of an
increase in the deferred tax valuation allowance.
Net income decreased $16.6 million or 79.4% to $4.3 million in fiscal 1998
from $20.9 million in fiscal 1997. Net income represented 1.3% of net sales in
fiscal 1998 compared to 5.9% of net sales in fiscal 1997.
FISCAL 1997 AS COMPARED TO FISCAL 1996
Net sales in fiscal 1997 increased $29.7 million or 9.2% to $353.4 million
from $323.7 million in fiscal 1996. The increase in net sales was primarily the
result of
(i) the acquisition of a DSC in Ohio in February 1997;
(ii) the full year impact in fiscal 1997 of the acquisition of a DSC in
Alberta, Canada in May 1996;
(iii)an increase in sales of standard cranes and aftermarket products and
services through the existing North American DSC network;
(iv) an increase in engineered crane sales in the United Kingdom due to
several large port crane and warehouse automation projects; and
(v) an increase in sales of standard cranes and aftermarket products and
services through the United Kingdom DSC network.
These increases were offset, in part, by:
(i) a decrease in engineered crane sales in the United States due to the
unusually high level of large projects recorded in 1996; and
(ii) an increase in intercompany sales eliminations primarily due to the
increase in sales of products and services through the Company's North
American DSC network rather than through independent distributors.
Other income--net increased to $2.6 million in 1997 from $1.1 million in
1996 due principally to a $2.0 million gain in 1997 on the insurance claim
relating to the fire at its Morris Mechanical Handling Ltd. facility in the
United Kingdom in fiscal 1995.
Cost of sales increased $13.2 million or 5.3% to $260.8 million in 1997
from $247.6 million in 1996, primarily as a result of higher sales volume. Cost
of sales represented 73.8% of net sales in 1997, a decrease from 76.5% of net
sales in 1996. This improvement was primarily due to the completion of several
large engineered crane projects at costs lower than
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previously accrued. In addition, there was a shift in the Company's sales mix in
1997 toward the higher margin parts and services component of the Company's
aftermarket business. As a result, gross profit increased to $92.6 million or
26.2% of net sales in 1997 from $76.2 million or 23.5% of net sales in 1996.
Selling, general and administrative expenses increased by $11.8 million or
26.2% to $56.8 million in 1997 from $45.0 million in 1996. These expenses
represented 16.1% of net sales in 1997 up from 13.9% in 1996. This increase was
primarily due to costs associated with the continued expansion of the Company's
DSC network in North America and the United Kingdom as well as an increase in
engineering costs that were not allocated to specific projects.
Parent management fees allocated by HII increased to $2.9 million in 1997
from $2.3 million in 1996.
Operating income increased by $5.5 million or 18.3% to $35.5 million in
1997 from $30.0 million in 1996. Operating income represented 10.0% of net sales
in 1997 compared to 9.3% of net sales in 1996. This improvement was primarily
the result of higher margins on certain large original equipment projects and a
change in sales mix toward the higher margin parts and services component of the
Company's aftermarket business, offset, in part, by increased operating expenses
associated with the Company's expanding DSC network.
Net income increased by $2.5 million or 13.6% to $20.9 million in 1997,
from $18.4 million in 1996. This increase resulted principally from higher
operating income, offset, in part, by higher income taxes.
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 flow provided by operating activities was $9.6 million, $12.9
million and $23.5 million in fiscal 1998, 1997 and 1996, respectively. The
decrease from 1997 to 1998 was due primarily to a $16.6 million decrease in net
income for fiscal 1998 offset by increases in advance payments and progress
billings and non-cash expenses such as amortization of financing costs and
divestiture bonuses during the year. Lower levels of acquisition funding
provided by HII and its affiliates in fiscal 1998, compared to the acquisition
funding provided for the acquisition of a DSC in Ohio in February 1997, also
contributed to the decrease in cash flow provided by operating activities. The
decrease from 1996 to 1997 was due primarily to a larger increase in net working
capital and to a decrease in the amount of acquisition funding provided by HII
and its affiliates. The Company's cash flow provided by operations was largely
affected by changes in working capital, primarily due to the presence of an
unusually large number of percentage-of-completion contracts in 1996.
Net cash used for investment and other transactions for the years ended
1998, 1997 and 1996 was $16.0 million, $14.9 million and $21.2 million,
respectively. The increase from 1997 to 1998 was due mainly to the receipt of an
insurance claim in 1997 due to an earlier fire. This was offset in part by a
lower level of acquisition expenditures during 1998. The decrease from 1996 to
1997 was primarily due to a lower level of acquisition expenditures and the
increased receipt in 1997 of insurance proceeds related to the earlier fire. The
Company has completed 9 acquisitions since the beginning of 1996 for a total of
$31.9 million.
Net cash provided by financing activities was $7.5 million in fiscal 1998
compared to net cash used for financing activities of $0.3 million in fiscal
1997. The increase was due to the financing activities associated with the
Recapitalization. There were no financing activities in fiscal 1996.
As part of the Recapitalization, MMH offered $200.0 million principal
amount of its 9 1/2% Senior Notes. Interest on the Senior Notes began accruing
on March 30, 1998, the date of issuance of the Senior Notes, and is payable
semi-annually on each April 1 and October 1, commencing October 1, 1998. The
Senior Notes will mature on April 1, 2008.
As part of the Transactions, the Company entered into the New Credit
Facility which includes a $20 million term loan ("Term Loan A"), a $35 million
term loan ("Term Loan B" and together with Term Loan A, the "Term Loans"), a
revolving credit facility (the "Revolving Credit Facility") and an acquisition
facility (the "Acquisition Facility"). The Revolving Credit Facility provides
the Company with up to $70.0 million of available borrowings (of which $15.0
million
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is required under the Note Indenture to be reserved for issuance of letters of
credit) until the fifth anniversary of the Recapitalization Closing for working
capital, acquisitions and other corporate purposes, subject to compliance with
certain conditions, including a borrowing base test. Up to $20.0 million of the
Revolving Credit Facility (of which $15.0 million will not be subject to a
borrowing base) is available for the issuance of documentary and standby letters
of credit. The Acquisition Facility permits the Company to borrow up to $30.0
million until the third anniversary of the Recapitalization Closing (and to
repay the same in installments prior to the seventh anniversary of the
Recapitalization Closing) to finance acquisitions, subject to compliance with
certain conditions. Term Loan A is payable in 20 quarterly installments,
commencing on June 30, 1998 and Term Loan B is payable in 28 quarterly
installments, commencing on June 30, 1998.
Aggregate yearly term loan principal payments under the New Credit Facility
will be as follows: (i) $2,100,000 in 1999; (ii) $3,600,000 in 2000; (iii)
$5,100,000 in 2001; (iv) $6,600,000 in 2002; (v) $11,988,000 in 2003; (vi)
$16,625,000 in 2004; and (vii) $8,313,000 in 2005.
Borrowings under the New Credit Facility bear interest at various interest
rates based on certain floating reference rates. To limit the effect of
increases in the interest rates of the New Credit Facility, the Company has
entered into an interest rate swap arrangement. The effect of this arrangement,
which expires on March 31, 2001, is to limit the interest rate exposure on
specified amounts up to $55.0 million borrowed under the New Credit Facility at
a fixed LIBOR rate of 5.875% plus 2.25% or 2.75%, as applicable.
Borrowings under the New Credit Facility are (i) secured by substantially
all of the present and future assets of the Company and its subsidiaries located
in the United States and the United Kingdom, certain of the Company's
subsidiaries' present and future assets located in Canada and by a pledge of
substantially all of the issued and outstanding shares of capital stock of the
Company and its current and future subsidiaries and (ii) guaranteed by Holdings
and substantially all of the Company's subsidiaries.
At October 31, 1998, Holdings and its subsidiaries had an aggregate of
$265.3 million of Indebtedness outstanding, including the $200.0 million
principal amount of the Senior Notes issued by the Company and $61.7 million of
borrowings under the New Credit Facility. The Company's debt service and lease
commitments for 1998 amounted to approximately $18.1 million, consisting of $0.8
million in principal payments, $12.8 million in interest payments and $4.5
million for lease payments. Debt service and lease commitments for 1999 are
expected to be approximately $31.3 million, consisting of $2.1 million in
principal payments, $24.3 million in interest payments and $4.9 million for
lease payments.
At October 31, 1998, the Company had, subject to compliance with certain
conditions, approximately $66.6 million of availability (of which $15.0 million
is required under the Note Indenture to be reserved for issuance of letters of
credit) under the Revolving Credit Facility. Management believes that cash flow
from operations, together with borrowings under the Revolving Credit Facility
will be sufficient to meet its anticipated cash requirements for interest and
principal payments, working capital, the payments to be made to Holdings
described below and capital expenditures for the next twelve months and
thereafter. The Company also expects that expansion and future acquisitions will
be financed from funds generated from operations and borrowings under the
Revolving Credit Facility and the Acquisition Facility. The New Credit Facility
contains certain financial ratio covenants and borrowing condition tests based
on quarterly and latest twelve month results of operations of the Company. The
Company may not meet certain of such ratios and tests for the period ended
January 30, 1999, the results of operations for which are not yet available. In
the event such tests and ratios are not met, in the absence of a waiver or
amendment of the New Credit Facility, the Company would not be able to borrow
under the Revolving Credit Facility or the Acquisition Facility and could
experience significant liquidity problems. In addition, in the absence of a
waiver or amendment, the Company would be in default under the New Credit
Facility. See "--Cautionary Factors." The Company believes, however, that if it
is not in compliance with such financial ratios and borrowing tests as of
January 30, 1999, waivers and/or amendments to the New Credit Facility could be
obtained promptly which will permit the Company to borrow under the Revolving
Credit Facility to meet its working capital requirements.
Holdings' primary cash needs are for administrative expenses and for the
payment of income taxes of Holdings and its affiliates related to the MHE
Business. Holdings is a holding company that conducts all of its operations
through its subsidiaries. Consequently, Holdings' ability to meet its cash needs
depends upon receiving dividends, loans, advances or other payments from its
subsidiaries. The New Credit Facility and the Note Indenture generally restrict
the ability of Holdings' subsidiaries to transfer funds to Holdings, other than
for administrative fees and expenses (subject to a general limit) and other than
for the payment of income taxes. Under the terms of the Note Indenture, the
Company is generally
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restricted from paying dividends or making other restricted payments to Holdings
unless, among other things, the ratio of the Company's EBITDA to Consolidated
Interest Expense (as defined in the Note Indenture) for the four most recent
consecutive fiscal quarters is at least 2 to 1. Moreover, the terms of the
Holdings Series A Senior Preferred Stock, as well as the Holdings Series B
Junior Preferred Stock and the Holdings Series C Junior Voting Preferred Stock,
restrict the ability of Holdings and its subsidiaries to incur additional
indebtedness. There are no current material restrictions on the ability of the
Company's subsidiaries to pay dividends or otherwise make payments to the
Company. In addition, the Company anticipates that there will not be any
material economic restrictions or adverse tax effects with respect to the
Company's ability to repatriate foreign assets. There can be no assurance,
however, that such limitations will not exist in the future. As a result of
these restrictions, among others, there can be no assurance that Holdings will
have available to it sufficient cash resources to pay cash dividends on the
Holdings Series A Senior Preferred Stock (or on the Holdings Series B Junior
Preferred Stock and the Holdings Series C Junior Voting Preferred Stock)
commencing October 1, 2003. In addition, all issues of Holdings' preferred stock
are mandatorily redeemable. The inability of Holdings' subsidiaries, or any
limitation on such ability, to pay dividends or make other payments to Holdings
could have a material adverse effect on Holdings' ability to meet its cash
requirements.
EURO CONVERSION
On January 1, 1999, eleven of the fifteen member countries of the
European Monetary Union (the "participating countries") began a three-year
transition from their national currencies to a new common currency, the
"euro". As of that date, the participating countries no longer control their
own monetary policies by directing independent interest rates for their
national currency. The national currencies will remain legal tender and can
be used in commercial transactions until January 1, 2002. Beginning January
1, 2002, the participating countries will issue new euro currency and
withdraw their respective national currencies which will no longer be used as
legal tender. The Company's only significant operations in member countries
of the European Monetary Union are in the United Kindgom, which is not a
participating country. As such, management does not believe that the euro
conversion will have a significant impact on the operations, cash flows or
financial position of the Company, unless and until the United Kingdom adopts
the euro.
CAUTIONARY FACTORS
This report contains or may contain forward looking statements by or on
behalf of Holdings and the Company. Such statements are based upon management's
current expectations and are subject to risks and uncertainties that could cause
the Company's actual results to differ materially from those contemplated in the
statements. Readers are cautioned not to place undue reliance on these forward
looking statements. In addition to the assumptions and other factors referred to
specifically in connection with such statements, factors that could cause the
Company's actual results to differ materially from those contemplated include,
among others, the following:
- 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.
- The Company incurred significant debt in connection with the
Recapitalization. As of October 31, 1998, the Company had an aggregate
of approximately $265.3 million of outstanding indebtedness. At
October 31, 1998, the Company also had, subject to certain conditions,
approximately $66.6 million of availability under the Revolving Credit
Facility and $23.8 million of availability under the Acquisition
Facility. The level of consolidated indebtedness could impact the
ability of the Company to obtain additional financing for
acquisitions, working capital and capital expenditures. It may also
cause the Company to be at a competitive disadvantage because it will
be more highly leveraged than some of its competitors. A downturn in
the Company's business will have a more significant impact on its
results of operations and cash flows. In addition, borrowings under
the New Credit Facility are (i) secured by substantially all of the
present and future assets of the Company and its subsidiaries located
in the United States and the United Kingdom, certain of the Company's
subsidiaries' present and future assets located in Canada and by a
pledge of substantially all
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of the issued and outstanding shares of capital stock of the Company
and its current and future subsidiaries and (ii) guaranteed by
Holdings and substantially all of the Company's subsidiaries. The New
Credit Facility requires the Company to comply with certain financial
ratios and tests, under which the Company is required to achieve and
maintain certain financial and operating results. In the event such
ratios and tests are not met, in the absence of a waiver or amendment
of the New Credit Facility, the Company would not be able to borrow
under the Revolving Credit Facility or the Acquisition Facility and
could experience significant liquidity problems. In addition, in the
absence of a waiver or amendment, the Company would be in default
under the New Credit Facility, which would permit the banks thereunder
to exercise their remedies under the New Credit Facility. In the event
of any such default, 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 be an event of default under the Note Indenture and the Surety
Arrangement. 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.
- The Company has operations and assets located in Canada, Mexico,
Chile, the United Kingdom, South Africa, Australia and Singapore and
is establishing joint ventures in Malaysia and Saudi Arabia. The
Company also sells its products through distributors and agents in
over 50 countries, some of which are merely ad hoc arrangements and
may be terminated at any time. The Company's international operations
(including Canada, Mexico, Chile, South Africa, 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. 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.
- 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.
- 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
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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.
The Company's operations in Oak Creek, Wisconsin are in the process of
replacing their existing business system. The decision to replace the system
was based solely on the need to move off of the current system which is
shared with HarnCo. HII has certified that the current system is already Year
2000 compliant and the vendor of the replacement system has represented to
the Company that such is as well (which representation has been confirmed by
an outside consultant). The implementation of the new system is expected to
be completed in the third quarter of fiscal 1999. The Company has sought and
received representations from the applicable vendors that the business
systems used in the United Kingdom, South Africa, Singapore, Canada, and
Mexico are either already Year 2000 compliant or will be before January 1,
2000. The Year 2000 compliant version of the operating system used in the
North American distribution and service business is currently being tested by
the Company and is expected to be in place prior to the year 2000.
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. Given
that no one vendor is significant enough to the Company's continuing
operations and/or that any products or services provided by any one vendor
could be obtained either internally or from alternative third parties without
significantly disrupting the Company's operations, management believes that
any potential unresolved Year 2000 issues at these vendors will not have any
material adverse effects on 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 internal resources to
resolve any Year 2000 issues. The Company plans to complete its Year 2000
remediation in the summer of 1999. Total expenses on the project through October
31, 1998 were approximately $1.3 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 $0.5 million and should not
be material to the Company's financial position.
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 Statement of
Accounting Standards ("SFAS") No. 133 "Accounting for Derivative Instruments and
Hedging Activities" which is effective for periods beginning after June 15,
1999. 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 busines
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.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company is potentially exposed to market risk asssociated with changes
in foreign exchange and interest rates. From time to time the Company will enter
into derivative financial instruments to hedge these exposures. An instrument
will be treated as a hedge if it is effective in offsetting the impact of
volatility in the Company's underlying interest rate and foreign exchange rate
exposures. The Company does not enter into derivatives for speculative purposes.
The Company's products are sold in over 50 countries around the world.
Although revenues of the Company are generated in foreign currencies, the vast
majority of both sales and associated costs are in United States dollars, Pounds
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Sterling and Canadian Dollars. The Company may, from time to time, hedge
specifically identified committed cash flows in foreign currencies using forward
contracts. Such foreign currency contract activity historically has not been
material. At October 31, 1998, there were no foreign currency forward contracts
outstanding. There also were no material non-functional currency denominated
financial instruments, which would expose the Company to foreign exchange risk,
outstanding at October 31, 1998.
As noted above, the Company is exposed to market risk associated with
adverse movements in interest rates. Specifically, the Company is exposed to
changes in the fair value of its $200 million Senior Notes and to changes in
earnings and related cash flows on its variable interest rate debt obligations
outstanding under the New Credit Facility. Borrowings outstanding under the New
Credit Facility totalled $61.7 million at October 31, 1998.
The fair value of the Company's Senior Notes was approximately $140 million
based upon the quoted market price of the instrument on October 31, 1998. The
Company estimates that this fair value would increase/decrease by approximately
$11 million based upon an assumed 10% increase/decrease in market interest rates
compared with the average yield on similar debt instruments as of October 31,
1998.
After considering the related effects on the Company's interest rate swap
discussed below, a 10% increase/decrease in the average floating reference rates
in effect under the New Credit Facility at October 31, 1998 would not have a
material effect on the Company's earnings or cash flows.
The Company entered into an interest rate swap arrangement in order to
limit the effect of increases in the interest rates under the New Credit
Facility. The effect of this agreement, which expires on March 31, 2001, is to
limit the interest rate exposure on specified amounts up to $55.0 million
borrowed under the New Credit Facility to a fixed LIBOR rate of 5.875% (the
"Fixed Rate") plus 2.25% or 2.75%, as applicable. As a result, the interest
rates applicable to Term Loan A and Term Loan B at October 31, 1998 have been
fixed at 8.125% and 8.625%, respectively. The differential between the floating
rate of the New Credit Facility and the Fixed Rate is accrued as interest rates
change and is recorded as an adjustment of interest expense. The Company would
have paid approximately $1.3 million to terminate the interest rate swap at
October 31, 1998. A 10% decrease in the applicable LIBOR reference rate (4.76%
at October 31, 1998) would increase such amount by approximately $0.5 million.
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ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
INDEX TO 1998 FINANCIAL STATEMENTS
FINANCIAL STATEMENTS:
<TABLE>
<S> <C>
MMH HOLDINGS, INC.
Report of Independent Accountants .......................... 25
Balance Sheets at October 31, 1998 and 1997 ................ 27
Statements of Income and Comprehensive Income for the three
years ended October 31, 1998 .............................. 28
Statements of Cash Flows for the three years ended
October 31, 1998 .......................................... 29
Statements of Preferred Stock and Shareholders'
Equity/Parent Investment for the three years ended
October 31, 1998 .......................................... 30
Notes to Financial Statements .............................. 35
Financial Statement Schedules:
For the three years ended October 31, 1998
II - Valuation And Qualifying Accounts
MORRIS MATERIAL HANDLING, INC
Report of Independent Accountants .......................... 26
Balance Sheets at October 31, 1998 and 1997 ................ 31
Statements of Income and Comprehensive Income for the three
years ended October 31, 1998 .............................. 32
Statements of Cash Flows for the three years ended
October 31, 1998 .......................................... 33
Statements of Preferred Stock and Shareholder's
Equity/Parent Investment for the three years ended
October 31, 1998 .......................................... 34
Notes to Financial Statements .............................. 35
Financial Statement Schedules:
For the three years ended October 31, 1998
II - Valuation And Qualifying Accounts
</TABLE>
All other schedules are omitted because they are not applicable or the required
information is shown in financial statements or notes thereto.
24
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Shareholders of
MMH Holdings, Inc.
In our opinion, the financial statements listed in the accompanying index
present fairly, in all material respects, the financial position of MMH
Holdings, Inc. and its subsidiaries at October 31, 1998 and 1997, and the
results of their operations and their cash flows for each of the three years in
the period ended October 31, 1998, in conformity with generally accepted
accounting principles. These financial statements are the responsibility of the
Company's management; our responsibility is to express an opinion on these
financial statements based on our audits. We conducted our audits of these
statements in accordance with generally accepted auditing standards which
require that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for the opinion expressed above.
PRICEWATERHOUSECOOPERS LLP
Milwaukee, Wisconsin
December 21, 1998
25
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Shareholder of
Morris Material Handling, Inc.
In our opinion, the financial statements listed in the accompanying index
present fairly, in all material respects, the financial position of Morris
Material Handling, Inc. and its subsidiaries at October 31, 1998 and 1997, and
the results of their operations and their cash flows for each of the three years
in the period ended October 31, 1998, in conformity with generally accepted
accounting principles. These financial statements are the responsibility of the
Company's management; our responsibility is to express an opinion on these
financial statements based on our audits. We conducted our audits of these
statements in accordance with generally accepted auditing standards which
require that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for the opinion expressed above.
PRICEWATERHOUSECOOPERS LLP
Milwaukee, Wisconsin
December 21, 1998
26
<PAGE>
MMH HOLDINGS, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
ASSETS
October 31,
-----------------------
1998 1997
--------- ---------
($ in 000's)
<S> <C> <C>
Current Assets
Cash and cash equivalents $ 2,534 $ 1,532
Accounts receivable-net 81,947 82,209
Inventories 42,561 33,497
Deferred income taxes 6,277 2,712
Other current assets 5,190 2,053
--------- ---------
138,509 122,003
--------- ---------
Property, Plant and Equipment
Land and improvements 3,481 3,466
Buildings 22,604 21,379
Machinery and equipment 41,564 35,918
--------- ---------
67,649 60,763
Less accumulated depreciation (26,579) (21,396)
--------- ---------
41,070 39,367
--------- ---------
Other Assets
Goodwill 39,843 32,229
Debt financing costs 18,905 --
Deferred income taxes 65,979 --
Other 6,691 6,001
--------- ---------
131,418 38,230
--------- ---------
$ 310,997 $ 199,600
--------- ---------
--------- ---------
</TABLE>
<TABLE>
<CAPTION>
LIABILITIES AND SHAREHOLDERS' EQUITY/PARENT INVESTMENT
October 31,
-----------------------
1998 1997
--------- ---------
($ in 000's)
<S> <C> <C>
Current Liabilities
Short-term notes payable and
current portion of long-term obligations $ 2,262 $ 752
Bank overdrafts 1,252 4,293
Trade accounts payable 32,893 32,656
Employee compensation and benefits 8,601 8,113
Advance payments and progress billings 9,399 7,685
Accrued warranties 2,324 3,998
Accrued interest 2,201 --
Income taxes payable 2,307 2,393
Other current liabilities 16,714 10,870
--------- ---------
77,953 70,760
Term Loans 52,225 --
Acquisition Facility Borrowings 6,194 --
Senior Notes 200,000 --
Other Long-Term Obligations 3,405 1,043
Deferred Income Taxes 2,698 3,088
Minority Interest 364 391
Commitments and Contingencies (Note 10)
Mandatorily Redeemable Preferred Stock 95,351 --
Shareholders' Equity/Parent Investment (127,193) 124,318
--------- ---------
$ 310,997 $ 199,600
--------- ---------
--------- ---------
</TABLE>
The accompanying notes are an integral part of the financial statements.
27
<PAGE>
MMH HOLDINGS, INC.
STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
<TABLE>
<CAPTION>
Year Ended October 31,
-------------------------------------
1998 1997 1996
--------- --------- ---------
($ in 000's)
<S> <C> <C> <C>
Revenues
Net Sales $ 317,857 $ 353,350 $ 323,735
Other Income - Net 1,331 2,649 1,149
--------- --------- ---------
319,188 355,999 324,884
Cost of Sales 226,991 260,794 247,559
Selling, General and Administrative Expenses 61,355 56,806 44,968
HII Management Fee 1,155 2,862 2,341
Non-Recurring Employee Benefit Costs 3,013 -- --
--------- --------- ---------
Operating Income 26,674 35,537 30,016
Interest (Expense) Income - Net
HII Affiliates (1,448) (394) 163
Third Party (16,527) (398) (245)
--------- --------- ---------
Income Before Income Taxes
and Minority Interest 8,699 34,745 29,934
Provision for Income Taxes (4,435) (13,874) (11,488)
Minority Interest 27 (18) --
--------- --------- ---------
Net Income 4,291 20,853 18,446
Foreign Currency Translation Adjustments (2,441) 540 441
--------- --------- ---------
Comprehensive Income $ 1,850 $ 21,393 $ 18,887
--------- --------- ---------
--------- --------- ---------
</TABLE>
The accompanying notes are an integral part of the financial statements.
28
<PAGE>
MMH HOLDINGS, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Year Ended October 31,
-------------------------------------
1998 1997 1996
--------- --------- ---------
($ in 000's)
<S> <C> <C> <C>
Operating Activities
Net income $ 4,291 $ 20,853 $ 18,446
Add (deduct) - items not affecting cash provided by
operating activities:
Depreciation and amortization 6,823 6,736 5,292
Amortization of debt financing costs 1,169 -- --
Deferred income taxes - net 327 89 1,347
Divestiture bonus 1,216 -- --
Gain on fire insurance claim -- (2,011) --
Other (908) (818) (750)
Changes in working capital, excluding the
effects of acquisition opening
balance sheets:
Accounts receivable 2,223 (3,656) (7,217)
Inventories (7,692) 6,044 (8,651)
Other current assets (3,317) 2,077 (530)
Trade accounts payable and bank overdrafts (4,292) (2,852) 130
Employee compensation and benefits 75 (1,293) 1,399
Advance payments and progress billings 2,258 (16,056) 3,460
Accrued warranties (1,689) 178 (305)
Accrued interest 2,201 -- --
Other current liabilities 3,647 (5,116) 4,047
Activity with parent and other affiliates - net 3,224 8,724 6,788
--------- --------- ---------
Net cash provided by operating activities 9,556 12,899 23,456
--------- --------- ---------
Investment and Other Transactions
Fixed asset additions - net (5,208) (6,498) (6,752)
Acquisition of businesses - net of cash acquired (8,891) (11,787) (15,272)
Fire insurance claim activity - net -- 3,441 1,613
Issuance of loans to senior management (900) -- --
Repayment of loans by senior management 780 -- --
Other - net (1,738) (103) (747)
--------- --------- ---------
Net cash used for investment and other transactions (15,957) (14,947) (21,158)
--------- --------- ---------
Financing Activities
Repayments of short-term debt and notes payable (694) (99) --
Proceeds from Senior Note Offering 200,000 -- --
Proceeds from New Credit Facility 55,000 -- --
Proceeds from Acquisition Facility borrowings 6,194 -- --
Net proceeds from Revolving Credit Facility borrowings 1,200 -- --
Net proceeds from issuance of Series A preferred stock
and related common shares 57,094 -- --
Redemption of common stock and preferred stock (287,000) -- --
Stock redemption transaction costs (3,553) -- --
Debt financing costs (20,074) -- --
Repayments of long-term debt (675) (155) --
--------- --------- ---------
Net cash provided by (used for) financing activities 7,492 (254) --
--------- --------- ---------
Effect of Exchange Rate Changes on
Cash and Cash Equivalents (89) 13 39
--------- --------- ---------
Increase (Decrease) in Cash and Cash Equivalents 1,002 (2,289) 2,337
Cash and Cash Equivalents
Beginning of Year 1,532 3,821 1,484
--------- --------- ---------
End of Year $ 2,534 $ 1,532 $ 3,821
--------- --------- ---------
--------- --------- ---------
Supplemental disclosures of cash flow information:
Cash paid during each year for:
Interest $ 12,849 $ 398 $ 245
Taxes 1,391 322 1,252
Acquisition purchase price financed by seller 1,800 -- --
Preferred stock dividends in kind 6,545 -- --
</TABLE>
The accompanying notes are an integral part of the financial statements.
29
<PAGE>
MMH HOLDINGS, INC.
STATEMENTS OF PREFERRED STOCK AND SHAREHOLDERS' EQUITY/PARENT INVESTMENT
($ in 000's)
<TABLE>
<CAPTION>
Preferred Stock
----------------------------------------------------------------------------
Series A Series B Series C
--------------------- --------------------- -----------------------
Shares Carrying Shares Carrying Shares Carrying
Outstanding Value Outstanding Value Outstanding Value Total
----------- --------- ----------- --------- ----------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE AT OCTOBER 31, 1995 -- $ -- -- $ -- -- $ -- $ --
Net income
Change in foreign currency
translation
Activity with HII and other
affiliates - net
------ --------- ----- --------- ------ --------- ---------
BALANCE AT OCTOBER 31, 1996 -- -- -- -- -- -- --
Net income
Stock issued to HarnCo in exchange for
certain operating assets and ownership
interests of the MHE Business
Change in foreign currency
translation
Activity with HII and other
affiliates - net
------ --------- ----- --------- ------ --------- ---------
BALANCE AT OCTOBER 31, 1997 -- -- -- -- -- -- --
Net income
Change in foreign currency
translation
Exchange of 450 common shares
outstanding for 100,000 shares of
common stock and 30,000
shares of Series C preferred stock 30,000 30,000 30,000
Issue Series A preferred and common
shares for $60 million (net of $2,906
million fees) 57,710 54,804 54,804
Redemption of shares from Harnco
and related costs (1,145) (1,145) (1,145)
Exchange of 1,512 common shares
for Series B preferred shares 4,809 4,809 4,809
Preferred stock dividends 3,478 4,075 296 347 1,823 2,123 6,545
Amortization of preferred stock
discount 338 338
Capital contribution from HII
Issuance of loans to senior management
Repayment of loans by senior management
Deferred taxes arising from change
in U.S. federal income tax basis
Activity with HII and other
affiliates, October 31, 1997 -
March 30, 1998 - net
------ --------- ----- --------- ------ --------- ---------
BALANCE AT OCTOBER 31, 1998 61,188 $ 59,217 5,105 $ 5,156 30,678 $ 30,978 $ 95,351
------ --------- ----- --------- ------ --------- ---------
------ --------- ----- --------- ------ --------- ---------
</TABLE>
<TABLE>
<CAPTION>
Common Stock Parent Accumulated Total
----------------------- Investment/ Other Shareholders'
Shares Par Additional Comprehensive Retained Equity/Parent
Outstanding Value Paid-in-Capital Income Earnings Investment
----------- --------- --------------- ------------- --------- -------------
(A)
<S> <C> <C> <C> <C> <C> <C>
BALANCE AT OCTOBER 31, 1995 100 $ -- $ 69,807 $ (1,281) $ -- $ 68,526
Net income 18,446 18,446
Change in foreign currency
translation 441 441
Activity with HII and other
affiliates - net 6,788 6,788
------ --------- --------- --------- --------- ---------
BALANCE AT OCTOBER 31, 1996 100 -- 95,041 (840) -- 94,201
Net income 20,853 20,853
Stock issued to HarnCo in exchange for
certain operating assets and ownership
interests of the MHE Business 350
Change in foreign currency
translation 540 540
Activity with HII and other
affiliates - net 8,724 8,724
------ --------- --------- --------- --------- ---------
BALANCE AT OCTOBER 31, 1997 450 -- 124,618 (300) 124,318
Net income 4,291 4,291
Change in foreign currency
translation (2,441) (2,441)
Exchange of 450 common shares
outstanding for 100,000 shares of
common stock and 30,000
shares of Series C preferred stock 99,550 1 (30,001) (30,000)
Issue Series A preferred and common
shares for $60 million (net of $2,906
million fees) 720 2,290 2,290
Redemption of shares from Harnco
and related costs (88,319) (1) (289,407) (289,408)
Exchange of 1,512 common shares
for Series B preferred shares (1,512) (4,809) (4,809)
Preferred stock dividends (6,545) (6,545)
Amortization of preferred stock
discount (338) (338)
Capital contribution from HII 1,216 1,216
Issuance of loans to senior management (900) (900)
Repayment of loans by senior management 780 780
Deferred taxes arising from change
in U.S. federal income tax basis 71,129 71,129
Activity with HII and other
affiliates, October 31, 1997 -
March 30, 1998 - net 3,224 3,224
------ --------- --------- --------- --------- ---------
BALANCE AT OCTOBER 31, 1998 10,889 $ -- $(121,860) $ (2,741) $ (2,592) $(127,193)
------ --------- --------- --------- --------- ---------
------ --------- --------- --------- --------- ---------
</TABLE>
The accompanying notes are an integral part of the financial statements.
(A) Due to the MHE Business having historically been operated as a division
of HII, a historical retained earnings balance cannot be determined.
30
<PAGE>
MORRIS MATERIAL HANDLING, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
ASSETS
------
October 31,
---------------------
1998 1997
--------- ---------
($ in 000's)
<S> <C> <C>
Current Assets
Cash and cash equivalents $ 2,534 $ 1,532
Accounts receivable-net 81,947 82,209
Inventories 42,561 33,497
Deferred income taxes 6,277 2,712
Other current assets 5,190 2,053
--------- ---------
138,509 122,003
--------- ---------
Property, Plant and Equipment
Land and improvements 3,481 3,466
Buildings 22,604 21,379
Machinery and equipment 41,564 35,918
--------- ---------
67,649 60,763
Less accumulated depreciation (26,579) (21,396)
--------- ---------
41,070 39,367
--------- ---------
Other Assets
Goodwill 39,843 32,229
Debt financing costs 18,905 --
Deferred income taxes 65,979 --
Other 6,691 6,001
--------- ---------
131,418 38,230
--------- ---------
$ 310,997 $ 199,600
--------- ---------
--------- ---------
</TABLE>
<TABLE>
<CAPTION>
LIABILITIES AND SHAREHOLDER'S EQUITY/PARENT INVESTMENT
- ------------------------------------------------------
October 31,
--------------------
1998 1997
-------- --------
($ in 000's)
<S> <C> <C>
Current Liabilities
Short-term notes payable and
current portion of long-term obligations $ 2,262 $ 752
Bank overdrafts 1,252 4,293
Trade accounts payable 32,893 32,656
Employee compensation and benefits 8,601 8,113
Advance payments and progress billings 9,399 7,685
Accrued warranties 2,324 3,998
Accrued interest 2,201 --
Income taxes payable 2,307 2,393
Other current liabilities 16,714 10,870
-------- --------
77,953 70,760
Term Loans 52,225 --
Acquisition Facility Borrowings 6,194 --
Senior Notes 200,000 --
Other Long-Term Obligations 3,405 1,043
Deferred Income Taxes 2,698 3,088
Minority Interest 364 391
Commitments and Contingencies (Note 10)
Shareholder's Equity/Parent Investment (31,842) 124,318
-------- --------
$310,997 $199,600
-------- --------
-------- --------
</TABLE>
The accompanying notes are an integral part of the financial statements.
31
<PAGE>
MORRIS MATERIAL HANDLING, INC.
STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
<TABLE>
<CAPTION>
Year Ended October 31,
-------------------------------------
1998 1997 1996
--------- --------- ---------
($ in 000's)
<S> <C> <C> <C>
Revenues
Net Sales $ 317,857 $ 353,350 $ 323,735
Other Income - Net 1,331 2,649 1,149
--------- --------- ---------
319,188 355,999 324,884
Cost of Sales 226,991 260,794 247,559
Selling, General and Administrative Expenses 61,355 56,806 44,968
HII Management Fee 1,155 2,862 2,341
Non-Recurring Employee Benefit Costs 3,013 -- --
--------- --------- ---------
Operating Income 26,674 35,537 30,016
Interest (Expense) Income - Net
HII Affiliates (1,448) (394) 163
Third Party (16,527) (398) (245)
--------- --------- ---------
Income Before Income Taxes
and Minority Interest 8,699 34,745 29,934
Provision for Income Taxes (4,435) (13,874) (11,488)
Minority Interest 27 (18) --
--------- --------- ---------
Net Income 4,291 20,853 18,446
Foreign Currency Translation Adjustments (2,441) 540 441
--------- --------- ---------
Comprehensive Income $ 1,850 $ 21,393 $ 18,887
--------- --------- ---------
--------- --------- ---------
</TABLE>
The accompanying notes are an integral part of the financial statements.
32
<PAGE>
MORRIS MATERIAL HANDLING, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Year Ended October 31,
--------------------------------------------------------------
1998 1997 1996
--------------- --------------- ---------------
($ in 000's)
<S> <C> <C> <C>
Operating Activities
Net income $ 4,291 $ 20,853 $ 18,446
Add (deduct) - items not affecting cash provided by
operating activities:
Depreciation and amortization 6,823 6,736 5,292
Amortization of debt financing costs 1,169 - -
Deferred income taxes - net 327 89 1,347
Divestiture bonus 1,216 - -
Gain on fire insurance claim - (2,011) -
Other (908) (818) (750)
Changes in working capital, excluding the
effects of acquisition opening balance sheets:
Accounts receivable 2,223 (3,656) (7,217)
Inventories (7,692) 6,044 (8,651)
Other current assets (3,317) 2,077 (530)
Trade accounts payable and bank overdrafts (4,292) (2,852) 130
Employee compensation and benefits 75 (1,293) 1,399
Advance payments and progress billings 2,258 (16,056) 3,460
Accrued warranties (1,689) 178 (305)
Accrued interest 2,201 - -
Other current liabilities 3,647 (5,116) 4,047
Activity with parent and other affiliates - net 3,224 8,724 6,788
--------------- --------------- ---------------
Net cash provided by operating activities 9,556 12,899 23,456
--------------- --------------- ---------------
Investment and Other Transactions
Fixed asset additions - net (5,208) (6,498) (6,752)
Acquisition of businesses - net of cash acquired (8,891) (11,787) (15,272)
Fire insurance claim activity - net - 3,441 1,613
Issuance of loans to senior management (900) - -
Repayment of loans by senior management 780 - -
Other - net (1,738) (103) (747)
--------------- --------------- ---------------
Net cash used for investment and other transactions (15,957) (14,947) (21,158)
--------------- --------------- ---------------
Financing Activities
Repayments of short-term debt and notes payable (694) (99) -
Proceeds from Senior Note Offering 200,000 - -
Proceeds from New Credit Facility 55,000 - -
Proceeds from Acquisition Facility borrowings 6,194 - -
Net proceeds from Revolving Credit Facility borrowings 1,200 - -
Dividends to and redemption of shares held by Holdings (233,459) - -
Debt financing costs (20,074) - -
Repayments of long-term debt (675) (155) -
--------------- --------------- ---------------
Net cash provided by (used for) financing activities 7,492 (254) -
--------------- --------------- ---------------
Effect of Exchange Rate Changes on
Cash and Cash Equivalents (89) 13 39
--------------- --------------- ---------------
Increase (Decrease) in Cash and Cash Equivalents 1,002 (2,289) 2,337
Cash and Cash Equivalents
Beginning of Year 1,532 3,821 1,484
--------------- --------------- ---------------
End of Year $ 2,534 $ 1,532 $ 3,821
--------------- --------------- ---------------
--------------- --------------- ---------------
Supplemental disclosures of cash flow information:
Cash paid during each year for:
Interest $ 12,849 $ 398 245
Taxes 1,391 322 1,252
Acquisition purchase price financed by seller 1,800 - -
</TABLE>
The accompanying notes are an integral part of the financial statements.
33
<PAGE>
MORRIS MATERIAL HANDLING, INC.
STATEMENTS OF SHAREHOLDER'S EQUITY/PARENT INVESTMENT
($ in 000's)
<TABLE>
<CAPTION>
Common Stock Parent Accumulated Total
-------------------- Investment/ Other Shareholder's
Shares Par Additional Comprehensive Retained Equity/Parent
Outstanding Value Paid-in-Capital Income Earnings Investment
-------------------- --------------- ------------- -------- --------------
(A)
<S> <C> <C> <C> <C> <C> <C>
BALANCE AT OCTOBER 31, 1995 - $ - $ 69,807 $ (1,281) $ - $ 68,526
Net income 18,446 18,446
Change in foreign currency
translation 441 441
Activity with HII and other
affiliates - net 6,788 6,788
------- -------- ---------- --------- --------- ---------
BALANCE AT OCTOBER 31, 1996 - - 95,041 (840) - 94,201
Net income 20,853 20,853
Change in foreign currency
translation 540 540
Activity with HII and other
affiliates - net 8,724 8,724
------- -------- ---------- --------- --------- ---------
BALANCE AT OCTOBER 31, 1997 - - 124,618 (300) - 124,318
Net income 4,291 4,291
Change in foreign currency
translation (2,441) (2,441)
Stock issued to Holdings in exchange for
certain operating assets and ownership
interests of the MHE business 200
Dividends to and redemption of
shares from Holdings (100) (233,459) (233,459)
Capital contribution from HII 1,216 1,216
Issuance of loans to senior
management (900) (900)
Repayment of loans by senior
management 780 780
Deferred taxes arising from change
in U.S. federal income tax basis 71,129 71,129
Activity with HII and other
affiliates, October 31, 1997 -
March 30, 1998 - net 3,224 3,224
------- -------- ---------- --------- --------- ---------
BALANCE AT OCTOBER 31, 1998 100 $ - $ (33,392) $ (2,741) $ 4,291 $ (31,842)
------- -------- ---------- --------- --------- ---------
------- -------- ---------- --------- --------- ---------
</TABLE>
The accompanying notes are an integral part of the financial statements.
(A) Due to the MHE Business having historically been operated as a division of
HII, a historical retained earnings balance cannot be determined.
34
<PAGE>
MMH HOLDINGS, INC.
MORRIS MATERIAL HANDLING, INC.
NOTES TO FINANCIAL STATEMENTS
(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 3, the resulting transactions
(the "Recapitalization"), which closed on March 30, 1998 (the "Recapitalization
Closing"), led to a significant change in the capital structure and a
reorganization of the underlying legal entities of the MHE Business. As a result
of the Recapitalization, 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.
NOTE 2 - DESCRIPTION OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES
DESCRIPTION OF BUSINESS - MMH Holdings, Inc. is a holding company, with no
material operations, that conducts its business operations through its directly
wholly-owned subsidiary Morris Material Handling, Inc.
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 other 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. The Company's revenues are derived principally from the
sale of industrial overhead cranes, component products and aftermarket products
and services.
USE OF ESTIMATES - The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities at
the date of the financial statements, and the reported amounts of revenues and
expenses during the reporting period. Ultimate realization of assets and
settlement of liabilities in the future could differ from those estimates.
INVENTORIES - Inventories are stated at the lower of cost or market value. Cost
is determined by the last-in, first-out (LIFO) method for certain domestic
inventories and by the first-in, first-out (FIFO) method for certain domestic
inventories and inventories of foreign subsidiaries.
35
<PAGE>
REVENUE RECOGNITION - The majority of the Company's sales of products or
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. Losses, if any, are recognized in full as soon as identified. The
Company's products are generally under warranty against defects in material and
workmanship for a period of 1 to 2 years. The Company generally provides for
future warranty costs based upon the relationship of sales in prior periods to
actual warranty costs.
PROPERTY, PLANT AND EQUIPMENT - Property, plant and equipment is stated at
historical cost. Expenditures for major renewals and improvements are
capitalized, while maintenance and repairs which do not significantly improve
the related asset or extend its useful life are charged to expense as incurred.
For financial reporting purposes, plant and equipment is depreciated primarily
by the straight-line method over the estimated useful lives of the assets.
Depreciation claimed for income tax purposes is computed by accelerated methods.
CASH EQUIVALENTS - The Company considers all highly liquid debt instruments with
an initial maturity of three months or less at the date of purchase to be cash
equivalents.
INTEREST RATE SWAPS - To limit the effect of increases in interest rates, the
Company has entered into an interest rate swap arrangement. The differential
between the contract floating and fixed rates is accrued each period and
recorded as an adjustment of interest expense.
FOREIGN CURRENCY TRANSLATION - The assets and liabilities of the Company's
international operations are translated at year-end exchange rates; income and
expenses are translated at average exchange rates prevailing during the year.
For operations whose functional currency is the local currency, translation
adjustments are accumulated within shareholders' equity. For subsidiaries
operating in highly inflationary economies, financial statements are remeasured
into the United States dollar with adjustments resulting from the translation of
monetary assets and liabilities reflected in results of operations. Transaction
gains and losses are reflected in income. Pre-tax foreign exchange gains
(losses) included in operating income were $(118), $110 and $(167) in 1998, 1997
and 1996, respectively.
GOODWILL AND INTANGIBLE ASSETS - Goodwill represents the excess of the purchase
price over the fair value of identifiable net assets of acquired companies and
is amortized on a straight-line basis over periods ranging from 30 to 40 years.
The Company assesses the carrying value of goodwill at each balance sheet date.
Consistent with Statement of Financial Accounting Standards ("SFAS") No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
be Disposed Of," such assessments include, as appropriate, a comparison of (a)
the estimated future nondiscounted cash flows anticipated to be generated during
the remaining amortization period of the goodwill to (b) the net carrying value
of goodwill. The Company recognizes diminution in value of goodwill, if any, on
a current basis. Impairment assessments made in accordance with SFAS No. 121 are
made in connection with an analysis of related long-lived assets acquired in the
respective purchase business combination. Accumulated amortization was $3,154
and $2,268 at October 31, 1998 and 1997, respectively.
DEBT FINANCING COSTS - In conjunction with the Recapitalization (see Note 3),
the Company recorded $20.1 million of debt financing costs. These costs are
being amortized over periods ranging from 5 to 10 years. Accumulated
amortization was $1,169 at October 31, 1998.
INCOME TAXES - For periods prior to the Recapitalization, the Company's domestic
income tax provision reflects an intercompany tax allocation arrangement with
its parent such that the domestic income taxes payable was recorded as if the
Company filed separate income tax returns. The Company recorded its domestic
income taxes payable as an intercompany payable within shareholder's investment.
Subsequent to the Recapitalization, Holdings, its subsidiaries and MHE
Investments have entered into a tax sharing agreement (the "Tax Sharing
Agreement") which provides for, among other things, the allocation of federal,
state and local tax liabilities between Holdings, its subsidiaries and MHE
Investments. In general, under the Tax Sharing Agreement, Holdings and its
subsidiaries will be responsible for paying their allocable share, based upon
amounts calculated as if separate income tax returns were filed, of all income
taxes shown to be due on the consolidated federal (and any comparable state or
local) income tax return filed by MHE Investments. The Company's foreign income
tax provision and related income taxes payable are recorded based upon the
income tax returns as filed by its foreign affiliates in their respective
jurisdictions.
Domestic and foreign deferred income taxes are recognized for the tax
consequences of temporary differences by applying enacted statutory tax rates
applicable to future years to differences between the financial statement
carrying amounts and the
36
<PAGE>
tax bases of existing assets and liabilities, and for tax basis carryforwards. A
valuation allowance is provided for deferred tax assets where it is considered
more likely than not that the benefit of such assets will not be realized.
FAIR VALUE OF FINANCIAL INSTRUMENTS - Cash and cash equivalents, accounts
receivable and accounts payable recorded in the balance sheets approximate fair
value based on the short maturity of these instruments. The fair values of
long-term debt obligations are estimated based on market conditions and interest
rates available to the Company for similar financial instruments and in the case
of the Company's senior notes, based on quoted market prices. The fair value of
the Company's interest rate swap was obtained from a dealer quote.
RESEARCH AND DEVELOPMENT EXPENSES - Research and development costs are expensed
as incurred. Such costs incurred in the development of new products or
significant improvements to existing products amounted to $1,308, $1,369 and
$319 in 1998, 1997 and 1996, respectively.
FUTURE ACCOUNTING CHANGES - The Financial Accounting Standards Board (FASB) has
SFAS No. 133 "Accounting for Derivative Instruments and Hedging Activities"
which is effective for periods beginning after June 15, 1999. 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.
NOTE 3 - RECAPITALIZATION TRANSACTION
The Recapitalization was effectuated pursuant to the January 28, 1998
Recapitalization Agreement among MHE Investments, HarnCo and certain of HII's
affiliates. Pursuant to this agreement, HarnCo and other HII affiliates
effected a number of transactions which resulted in Holdings owning, directly
or indirectly, the equity interests of all of the operating entities engaged
in the MHE Business. Holdings in turn formed MMH as a wholly owned subsidiary
to directly or indirectly hold the various operating entities engaged in the
MHE Business.
The principal transactions effected as part of the Recapitalization were the
following: (i) MHE Investments acquired (x) 7,907 shares of Holdings' common
stock for $25.1 million and (y) $28.9 million liquidation preference of
Holdings' 12 1/2% Series C Junior Voting Exchangeable Preferred Stock (the
"Series C Junior Voting Preferred Stock") from HarnCo, (ii) Holdings redeemed
certain shares of its common stock and Series C Junior Voting Preferred Stock
held by HarnCo for $287 million in cash (including a $5 million prepayment of a
potential post-closing redemption price adjustment) and approximately $4.8
million liquidation preference of Holdings' 12 1/4% Series B Junior Exchangeable
Preferred Stock (the "Series B Junior Preferred Stock"); and (iii) HarnCo
retained 2,261 shares of Holdings' common stock.
To finance the Recapitalization, Holdings sold $60 million of Series A Units,
consisting of $57.7 million liquidation preference of Holdings' 12% Series A
Senior Exchangeable Preferred Stock (the "Series A Senior Preferred Stock") and
$2.3 million of Holdings' non-voting common stock, to institutional investors.
In addition, MMH issued $200 million of aggregate principal amount of its 9 1/2%
Senior Notes due 2008 (the "Note Offering") and entered into a senior secured
credit facility (the "New Credit Facility") (See Notes 7 and 8). 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.
As a result of the Recapitalization, MHE Investments owns approximately 72.6% of
the common stock of Holdings and $28.9 million liquidation preference of the
Series C Junior Voting Preferred Stock and HarnCo owns approximately 20.8% of
the common stock of Holdings and $4.8 million liquidation preference of the
Series B Junior Preferred Stock. The remaining
37
<PAGE>
equity interests are held by institutional investors and consist of non-voting
stock representing approximately 6.6% of the outstanding common stock of
Holdings and $57.7 million liquidation preference of the Series A Senior
Preferred Stock.
NOTE 4 - ACQUISITIONS
During 1998, 1997 and 1996, the Company completed several acquisitions for an
aggregate purchase price of $8,891, $11,787 and $15,272, respectively, net of
cash acquired. These acquisitions were primarily 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, $8,343 in 1998, is being amortized over
30 to 40 years. One of the 1998 acquisitions was partially financed by the
seller, resulting in a deferred purchase price which will be paid in annual
installments through 2006. With respect to a 1995 acquisition, the Company was
required to make contingent consideration payments of $312, $691 and $632
related to 1998, 1997 and 1996, respectively. On a pro forma basis, such
acquisitions were not material to results of operations reported for the
applicable fiscal years and accordingly, such information is not presented.
NOTE 5 - ACCOUNTS RECEIVABLE
Accounts receivable at October 31 consisted of the following:
<TABLE>
<CAPTION>
1998 1997
-----------------------------------
<S> <C> <C>
Trade receivables $78,142 $77,356
Unbilled receivables 5,411 6,183
Allowance for doubtful accounts (1,606) (1,330)
-----------------------------------
$81,947 $82,209
-----------------------------------
-----------------------------------
</TABLE>
The amount of accounts receivable due beyond one year is not significant.
NOTE 6 - INVENTORIES
Inventories at October 31 consisted of the following:
<TABLE>
<CAPTION>
1998 1997
-----------------------------------
<S> <C> <C>
Raw material $ 14,517 $17,391
Work-in-process 20,545 13,654
Finished parts 14,910 10,704
-----------------------------------
49,972 41,749
Less excess of current cost over
stated LIFO value (7,411) (8,252)
-----------------------------------
$42,561 $33,497
-----------------------------------
-----------------------------------
</TABLE>
Inventories valued using the LIFO method represented approximately 38% and 43%
of inventories at October 31, 1998 and 1997, respectively. During 1998 and 1997,
inventory quantities were reduced, resulting in a liquidation of LIFO inventory
quantities carried at lower costs prevailing in prior years as compared with the
cost of 1998 and 1997 purchases. The effect of these liquidations decreased cost
of sales by $2,079 and $1,998 in 1998 and 1997, respectively. There was no
liquidation of LIFO inventory quantities in 1996.
NOTE 7 - INDEBTEDNESS
On March 30, 1998, MMH issued $200 million aggregate principal amount of 9.5%
Senior Notes due April 1, 2008 (the "Senior Notes") in connection with the
Recapitalization as discussed in Note 3. Interest on the Senior Notes is payable
semi-annually on each April 1 and October 1, commencing October 1, 1998. The
Senior Notes will be redeemable at the option of MMH, in whole or in part, at
any time on or after April 1, 2003, at the appropriate redemption price, plus
accrued and unpaid
38
<PAGE>
interest thereon to the redemption date. In addition, MMH may redeem in the
aggregate up to 35% of the original principal amount of the Senior Notes at any
time and from time to time prior to April 1, 2001 at a redemption price equal to
109.5% of the aggregate principal amount thereof, plus accrued and unpaid
interest thereon to the redemption date, subject to certain provisions. The
Senior Notes are senior unsecured obligations and are unconditionally
guaranteed, jointly and severally, on a senior unsecured basis by substantially
all of MMH's subsidiaries. See further discussion in Note 17.
At the Recapitalization Closing, MMH entered into the New Credit Facility which
consists of a $70 million revolving credit facility (the "Revolving Credit
Facility"), a $30 million acquisition facility (the "Acquisition Facility"), a
$20 million term loan ("Term Loan A") and a $35 million term loan ("Term Loan
B").
The Revolving Credit Facility permits, subject to compliance with certain
conditions, MMH to borrow, repay and reborrow up to $70 million (of which $15
million is reserved under the indenture governing the Notes (the "Note
Indenture") for issuance of letters of credit) at any time until the fifth
anniversary of the Recapitalization Closing, the proceeds of which may be used
for working capital and other corporate purposes. At October 31, 1998, the
Company had $1.2 million of borrowings outstanding under the Revolving Credit
Facility. The Acquisition Facility, the proceeds of which may be used for
acquisitions, permits, subject to compliance with certain conditions, MMH to
borrow up to $30 million at any time until the third anniversary of the
Recapitalization Closing, and to repay the same in installments on or prior to
the seventh anniversary of the Recapitalization Closing. Term Loan A and Term
Loan B are repayable in 20 and 28 quarterly installments, respectively, which
commenced in June 1998.
Beginning in fiscal 1998, the Company is required to make mandatory prepayments
to reduce outstanding loans or commitments, as applicable, under the New Credit
Facility, equal to 75% of the Company's excess cash flow, as defined; provided
that such amount shall be 50% in fiscal 1999 and may be reduced further in
fiscal 1999 and future periods under certain circumstances set forth in the
agreement.
The commitment of the participating lending institutions to make additional
loans under the Revolving Credit Facility and Acquisition Facility is subject to
certain conditions, including that nothing shall have occurred or become known
which the participating lending institutions shall have determined could be
reasonably expected to have a material adverse effect, as defined, on the
Company.
The New Credit Facility provides that the Company is to pay certain fees and
commissions to the agents and lenders, including an annual administrative fee, a
Revolving Credit Facility and Acquisition Facility unused commitment fee of 0.5%
and a letter of credit fee of 2.375% of the average outstanding amounts under
letters of credit.
Borrowings under the New Credit Facility are secured by certain of MMH's and its
subsidiaries' assets, including substantially all of their assets located in the
United States and the United Kingdom, and are guaranteed by Holdings and
substantially all of MMH's subsidiaries.
Borrowings under the New Credit Facility bear interest at various interest rates
based on certain floating reference rates (the "Floating Rate"). To limit the
effect of increases in the interest rates under the New Credit Facility, the
Company has entered into an interest rate swap arrangement. The effect of this
agreement, which expires on March 31, 2001, is to limit the interest rate
exposure on specified amounts up to the $55.0 million borrowed under the New
Credit Facility to a fixed LIBOR rate of 5.875% (the "Fixed Rate") plus 2.25% or
2.75%, as applicable. As a result, the interest rates applicable to Term Loan A
and Term Loan B at October 31, 1998 have been fixed at 8.125% and 8.625%,
respectively. The differential between the Floating Rate and the Fixed Rate is
accrued as interest rates change and is recorded as an adjustment of interest
expense. The fair value of the interest rate swap is the amount which the
Company would receive or pay to terminate the instrument at the reporting date.
The Company would have paid approximately $1,320 to terminate the swap at
October 31, 1998.
The New Credit Facility and 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 tests, 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,
39
<PAGE>
together with accrued interest thereon, to be due and payable which would also
result in an event of default under the Surety Arrangement.
The New Credit Facility contains financial ratio covenants and borrowing
condition tests based on quarterly and latest twelve month results of operations
of the Company. The Company may not meet certain of such ratios and tests for
the period ended January 30, 1999, the results of operations for which are not
yet available. In the event such tests and ratios are not met, in the absence of
a waiver or amendment of the New Credit Facility, the Company would not be able
to borrow under the Revolving Credit Facility or the Acquisition Facility and
could experience significant liquidity problems. In addition, in the absence of
a waiver or amendment, the Company would be in default under the New Credit
Facility. The Company believes, however, that if it is not in compliance with
such financial ratios and borrowing tests as of January 30, 1999, waivers and/or
amendments to the New Credit Facility could be obtained promptly which will
permit the Company to borrow under the Revolving Credit Facility to meet its
working capital requirements.
Long-term obligations at October 31 consisted of the following:
<TABLE>
<CAPTION>
1998 1997
----------------- -----------------
<S> <C> <C>
Senior notes, at 9.5% due April 1, 2008 $ 200,000 $ -
Bank term loan (Term Loan A), at LIBOR plus 2.25% (7.5625% at
October 31, 1998) due in quarterly installments through March
2003 19,500 -
Bank term loan (Term Loan B), at LIBOR plus 2.75% (8.0625% at
October 31, 1998) due in quarterly installments through March
2005 34,825 -
Bank acquisition loan (Draw 1), at LIBOR plus 2.75% (8.46875% at
October 31, 1998) due in eight quarterly installments beginning
June 2003 through March 2005 4,762 -
Bank acquisition loan (Draw 2), at LIBOR plus 2.75% (8.3125% at
October 31, 1998) due in eight quarterly installments beginning
June 2003 through March 2005 1,432 -
Bank revolving credit loan, at LIBOR plus 2.25% (7.5625% at
October 31, 1998) due March 2003 1,200 -
Deferred payments for purchases of companies, due in annual
installments through 2006 1,123 -
Long-term capital leases with various expiration dates 198 -
Bank debt, at 7.5% due in annual installments through March
2010 696 748
Industrial revenue bonds, at 5.75% due in annual installments
through June 2007 350 380
----------------- -----------------
264,086 1,128
Less current portion 2,262 85
----------------- -----------------
$261,824 $1,043
----------------- -----------------
----------------- -----------------
</TABLE>
Installments payable related to the Company's long-term obligations are as
follows:
<TABLE>
<CAPTION>
MMH Subsidiaries Total
----------------- ----------------- -----------------
<S> <C> <C> <C>
1999 $ 2,100 $ 162 $ 2,262
2000 3,600 222 3,822
2001 5,423 238 5,661
2002 6,600 184 6,784
2003 14,736 193 14,929
Thereafter 229,583 1,045 230,628
----------------- ----------------- -----------------
$262,042 $ 2,044 $264,086
----------------- ----------------- -----------------
----------------- ----------------- -----------------
</TABLE>
40
<PAGE>
At October 31, 1998 and 1997, short-term bank credit lines of foreign
subsidiaries were $0 and approximately $2,828, respectively. The outstanding
borrowings were $0 and $667 at October 31, 1998 and 1997, respectively. The
weighted average interest rate was 5.25% at October 31, 1997.
NOTE 8 - MANDITORILY REDEEMABLE PREFERRED STOCK AND SHAREHOLDERS' EQUITY
Manditorily redeemable preferred stock at October 31, 1998 consisted of the
following:
<TABLE>
<CAPTION>
Carrying Value
--------------
<S> <C>
12% Series A senior exchangeable
preferred stock, stated value $1,000
per share, par value $.01 per share,
120,000 shares authorized, 61,188
shares issued and outstanding $ 59,217
12 1/4% Series B junior exchangeable
preferred stock, stated value $1,000
per share, par value $.01 per share,
10,000 shares authorized, 5,105 shares
issued and outstanding 5,156
12 1/2% Series C junior voting
exchangeable preferred stock, stated
value $1,000 per share, par value $.01
per share, 60,000 shares authorized,
30,678 shares issued and outstanding 30,978
--------------
$ 95,351
--------------
--------------
</TABLE>
SERIES A SENIOR PREFERRED STOCK
The Series A Senior Preferred Stock is nonvoting and ranks senior to all classes
of common stock and to each other series of preferred stock. The Series A Senior
Preferred Stock shareholders are entitled to receive cumulative dividends at an
annual rate of 12% of the liquidation preference value, payable semi-annually in
arrears. Dividends may be paid, at Holdings' option, on any dividend date prior
to April 1, 2003, either in cash or additional shares of Series A Senior
Preferred Stock. Cash will be paid in lieu of fractional shares. After April 1,
2003, dividends will be payable in cash.
On or after April 1, 2003, the Series A Senior Preferred Stock may be redeemed,
in whole or in part, at the option of Holdings at the following redemption
prices, plus an amount in cash equal to all accumulated and unpaid dividends:
<TABLE>
<CAPTION>
Year Beginning April 1, Percentage
- ----------------------- ----------
<S> <C>
2003 106.000%
2004 104.000%
2005 102.000%
2006 and thereafter 100.000%
</TABLE>
Notwithstanding the foregoing, Holdings may redeem in the aggregate all, but not
less than all, of the Series A Senior Preferred Stock then outstanding, at any
time prior to April 1, 2001, at a redemption price equal to 112.000% of the then
effective liquidation preference thereof, plus an amount in cash equal to all
accumulated and unpaid dividends out of the net proceeds of a public offering of
shares of common stock, provided that redemption occurs within 90 days following
the closing of any such public offering. On April 1, 2009, the Series A Senior
Preferred Stock will be subject to mandatory redemption at a price equal to 100%
of the liquidation preference thereof, plus all accumulated and unpaid dividends
to the date of redemption, payable in cash. Dividends in kind declared and
accumulated were $3,463 and $4,075, respectively, at October 31, 1998.
41
<PAGE>
Subject to certain conditions, the Series A Senior Preferred Stock will be
exchangeable, in whole but not in part, at the option of Holdings, on any
dividend payment date, for Holdings' 12% Exchange Debentures due 2009 (the
"Exchange Debentures"). Interest on the Exchange Debentures will be payable at a
rate of 12% per annum and will accrue from the date of issuance thereof.
Interest on the Exchange Debentures will be payable semi-annually in cash or, at
the option of Holdings, on or prior to April 1, 2003, in additional Exchange
Debentures, in arrears on each April 1 and October 1, commencing on the first
such date after the exchange of the Series A Senior Preferred Stock for Exchange
Debentures. The Exchange Debentures mature on April 1, 2009. The Exchange
Debentures will be redeemable, at the option of Holdings, in whole or in part,
on or after April 1, 2003, at applicable redemption prices, plus accrued and
unpaid interest to the date of redemption.
SERIES B JUNIOR PREFERRED STOCK
The Series B Junior Preferred Stock was issued to HarnCo in connection with the
Recapitalization. The Series B Junior Preferred Stock is generally nonvoting and
ranks junior to the Series A Senior Preferred Stock and senior to the Series C
Junior Voting Preferred Stock discussed below as well as any class of common
stock. Dividends on the Series B Junior Preferred Stock are cumulative from
March 30, 1998, at an annual rate of 12 1/4%, to be paid semi-annually in
arrears on each April 1 and October 1, commencing October 1, 1998. Prior to
April 1, 2003, dividends are payable, at Holdings' option, either in cash or in
additional shares of Series B Junior Preferred Stock. After that date, dividends
will be payable in cash.
On or after April 1, 2003, the Series B Junior Preferred Stock may be redeemed,
in whole or in part, at the option of Holdings at the applicable redemption
price together with an amount in cash equal to all accumulated and unpaid
dividends. In addition, Holdings, at its option, may redeem all, but not less
than all, of the Series B Junior Preferred Stock then outstanding, at any time
prior to April 1, 2001, at a redemption price equal to 112.250% of the then
effective liquidation preference thereof, plus an amount in cash equal to all
accumulated and unpaid dividends out of the net proceeds of a public offering of
shares of common stock, provided that redemption occurs within 90 days following
the closing of any such public offering. On April 1, 2010, Holdings will be
required to redeem in cash all of the Series B Junior Preferred Stock
outstanding at a redemption price equal to 100% of the liquidation preference
thereof, plus all accumulated and unpaid dividends to the date of redemption.
Dividends in kind declared and accumulated were $295 and $347, respectively, at
October 31, 1998.
Subject to certain conditions, the outstanding shares of Series B Junior
Preferred Stock are exchangeable, in whole but not in part, at the option of
Holdings, at any time on any dividend payment date for Holdings' 12 1/4%
Exchange Debentures due 2010.
SERIES C JUNIOR VOTING PREFERRED STOCK
The Series C Junior Voting Preferred Stock was acquired by MHE Investments in
connection with the Recapitalization. Each share of Series C Junior Voting
Preferred Stock has voting rights of 0.314 votes per share. The Series C Junior
Voting Preferred Stock ranks junior to the Series A Senior Preferred Stock and
Series B Junior Preferred Stock and senior to any class of common stock.
Dividends on the Series C Junior Voting Preferred Stock are cumulative from
March 30, 1998, at an annual rate of 12 1/2%, to be paid semi-annually in
arrears on each April 1 and October 1, commencing October 1, 1998. Prior to
April 1, 2003, dividends are payable, at Holdings' option, either in cash or in
additional shares of Series C Junior Voting Preferred Stock. Thereafter,
dividends will be payable in cash.
On or after April 1, 2003, the Series C Junior Voting Preferred Stock may be
redeemed, in whole or in part, at the option of Holdings at the applicable
redemption price together with an amount in cash equal to all accumulated and
unpaid dividends. In addition, Holdings, at its option, may redeem all, but not
less than all, of the Series C Junior Voting Preferred Stock then outstanding,
at any time prior to April 1, 2001, at a redemption price equal to 112.500% of
the then effective liquidation preference thereof, plus an amount in cash equal
to all accumulated and unpaid dividends out of the net proceeds of a public
offering of shares of common stock, provided that redemption occurs within 90
days following the closing of any such public offering. On April 1, 2010,
Holdings will be required to redeem in cash all of the Series C Junior Voting
Preferred Stock outstanding at a redemption price equal to 100% of the
liquidation preference thereof, plus all accumulated and unpaid dividends to the
date of redemption. Dividends in kind declared and accumulated were $1,803 and
$2,123, respectively, at October 31, 1998.
Subject to certain conditions, the outstanding shares of Series C Junior Voting
Preferred Stock are exchangeable, in whole but not in part, at the option of
Holdings at any time on any dividend payment date for Holdings' 12 1/2 %
Exchange Debentures due 2010.
42
<PAGE>
COMMON STOCK
Common stock consisted of the following at October 31, 1998:
<TABLE>
<CAPTION>
Par Value
---------
<S> <C>
MMH Holdings, Inc.:
Nonvoting common stock, $.01 par
value, 100,000 shares authorized, 720
shares issued and outstanding $ -
Voting common stock, $.01 par value,
900,000 shares authorized, 10,169 shares
issued and outstanding -
Morris Material Handling, Inc.
Common stock, $.01 par value, 1,000 shares
authorized, 100 shares issued and outstanding -
</TABLE>
MMH Holdings, Inc. holds all of the outstanding common stock of Morris Material
Handling, Inc.
NOTE 9 - INCOME TAXES
The components of income of the Company's domestic and foreign operations for
the years ended October 31 were as follows:
<TABLE>
<CAPTION>
1998 1997 1996
----------------- ----------------- -----------------
<S> <C> <C> <C>
Domestic $ 8,774 $28,097 $23,381
Foreign (75) 6,648 6,553
----------------- ----------------- -----------------
$ 8,699 $34,745 $29,934
----------------- ----------------- -----------------
----------------- ----------------- -----------------
</TABLE>
The provision for income taxes included in the Statements of Income and
Comprehensive Income for the years ended October 31 consisted of the following:
<TABLE>
<CAPTION>
1998 1997 1996
----------------- ----------------- -----------------
<S> <C> <C> <C>
Current provision
Federal and state $ 1,883 $11,028 $9,094
Foreign 2,225 2,757 1,047
----------------- ----------------- -----------------
Total current 4,108 13,785 10,141
----------------- ----------------- -----------------
Deferred provision
Federal and state 1,804 (137) (91)
Foreign (1,477) 226 1,438
----------------- ----------------- -----------------
Total deferred 327 89 1,347
----------------- ----------------- -----------------
Provision for income taxes $4,435 $13,874 $11,488
----------------- ----------------- -----------------
----------------- ----------------- -----------------
</TABLE>
43
<PAGE>
The difference between the U.S. federal statutory tax rate and the effective tax
rate for the years ended October 31 are as follows:
<TABLE>
<CAPTION>
1998 1997 1996
----------------- ----------------- -----------------
<S> <C> <C> <C>
Federal statutory rate 34.0% 35.0% 35.0%
Divestiture bonuses 4.7 - -
Foreign taxes, net of
federal benefit 3.2 1.9 0.8
State taxes, net of
federal benefit 1.9 3.0 3.0
Valuation allowance adjustment 7.6 - -
Other - net (0.5) - (0.4)
----------------- ----------------- -----------------
50.9% 39.9% 38.4%
----------------- ----------------- -----------------
----------------- ----------------- -----------------
</TABLE>
Foreign income taxes paid were $1,209, $322 and $1,252 in 1998, 1997 and 1996,
respectively.
Temporary differences and carryforwards which gave rise to deferred tax assets
and liabilities at October 31 were as follows:
<TABLE>
<CAPTION>
1998 1997
----------------- -----------------
<S> <C> <C>
Deferred tax assets
Accrued expenses and reserves $ 4,614 $ 2,766
Inventories 3,980 -
Fixed assets 6,068 -
Intangibles 76,828 -
Other 1,334 -
----------------- -----------------
92,824 2,766
Valuation allowance (21,369) -
----------------- -----------------
71,455 2,766
----------------- -----------------
Deferred tax liabilities
Fixed asset and intangibles - (1,897)
Other (562) (54)
Prepaid pension asset (1,335) (1,191)
----------------- -----------------
(1,897) (3,142)
----------------- -----------------
Net deferred tax asset (liability) $ 69,558 $ (376)
----------------- -----------------
----------------- -----------------
</TABLE>
The deferred income tax accounts reflect the impact of temporary differences
between the basis of assets and liabilities for financial reporting purposes and
their related basis as measured by income tax regulations. For income tax
purposes, Holdings and MMH were deemed to have acquired the assets of the MHE
Business pursuant to Internal Revenue Code Section 338(h)(10). Accordingly, this
transaction increased the tax basis of certain assets and created tax-deductible
goodwill, and resulted in significant book/tax basis differences. Substantially
all of the additional deferred taxes recorded resulted from this goodwill
created for tax purposes. A valuation allowance was recorded to reflect the
estimated amount of deferred tax assets which may not be realized due primarily
to the possible limitation on the future use of foreign tax credits. The
resulting net adjustment to deferred income taxes of approximately $71 million
has been recorded as an adjustment to shareholders' equity.
As a result of the Section 338(h)(10) election made in connection with the
Recapitalization, all historical earnings and profits were taxed. Accordingly,
any dividends remitted from pre-closing retained earnings of the Company's
foreign subsidiaries would be treated as previously-taxed and subject only to
local withholding taxes, for which the Company may claim a foreign tax credit.
At October 31, 1998, the Company's Mexican affiliate has a net operating loss
carryforward approximating $2.0 million which expires in 2004 and 2005. A
valuation allowance has been recorded against this carryforward for which
utilization is uncertain. The amount of the valuation allowance recorded against
such net operating loss carryforwards which if subsequently recognized would
reduce long-lived assets of the acquired entity approximates $0.2 million.
44
<PAGE>
This net deferred tax asset (liability) is included in the Balance Sheets at
October 31 in the following captions:
<TABLE>
<CAPTION>
1998 1997
----------------- -----------------
<S> <C> <C>
Other current assets $ 6,277 $2,712
Other assets 65,979 -
Noncurrent liabilities (2,698) (3,088)
----------------- -----------------
$69,558 $ (376)
----------------- -----------------
----------------- -----------------
</TABLE>
NOTE 10 - COMMITMENTS AND CONTINGENCIES
To secure the performance of sales contracts related to MMH operations, MMH was
contingently liable to financial institutions and others for the following at
October 31, 1998: (i) $2.2 million of outstanding letters of credit and surety
bonds under the New Credit Facility, (ii) $3.5 million under a surety
arrangement for outstanding surety bonds and (iii) $3.4 million of surety bonds
with other institutions. Prior to the Recapitalization Closing, HII and its
affiliates ("HII Group") provided credit support for the MHE Business. As part
of the Recapitalization, HII agreed to maintain in place credit support
(including letters of credit and surety bonds) in existence at the
Recapitalization Closing and the Company agreed to reimburse HII for any
payments made by the HII Group with respect to such credit support. At October
31, 1998, approximately $33.3 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 to a number of asbestos related
lawsuits and will likely be named in future such actions. Most suits involve
multiple defendants including asbestos manufacturers. MMH has agreed to
indemnify HarnCo and its affiliates with respect to any liabilities in excess of
insurance arising in connection with past and future asbestos litigation
relating to the MHE Business. HII's insurance program included coverage for
asbestos related claim activity through 1986, when coverage for asbestos related
claims ceased to be available. HII's insurer has provided first dollar coverage
for policy periods through 1976. During the 1977 to 1985 policy periods, HII had
a variety of policies, with retention levels ranging from $100,000 to $15.0
million and total coverage limits ranging from $12.5 million to $50.0 million.
To date, HII's insurer has paid all 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.
In October 1998, the Company received a request to arbitrate a claim from a
former customer which arises 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. The Company is continuing to work with its insurance broker to
determine the availability of 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. Given the
recent nature of this claim, it is not possible to reasonably estimate the range
of any potential loss in the event that insurance coverage is not available.
Management intends to vigorously defend this matter.
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
45
<PAGE>
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.
NOTE 11 - EMPLOYEE BENEFIT PLANS
HII PLANS
Prior to the Recapitalization, the Company was a participant in HII and
affiliates' domestic defined benefit pension plans. Benefits from these plans
were based on factors which included various combinations of service, employee
compensation during the last years of employment and the recipient's social
security benefit. Pension expense was allocated annually based upon headcount.
The Company's pension expense for these domestic defined benefit plans was $584,
$1,275 and $1,169 in 1998, 1997 and 1996, respectively.
The Company was also a participant in HII's qualified profit sharing plan which
covered substantially all domestic employees, except employees covered by
collective bargaining agreements and employees of affiliates with separate
defined contribution plans. Contributions to this plan were based on the
Company's "economic value added" performance. The Company's profit sharing
expense for this plan and other defined contribution plans was $1,584 and $1,226
in 1997 and 1996, respectively.
MMH PLANS
Effective April 1, 1998, the Company established a retirement savings plan under
Section 401(k) of the Internal Revenue Code (the "Plan"). The Plan covers all
non-bargaining unit employees in the United States from their first day of
service. Employees can contribute from 1% to 10% of their eligible pre-tax pay.
The Company matches 100% of contributions up to 3% of an employee's eligible pay
and 50% of the next 2% of an employee's eligible pay. Also, once an employee
turns 35, the Company contributes an additional percentage of the employee's pay
based on his/her age. In addition, the Company makes a special contribution for
long-service and older employees who were participants in the former HII pension
plan in order to make up for future years of non-participation in that plan. If
an employee's age plus years of service add up to 65 or more, the Company
contributes an additional percentage of the employee's pay to the Plan. All
Company contributions are 100% vested upon contribution. An employee must be
active on December 31 of the Plan year in order to qualify for annual Company
contributions. The Company recognized expense of $890 during 1998 related to the
Plan.
The Company also continued the HII profit sharing plan as a component of its new
retirement savings plan. The profit sharing plan covers substantially all
domestic employees, except employees covered by collective bargaining agreements
and employees of affiliates with separate defined contribution plans.
Contributions to this plan in 1998 were based on the Company's "economic value
added" performance. Effective November 1, 1998, contributions will be based on
earnings of the Company before interest and taxes. The Company's profit sharing
expense for this plan was $137 in 1998.
In connection with the Recapitalization, the Company committed to establish a
new equity incentive plan to attract and retain key personnel, including senior
management, and to enhance their interest in the Company's continued success.
Holdings reserved 1,186.0849 shares of Holdings nonvoting common stock and
4,328.25 shares of Holdings Series C Junior Voting Preferred Stock with a value
of $8.1 million on March 30, 1998 for this plan (such shares to be denominated
in 8,100 units consisting of 0.1464 shares of Holdings nonvoting common stock
and 0.5344 shares of Holdings Series C Junior Voting Preferred Stock (the
"Equity Units")). The Company has commited to make an initial option grant to
each member of the Company's senior management on March 30, 1998 under such
executive's employment agreement. The Company is in the process of establishing
the vesting terms for such Equity Units.
Pension expense, as determined by the Company's actuaries, for its employee
benefit plan in the United Kingdom for the three years ended October 31 included
the components shown below. Pension expense for the Company's other foreign
employee benefit plans is not significant.
<TABLE>
<CAPTION>
1998 1997 1996
----------------- ----------------- -----------------
<S> <C> <C> <C>
Service cost - benefits earned during the year $ 894 $ 782 $ 627
Interest cost on projected benefit obligation 1,665 1,359 1,102
Actual gain on plan assets (2,180) (2,988) (1,241)
Net amortization and deferral 153 1,186 (259)
----------------- ----------------- -----------------
$ 532 $ 339 $ 229
----------------- ----------------- -----------------
----------------- ----------------- -----------------
</TABLE>
46
<PAGE>
The discount rate used for this foreign plan was 6.0%, 7.5% and 9.0% in 1998,
1997 and 1996. The assumed rate of increase in future compensation of employees
was 4.0%, 4.5% and 6.0% in 1998, 1997 and 1996. The expected long-term rate of
return on assets was 8.5%, 10.25% and 10.0% in 1998, 1997 and 1996.
The following table sets forth the funded status of the United Kingdom plan at
October 31:
<TABLE>
<CAPTION>
1998 1997
----------------- -----------------
<S> <C> <C>
Actuarial present value of:
Vested benefits $23,606 $19,268
----------------- -----------------
Accumulated benefits 23,606 19,268
----------------- -----------------
Projected benefits 27,739 20,665
Net assets available for benefits 23,851 21,101
----------------- -----------------
Plan assets (less) greater than projected benefits (3,888) 436
Unrecognized net loss 8,195 3,332
----------------- -----------------
Prepaid pension asset $ 4,307 $3,768
----------------- -----------------
----------------- -----------------
</TABLE>
POSTRETIREMENT BENEFITS OTHER THAN PENSIONS
HII generally provided certain health care and life insurance benefits under
various plans for U.S. employees who retired after attaining early retirement
eligibility, subject to plan amendments. In 1993, the HII Board of Directors
approved a general approach that would culminate in the elimination of
contributions towards postretirement health care benefits. Increases in costs
were capped for certain plans beginning in 1994 extending through 1998 and
contributions were eliminated on September 1, 1998 for most employee groups. As
such, negative plan amendments made subsequent to November 1, 1993 were
amortized from the date of the amendment to September 1, 1998. Postretirement
benefit income was allocated each year based upon headcount. The Company's
postretirement benefit income was $684 for the five months ended March 30, 1998
and $1,658 and $1,126 during 1997 and 1996, respectively. Following the
Recapitalization, the Company has no liability to previously retired employees
for such benefits.
As of October 31, 1998, the Company offers no postretirement health care or life
insurance benefits.
NOTE 12 - OPERATING LEASES
The Company leases certain plant, office and warehouse space as well as
machinery, vehicles, data processing and other equipment. Certain of these
leases have renewal options at reduced rates and provisions requiring the
Company to pay maintenance, property taxes and insurance. Generally, all rental
payments are fixed.
Total rental expense under operating leases, excluding maintenance, taxes and
insurance, was $4,465, $4,369 and $3,328 in 1998, 1997 and 1996, respectively.
At October 31, 1998, the future payments for all operating leases with remaining
lease terms in excess of one year, and excluding maintenance, taxes and
insurance, were as follows:
<TABLE>
<S> <C>
1999 $4,850
2000 3,710
2001 2,117
2002 748
2003 573
</TABLE>
47
<PAGE>
NOTE 13 - GEOGRAPHICAL INFORMATION
<TABLE>
<CAPTION>
Sales to Operating
Total Interarea Unaffiliated Income Identifiable
Net Sales Sales Customers (Loss) Assets
---------------- ------------ ----------------- ------------- ----------------
<S> <C> <C> <C> <C> <C>
1998
United States $ 202,639 $ - $ 202,639 $ 22,275 $ 205,226
Europe 67,121 (8,318) 58,803 (547) 59,114
Other Foreign 56,415 - 56,415 4,946 46,657
Interarea Eliminations (8,318) 8,318 - -
---------------- ------------ ----------------- ------------- ----------------
$ 317,857 $ - $ 317,857 $ 26,674 $ 310,997
---------------- ------------ ----------------- ------------- ----------------
---------------- ------------ ----------------- ------------- ----------------
1997
United States $ 205,815 $ - $ 205,815 $ 26,585 $ 101,159
Europe 99,593 (4,667) 94,926 6,662 62,159
Other Foreign 52,609 - 52,609 2,290 36,282
Interarea Eliminations (4,667) 4,667 - - -
---------------- ------------ ----------------- ------------- ----------------
$ 353,350 $ - $ 353,350 $ 35,537 $ 199,600
---------------- ------------ ----------------- ------------- ----------------
---------------- ------------ ----------------- ------------- ----------------
1996
United States $ 206,896 $ - $ 206,896 $ 21,978 $ 96,803
Europe 79,280 (3,619) 75,661 5,247 59,766
Other Foreign 41,178 - 41,178 2,791 32,489
Interarea Eliminations (3,619) 3,619 - - -
---------------- ------------ ----------------- ------------- ----------------
$ 323,735 $ - $ 323,735 $ 30,016 $ 189,058
---------------- ------------ ----------------- ------------- ----------------
---------------- ------------ ----------------- ------------- ----------------
</TABLE>
NOTE 14 - RELATED PARTY TRANSACTIONS
HII AND AFFILIATES
Previously (and until the Recapitalization Closing), HII and/or HarnCo performed
centrally a number of functions necessary for the operations of the Company.
Under a management services arrangement with HII, the Company was provided with
certain services, including, but not limited to, matters of organization and
administration, cash management, labor relations, employee benefits, public
relations, financial policies and practices, taxation and legal affairs
(intellectual property, environmental, labor, securities and ERISA compliance,
as well as assistance with product liability cases). The annual fee charged the
Company for these services was based upon a pro rata share of corporate
administration costs using an allocation methodology based on consolidated
worldwide sales. Such fees totaled $1,155, $2,862 and $2,341 in 1998, 1997 and
1996, respectively.
Interest income/(expense) on receivables/(payables) with HII affiliates was
charged by/(to) the Company using interest rates tied to LIBOR, the 13-week
treasury bill rate or prime rate.
Throughout 1998, the Company sold certain products and services to HII
affiliates at negotiated rates and performed certain administrative functions
for HarnCo in Mexico. Sales to HII affiliates amounted to $3.2 million, $4.9
million and $0.9 million in fiscal 1998, 1997 and 1996, respectively.
In a number of instances, HII and/or HarnCo provided contracting credit support
in connection with the Company's business. Certain customers for large crane
supply contracts require the supplier to provide contracting credit support
and/or parent guarantees of performance. See Note 10. At October 31, 1998,
HarnCo continues to be shown as the guarantor on the Birmingham, Alabama
facility lease with the Industrial Revenue Board of Birmingham.
48
<PAGE>
As of October 31, 1998, the Company has accounts payable due to HII and
affiliates of $0.7 million. Additionally, the Company has accounts receivable
from HII and affiliates of $0.8 million.
TRANSITION SERVICES AGREEMENT - On March 30, 1998, the Company entered into a
Transition Services Agreement with HarnCo pursuant to which HarnCo and/or its
affiliates provide the Company and the Company's subsidiaries located in the
United States certain specified transition services for a set monthly price per
service, plus cost sharing in certain instances, for periods ranging up to three
years. These services had been provided historically, and for all of fiscal
1998, but were not covered by a written agreement until the date of the
Recapitalization. These services include financial support (including payroll,
accounts payable and some accounting), MIS support (including mainframe
applications, PC support, engineering applications, maintenance, shared products
and telephone system support), human resources support (including assistance in
union negotiations, processing support for workers' compensation claims,
screening and hiring of hourly employees and benefits administration), shared
space, warehouse services for repair parts at one of HarnCo's facilities until
July 1998, order processing, office space and lobby services at HarnCo's
offices, employee communications, use of corporate aircraft owned by HarnCo or
its affiliates, and all traffic functions and transportation of materials
between Milwaukee area operations. The Company was charged $5.0 million for such
services in fiscal 1998. These arrangements for shared facilities and services,
which are consistent with those which existed prior to the Recapitalization,
include the following:
1. The Company and an HII affiliate share a parts warehouse for which the
Company was charged approximately $976, $1,400 and $1,272 in 1998, 1997 and
1996, respectively.
2. An HII affiliate provides support to the Company for accounting, credit,
traffic and human resource services and charged approximately $335, $756
and $784 to the Company in 1998, 1997 and 1996, respectively. In addition,
the Company leases office space from this affiliate at a cost of
approximately $120 per year for 1998, 1997 and 1996.
3. HarnCo provided certain products and services to the Company which
management estimates amounted to approximately $12.4 million in fiscal 1998
and $10.0 million in fiscal 1997 and 1996, respectively. HarnCo
manufactured electric motors, fabricated larger steel girders and did
machining on certain cranes for the Company at cost or at cost plus a
percentage. In addition, HII affiliates have acted as motor rewind
subcontractors for the Company. It is contemplated that these transactions,
none of which individually or in the aggregate are significant to the
Company, will continue in the future.
4. An HII affiliate provides information systems services to the Company and
charged approximately $3,610, $1,861 and $1,022 to the Company in 1998,
1997 and 1996, respectively.
Prior to the Recapitalization, the above-noted charges were negotiated by the
Company on an annual basis with HII or other affiliates. The Company considers
such costs, in the aggregate, to reflect arms-length terms and believes that in
the aggregate these products and services can be obtained on comparable terms
from third parties.
COMPONENT AND MANUFACTURED PRODUCTS SUPPLY AGREEMENT - At the Recapitalization
Closing, the Company entered into a two year agreement with HarnCo pursuant to
which HarnCo is to sell, or have its affiliates sell, to the Company and to its
subsidiaries located in the United States, at cost, certain products, repair
parts and rebuilds as have been previously manufactured by HarnCo for the
Company. The price for these products is the fully absorbed standard cost for
normal production products and repair parts, and the fully absorbed job cost for
rebuilds and repairs.
TRADEMARK LICENSE AGREEMENT - In connection with the Recapitalization, MMH
entered into a Trademark License Agreement with an affiliate of HarnCo pursuant
to which the Company was granted the right to use the "P&H" trade name,
trademark and service mark with respect to all MHE Business products on a
worldwide exclusive basis from March 30, 1998 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, MMH 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 equal to 0.75% of the aggregate net
sales of the MHE Business for the ten year period commencing March 30, 1999.
There will be no royalty fee for the remainder of the term following such ten
year period.
HEALTH AND WELFARE ARRANGEMENTS - Under the terms of the Recapitalization
Agreement, the current United States employees of the Company continued to
participate, from the Recapitalization Closing until December 31, 1998, in the
medical, dental, life and long-term disability insurance benefit plans that were
sponsored by HarnCo for the benefit of these employees as of the
Recapitalization Closing. The Company is to pay HarnCo the cost of all benefits
provided under these plans. The Company recognized approximately $1.1 million of
expense related to these arrangements in fiscal 1998.
49
<PAGE>
STOCKHOLDERS AGREEMENT - At the Recapitalization Closing, Holdings entered into
a stockholders' agreement and registration rights agreement with HarnCo and MHE
Investments (the "Stockholders' Agreement") pursuant to which HarnCo has the
right to appoint a representative to the board of directors of Holdings, so long
as HarnCo owns at least 5% of the outstanding voting common stock of Holdings.
Certain actions by Holdings require HarnCo's approval, including non-pro rata
redemptions, certain post-closing affiliate and insider transactions, granting
of conflicting rights or entering into conflicting agreements, and dividends or
distributions on, or redemptions or purchases of, any junior equity stock at any
time when dividends are in arrears on the Series B Junior Preferred Stock owned
by HarnCo. The Stockholders' Agreement also provides that HarnCo has the right
to purchase its pro rata share of future issuances of common stock of Holdings
except for issuances of management stock and options and common stock sold in an
underwritten public offering. HarnCo's shares are subject to a right of first
refusal in favor of Holdings and its designees and certain other rights.
CREDIT INDEMNIFICATION AGREEMENT - On March 30, 1998, HII and the Company
entered into a Credit Indemnification Agreement pursuant to which HII will
maintain in place the credit support obligations related to the Company in
existence on March 30, 1998 but have no further duty to extend, renew or enter
into any new credit support obligations, other than with respect to the MHE
Business obligations existing at the Recapitalization Closing. The Company has
agreed to pay in advance an annual fee equal to 1% of the amounts outstanding
under each letter of credit and bond provided by HII or its affiliates
(approximately $33.3 million as of October 31, 1998). The Company paid a
pro-rated fee of $290,000 for calendar year 1998 at the Recapitalization
Closing. HII will 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 pay HII the full
amount of future fees and other expenses that may be paid by HII or its
affiliates to third parties in connection with maintaining the credit support
obligations. The Credit Indemnification Agreement provides that the Company is
to reimburse HII on demand for any payment made by HII or its affiliates under
any of the credit support obligations.
LOANS TO MANAGEMENT - At the Recapitalization Closing, the Company made
short-term loans in an aggregate principal amount of $900,000 to members of the
Company's senior management to purchase equity interests in Niles L.L.C., an
indirect minority shareholder of Holdings, in accordance with the terms of
certain promissory notes. Interest on each of the notes, at a rate per annum
equal at all times to the federal short-term rate (as defined) in effect from
time to time, from the date of issuance until such note is repaid in full will
be payable in arrears as a lump sum on the date the remaining unpaid principal
amount of such note is due in full. At October 31, 1998, $780,000 of the
outstanding principal has been repaid.
CHARTWELL
CHARTWELL FINANCIAL ADVISORY AGREEMENT - The Company entered into an agreement
with Chartwell providing for the payment of fees and reimbursement of expenses
to Chartwell for acting as financial advisor with respect to the
Recapitalization, including soliciting, structuring and arranging the financing
of the Recapitalization. The fees, totaling $5.0 million, equal to 1% of the
consolidated capitalization of Holdings and the reimbursement of expenses, were
paid at the Recapitalization Closing.
CHARTWELL MANAGEMENT CONSULTING AGREEMENT - The Company has entered into a
management consulting agreement with Chartwell pursuant to which Chartwell
provides the Company with certain management, advisory and consulting services
for a fee of $1.0 million for each fiscal year of the Company during the term of
the agreement, plus reimbursement of expenses. The term of the management
consulting agreement is 10 years commencing at the Recapitalization Closing and
is renewable for additional one year periods unless the Board of Directors of
the Company gives prior written notice of non-renewal to Chartwell. The Company
incurred expenses totaling $583, excluding amounts paid for the reimbursement of
expenses, during fiscal 1998 under this agreement.
NOTE 15 - NON-RECURRING EMPLOYEE BENEFIT COSTS
As a result of the Recapitalization and subsequent restructuring, the Company
recognized certain non-recurring employee benefit costs. These costs included:
1. Employee Termination Costs - This plan was used to reduce employee staffing
levels associated with restructuring the Company's United Kingdom and
United States manufacturing operations. During the fiscal year, 72
employees were terminated, resulting in severance costs of $0.7 million.
Also, in October 1998, the Company announced additional terminations of 64
employees resulting in additional severance costs of approximately $1.1
million in fiscal 1998. The staffing reductions announced in October were
completed in early fiscal 1999. Severance costs included severance pay,
outplacement services and insurance coverage.
50
<PAGE>
2. Divestiture Bonuses - Incentives were given to certain members of
management in connection with the sale of the MHE Business by HII. HII, not
the Company, was responsible for making these incentive payments and
accordingly, this amount has been reported as a capital contribution in the
accompanying financial statements. The incentives paid to management were
approximately $1.2 million.
NOTE 16 - OTHER INCOME - NET
Other income - net consists of the following for the years ended October 31:
<TABLE>
<CAPTION>
1998 1997 1996
----------------- ----------------- -----------------
<S> <C> <C> <C>
Gain on fire insurance claim $ - $2,011 $ -
Licensee income 594 524 830
Other 737 114 319
----------------- ----------------- -----------------
$1,331 $2,649 $1,149
----------------- ----------------- -----------------
----------------- ----------------- -----------------
</TABLE>
During 1995, one of the Company's facilities in the United Kingdom experienced a
fire which resulted in an insurance claim for property loss and business
interruption. A gain on the property loss portion of the claim amounted to
$2,343 and was recorded in 1995. The remaining $2,011 gain was recorded in 1997
upon finalization of the property loss and business interruption claims.
NOTE 17 - SUPPLEMENTAL CONDENSED FINANCIAL INFORMATION
In connection with the Recapitalization, MMH, a direct wholly-owned subsidiary
of Holdings, issued Senior Notes that are guaranteed by certain of MMH's
subsidiaries (the "Guarantor Subsidiaries"). Each of the Guarantor Subsidiaries
is a wholly-owned subsidiary, directly or indirectly, of MMH and the guarantees
are full, unconditional and joint and several. Both Holdings and MMH are holding
companies with no material operating assets. All of the Company's business
operations are conducted through subsidiaries of MMH and accordingly, both
Holdings and MMH are dependent on the operating subsidiaries of MMH to fund
their cash needs, including debt service and tax obligations.
Separate financial statements of the Guarantor Subsidiaries are not presented
because management has determined that they would not be material to investors.
The following supplemental financial information sets forth the balance sheet,
statement of operations and cash flow information for the Guarantor Subsidiaries
and for MMH's other subsidiaries (the "Non-Guarantor Subsidiaries"). The
supplemental financial information reflects the investments of the Guarantor
Subsidiaries in the Non-Guarantor Subsidiaries using the equity method of
accounting. For purposes of this presentation, it is assumed that, historically,
all of the assets of the MHE Business were wholly-owned by subsidiaries of MMH,
which is an entity that was formed by Holdings in connection with the
Recapitalization and accordingly, the historical financial statements of MMH and
Holdings are identical following completion of the Recapitalization.
51
<PAGE>
SUPPLEMENTAL CONDENSED CONSOLIDATING BALANCE SHEET
OCTOBER 31, 1998
($ in 000's)
<TABLE>
<CAPTION>
Non
Guarantor Guarantor Material
ASSETS Subsidiaries Subsidiaries Handling, Inc. Eliminations
------------ ------------ -------------- ------------
<S> <C> <C> <C> <C>
Current Assets
Cash and cash equivalents ............ $ 2,214 $ 320 $ -- $ --
Accounts receivable - net ............ 76,000 5,947 -- --
Intercompany accounts receivable ..... 20,687 -- 6,915 (27,602)
Inventories .......................... 39,749 2,812 -- --
Deferred income taxes ................ 801 -- 5,476 --
Other current assets ................. 4,417 384 389 --
--------- --------- ---------- ----------
143,868 9,463 12,780 (27,602)
--------- --------- ---------- ----------
Property, Plant and Equipment ........... 38,295 2,775 -- --
--------- --------- ---------- ----------
Other Assets
Goodwill ............................. 37,767 2,076 -- --
Debt financing costs ................. -- -- 18,905 --
Noncurrent intercompany receivable ... 3,853 -- 83,416 (87,269)
Investment in affiliates ............. 331 -- 66,732 (67,063)
Deferred income taxes ................ -- -- 65,979 --
Other ................................ 6,691 -- -- --
--------- --------- ---------- ---------
48,642 2,076 235,032 (154,332)
--------- --------- ---------- ---------
$ 230,805 $ 14,314 $ 247,812 $(181,934)
--------- --------- ---------- ---------
--------- --------- ---------- ---------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities
Short-term notes payable and current
portion of long-term obligations .... $ 122 $ 40 $ 2,100 $ --
Bank overdrafts ...................... -- 1,252 -- --
Trade accounts payable ............... 30,539 2,354 -- --
Intercompany accounts payable ........ 6,915 4,130 16,557 (27,602)
Advance payments and progress billings 9,394 5 -- --
Accrued warranties ................... 2,200 124 -- --
Accrued interest ..................... -- -- 2,201 --
Other current liabilities ............ 27,563 1,205 (1,146) --
--------- --------- ---------- ---------
76,733 9,110 19,712 (27,602)
--------- --------- ---------- ---------
Term Loans .............................. -- -- 52,225 --
Acquisition Facility Borrowings ......... -- -- 6,194 --
Senior Notes ............................ -- -- 200,000 --
Other Long-Term Debt .................... 1,226 656 1,523 --
Noncurrent intercompany payable ......... 83,416 3,853 -- (87,269)
Deferred Income Taxes ................... 2,698 -- -- --
Minority Interest ....................... -- -- -- 364
Mandatorily Redeemable Preferred Stock .. -- -- -- --
Stockholders' Equity/Parent Investment .. 66,732 695 (31,842) (67,427)
--------- --------- ---------- ---------
$ 230,805 $ 14,314 $ 247,812 $(181,934)
--------- --------- ---------- ---------
--------- --------- ---------- ---------
</TABLE>
<TABLE>
<CAPTION>
Consolidated Consolidated
Morris Material MMH MMH
Handling, Inc. Holdings, Inc. Eliminations Holdings, Inc.
ASSETS -------------- -------------- ------------ --------------
<S> <C> <C> <C> <C>
Current Assets
Cash and cash equivalents ............ $ 2,534 $ -- $ -- $ 2,534
Accounts receivable - net ............ 81,947 -- -- 81,947
Intercompany accounts receivable ..... -- -- -- --
Inventories .......................... 42,561 -- -- 42,561
Deferred income taxes ................ 6,277 -- -- 6,277
Other current assets ................. 5,190 -- -- 5,190
--------- --------- ---------- ---------
138,509 -- -- 138,509
--------- --------- ---------- ---------
Property, Plant and Equipment ........... 41,070 -- -- 41,070
--------- --------- ---------- ---------
Other Assets
Goodwill ............................. 39,843 -- -- 39,843
Debt financing costs ................. 18,905 -- -- 18,905
Noncurrent intercompany receivable ... -- -- -- --
Investment in affiliates ............. -- (31,842) 31,842 --
Deferred income taxes ................ 65,979 -- -- 65,979
Other ................................ 6,691 -- -- 6,691
131,418 (31,842) 31,842 131,418
--------- --------- ---------- ---------
$ 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 .... $ 2,262 $ -- $ -- $ 2,262
Bank overdrafts ...................... 1,252 -- -- 1,252
Trade accounts payable ............... 32,893 -- -- 32,893
Intercompany accounts payable ........ -- -- -- --
Advance payments and progress billings 9,399 -- -- 9,399
Accrued warranties ................... 2,324 -- -- 2,324
Accrued interest ..................... 2,201 -- -- 2,201
Other current liabilities ............ 27,622 -- -- 27,622
--------- --------- ---------- ---------
77,953 -- -- 77,953
--------- --------- ---------- ---------
Term Loans .............................. 52,225 -- -- 52,225
Acquisition Facility Borrowings ......... 6,194 -- -- 6,194
Senior Notes ............................ 200,000 -- -- 200,000
Other Long-Term Debt .................... 3,405 -- -- 3,405
Noncurrent intercompany payable ......... -- -- -- --
Deferred Income Taxes ................... 2,698 -- -- 2,698
Minority Interest ....................... 364 -- -- 364
Mandatorily Redeemable Preferred Stock .. -- 95,351 -- 95,351
Stockholders' Equity/Parent Investment .. (31,842) (127,193) 31,842 (127,193)
--------- --------- ---------- ---------
$ 310,997 $ (31,842) $ 31,842 $ 310,997
--------- --------- ---------- ---------
--------- --------- ---------- ---------
</TABLE>
52
<PAGE>
SUPPLEMENTAL CONDENSED COMBINING BALANCE SHEET
OCTOBER 31, 1997
($ in 000's)
<TABLE>
<CAPTION>
Non
Guarantor Guarantor
Subsidiaries Subsidiaries Eliminations Combined
------------ ------------ ------------ ---------
<S> <C> <C> <C> <C>
ASSETS
Current Assets
Cash and cash equivalents $ 1,393 $ 139 $ -- $ 1,532
Accounts receivable - net 73,220 8,989 -- 82,209
Intercompany accounts receivable 5,250 1,539 (6,789) --
Inventories 30,855 2,642 -- 33,497
Other current assets 4,486 279 -- 4,765
--------- --------- --------- ---------
115,204 13,588 (6,789) 122,003
--------- --------- --------- ---------
Property, Plant and Equipment 36,192 3,175 -- 39,367
--------- --------- --------- ---------
Other Assets
Goodwill 30,368 1,861 -- 32,229
Noncurrent intercompany receivable 3,136 -- (3,136) --
Investment in affiliates 1,174 -- (1,174) --
Other 6,001 -- -- 6,001
--------- --------- --------- ---------
40,679 1,861 (4,310) 38,230
--------- --------- --------- ---------
$ 192,075 $ 18,624 $ (11,099) $ 199,600
--------- --------- --------- ---------
--------- --------- --------- ---------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities
Short-term notes payable and current
portion of long-term obligations $ 692 $ 60 $ -- $ 752
Bank overdrafts 2,076 2,217 -- 4,293
Trade accounts payable 27,824 4,832 -- 32,656
Intercompany accounts payable 1,539 5,250 (6,789) --
Advance payments and progress billings 7,626 59 -- 7,685
Accrued warranties 3,913 85 -- 3,998
Other current liabilities 20,644 732 -- 21,376
--------- --------- --------- ---------
64,314 13,235 (6,789) 70,760
--------- --------- --------- ---------
Other Long-Term Debt 355 688 -- 1,043
Noncurrent intercompany payable -- 3,136 (3,136) --
Deferred Income Taxes 3,088 -- -- 3,088
Minority Interest -- -- 391 391
Parent Investment 124,318 1,565 (1,565) 124,318
--------- --------- --------- ---------
$ 192,075 $ 18,624 $ (11,099) $ 199,600
--------- --------- --------- ---------
--------- --------- --------- ---------
</TABLE>
53
<PAGE>
SUPPLEMENTAL CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
FOR THE YEAR ENDED OCTOBER 31, 1998
($ in 000's)
<TABLE>
<CAPTION>
Non Morris
Guarantor Guarantor Material
Subsidiaries Subsidiaries Handling, Inc. Eliminations
------------ ------------ -------------- ------------
<S> <C> <C> <C> <C>
Revenues
Net Sales $ 298,897 $ 22,262 $ -- $ (3,302)
Other Income - net 1,331 -- -- --
--------- --------- --------- ---------
300,228 22,262 -- (3,302)
Cost of Sales 212,736 17,557 -- (3,302)
Selling, General and
Administrative Expenses 56,588 4,184 583 --
HII Management Fee 1,155 -- -- --
Non-Recurring Employee Benefit Costs 1,797 -- 1,216 --
--------- --------- --------- ---------
Operating Income (Loss) 27,952 521 (1,799) --
Interest (Expense) Income - net
Affiliates (5,407) (167) 4,126 --
Third Party (76) (505) (15,946) --
--------- --------- --------- ---------
Income (Loss) Before Income Taxes, Equity
in Earnings of Subsidiaries and Minority Interest 22,469 (151) (13,619) --
(Provision) Benefit for Income Taxes (2,895) 264 (1,804) --
Equity in Earnings of Subsidiaries 140 -- 19,714 (19,854)
Minority Interest -- -- 27
--------- --------- --------- ---------
Net Income $ 19,714 $ 113 $ 4,291 $ (19,827)
--------- --------- --------- ---------
--------- --------- --------- ---------
</TABLE>
<TABLE>
<CAPTION>
Consolidated Consolidated
Morris Material MMH MMH
Handling, Inc. Holdings, Inc. Eliminations Holdings, Inc.
--------------- -------------- ------------ --------------
<S> <C> <C> <C> <C>
Revenues
Net Sales $ 317,857 $ -- $ -- $ 317,857
Other Income - net 1,331 -- -- 1,331
--------- --------- --------- ---------
319,188 -- -- 319,188
Cost of Sales 226,991 -- -- 226,991
Selling, General and
Administrative Expenses 61,355 -- -- 61,355
HII Management Fee 1,155 -- -- 1,155
Non-Recurring Employee Benefit Costs 3,013 -- -- 3,013
--------- --------- --------- ---------
Operating Income (Loss) 26,674 -- -- 26,674
Interest (Expense) Income - net
Affiliates (1,448) -- -- (1,448)
Third Party (16,527) -- -- (16,527)
--------- --------- --------- ---------
Income (Loss) Before Income Taxes, Equity
in Earnings of Subsidiaries and Minority Interest 8,699 -- -- 8,699
(Provision) Benefit for Income Taxes (4,435) -- -- (4,435)
Equity in Earnings of Subsidiaries -- 4,291 (4,291) --
Minority Interest 27 -- -- 27
--------- --------- --------- ---------
Net Income $ 4,291 $ 4,291 $ (4,291) $ 4,291
--------- --------- --------- ---------
--------- --------- --------- ---------
</TABLE>
54
<PAGE>
SUPPLEMENTAL CONDENSED COMBINING STATEMENT OF OPERATIONS
FOR THE YEAR ENDED OCTOBER 31, 1997
($ in 000's)
<TABLE>
<CAPTION>
Non
Guarantor Guarantor
Subsidiaries Subsidiaries Eliminations Combined
------------ ------------ ------------ ---------
<S> <C> <C> <C> <C>
Revenues
Net Sales $ 332,244 $ 24,065 (2,959) $ 353,350
Other Income - net 2,563 86 -- 2,649
--------- --------- --------- ---------
334,807 24,151 (2,959) 355,999
Cost of Sales 243,776 19,977 (2,959) 260,794
Selling, General and
Administrative Expenses 51,954 4,852 -- 56,806
HII Management Fee 2,862 -- -- 2,862
--------- --------- --------- ---------
Operating Income (Loss) 36,215 (678) -- 35,537
Interest Expense - net
HII Affiliates (198) (196) -- (394)
Third Party 8 (406) -- (398)
--------- --------- --------- ---------
Income (Loss) Before Income Taxes, Equity in Loss
of Combined Affiliates and Minority Interest 36,025 (1,280) -- 34,745
Provision for Income Taxes (13,838) (36) (13,874)
Equity in Loss of Combined Affiliates (1,334) -- 1,334 --
Minority Interest -- -- (18) (18)
--------- --------- --------- ---------
Net Income (Loss) $ 20,853 $ (1,316) $ 1,316 $ 20,853
--------- --------- --------- ---------
--------- --------- --------- ---------
</TABLE>
55
<PAGE>
SUPPLEMENTAL CONDENSED COMBINING STATEMENT OF OPERATIONS
FOR THE YEAR ENDED OCTOBER 31, 1996
($ in 000's)
<TABLE>
<CAPTION>
Non
Guarantor Guarantor
Subsidiaries Subsidiaries Eliminations Combined
------------ ------------ ------------ ---------
<S> <C> <C> <C> <C>
Revenues
Net Sales $ 303,449 $ 23,755 (3,469) $ 323,735
Other Income - net 1,149 -- -- 1,149
--------- --------- --------- ---------
304,598 23,755 (3,469) 324,884
Cost of Sales 232,952 18,076 (3,469) 247,559
Selling, General and
Administrative Expenses 40,727 4,241 -- 44,968
HII Management Fee 2,341 -- -- 2,341
--------- --------- --------- ---------
Operating Income 28,578 1,438 -- 30,016
Interest Expense - net
HII Affiliates 369 (206) -- 163
Third Party (25) (220) -- (245)
--------- --------- --------- ---------
Income Before Income Taxes, Equity in Income
of Combined Affiliates and Minority Interest 28,922 1,012 -- 29,934
Provision for Income Taxes (11,150) (338) (11,488)
Equity in Income of Combined Affiliates 674 -- (674) --
--------- --------- --------- ---------
Net Income $ 18,446 $ 674 $ (674) $ 18,446
--------- --------- --------- ---------
--------- --------- --------- ---------
</TABLE>
56
<PAGE>
SUPPLEMENTAL CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED OCTOBER 31, 1998
($ in 000's)
<TABLE>
<CAPTION>
Non Morris
Guarantor Guarantor Material
Subsidiaries Subsidiaries Handling, Inc. Eliminations
------------ ------------ -------------- ------------
<S> <C> <C> <C> <C>
Operating Activities
Net income $ 19,714 $ 113 $ 4,291 $ (19,827)
Add (deduct) - items not affecting cash
provided by operating activities:
Depreciation and amortization 6,371 452 -- --
Amortization of debt financing costs -- -- 1,169 --
Equity in earnings of subsidiaries (140) -- (19,714) 19,854
Deferred income taxes - net (1,477) -- 1,804 --
Divestiture bonus -- -- 1,216 --
Other (881) -- -- (27)
Changes in working capital, excluding the
effects of acquisition opening balance sheets:
Accounts receivable (247) 2,470 -- --
Inventories (9,231) 1,539 -- --
Other current assets (2,177) (751) (389) --
Trade accounts payable and bank overdrafts (1,405) (2,887) -- --
Accrued interest -- -- 2,201 --
Other current liabilities 3,644 647 -- --
Activity with parent and other
affiliates - net 11,038 (1,011) (6,803) --
--------- --------- --------- ---------
Net cash provided by (used for)
operating activities 25,209 572 (16,225) --
--------- --------- --------- ---------
Investment and Other Transactions
Fixed asset additions - net (5,078) (130) -- --
Acquisition of businesses - net of
cash acquired (8,891) -- -- --
Issuance of loans to senior management -- -- (900) --
Repayment of loans by senior management -- -- 780 --
Other - net (1,532) (206) -- --
--------- --------- --------- ---------
Net cash used for investment and
other transactions (15,501) (336) (120) --
--------- --------- --------- ---------
Financing Activities
Repayments of short-term debt and
notes payable (639) (55) -- --
Proceeds from Senior Note Offering -- -- 200,000 --
Proceeds from New Credit Facility -- -- 55,000 --
Proceeds from Acquisition Facility borrowings -- -- 6,194 --
Net proceeds from Revolving Credit
Facility borrowings -- -- 1,200 --
Net proceeds from issuance of Series A
preferred stock and related common shares -- -- -- --
Redemption of shares held by Holdings -- -- (233,459) --
Redemption of common stock and preferred stock -- -- -- --
Stock redemption transaction costs -- -- -- --
Debt financing costs -- -- (20,074) --
Distribution to parent (8,159) -- 8,159 --
Repayments of long-term debt -- -- (675) --
--------- --------- --------- ---------
Net cash provided by (used for)
financing activities (8,798) (55) 16,345 --
--------- --------- --------- ---------
Effect of Exchange Rate Changes on Cash
and Cash Equivalents (89) -- -- --
--------- --------- --------- ---------
Increase (Decrease) in Cash and
Cash Equivalents 821 181 --
Cash and Cash Equivalents
Beginning of Year 1,393 139 -- --
--------- --------- --------- ---------
End of Year $ 2,214 $ 320 $ -- $ --
--------- --------- --------- ---------
--------- --------- --------- ---------
</TABLE>
<TABLE>
<CAPTION>
Consolidated Consolidated
Morris Material MMH MMH
Handling, Inc. Holdings, Inc. Eliminations Holdings, Inc.
--------------- -------------- ------------ --------------
<S> <C> <C> <C> <C>
Operating Activities
Net income $ 4,291 $ 4,291 $ (4,291) $ 4,291
Add (deduct) - items not affecting cash
provided by operating activities:
Depreciation and amortization 6,823 -- -- 6,823
Amortization of debt financing costs 1,169 -- -- 1,169
Equity in earnings of subsidiaries -- (4,291) 4,291 --
Deferred income taxes - net 327 -- -- 327
Divestiture bonus 1,216 -- -- 1,216
Other (908) -- -- (908)
Changes in working capital, excluding the
effects of acquisition opening balance sheets:
Accounts receivable 2,223 -- -- 2,223
Inventories (7,692) -- -- (7,692)
Other current assets (3,317) -- -- (3,317)
Trade accounts payable and bank overdrafts (4,292) -- -- (4,292)
Accrued interest 2,201 -- -- 2,201
Other current liabilities 4,291 -- -- 4,291
Activity with parent and other
affiliates - net 3,224 -- -- 3,224
--------- --------- --------- ---------
Net cash provided by (used for)
operating activities 9,556 -- -- 9,556
--------- --------- --------- ---------
Investment and Other Transactions
Fixed asset additions - net (5,208) -- -- (5,208)
Acquisition of businesses - net of
cash acquired (8,891) -- -- (8,891)
Issuance of loans to senior management (900) -- -- (900)
Repayment of loans by senior management 780 -- -- 780
Other - net (1,738) -- -- (1,738)
--------- --------- --------- ---------
Net cash used for investment and
other transactions (15,957) -- -- (15,957)
--------- --------- --------- ---------
Financing Activities
Repayments of short-term debt and
notes payable (694) -- -- (694)
Proceeds from Senior Note Offering 200,000 -- -- 200,000
Proceeds from New Credit Facility 55,000 -- -- 55,000
Proceeds from Acquisition Facility borrowings 6,194 -- -- 6,194
Net proceeds from Revolving Credit
Facility borrowings 1,200 -- -- 1,200
Net proceeds from issuance of Series A
preferred stock and related common shares -- 57,094 -- 57,094
Redemption of shares held by Holdings (233,459) 233,459 -- --
Redemption of common stock and preferred stock -- (287,000) -- (287,000)
Stock redemption transaction costs -- (3,553) -- (3,553)
Debt financing costs (20,074) -- -- (20,074)
Distribution to parent -- -- -- --
Repayments of long-term debt (675) -- -- (675)
--------- --------- --------- ---------
Net cash provided by (used for)
financing activities 7,492 -- -- 7,492
--------- --------- --------- ---------
Effect of Exchange Rate Changes on Cash
and Cash Equivalents (89) -- -- (89)
--------- --------- --------- ---------
Increase (Decrease) in Cash and
Cash Equivalents 1,002 1,002
Cash and Cash Equivalents
Beginning of Year 1,532 -- -- 1,532
--------- --------- --------- ---------
End of Year $ 2,534 $ -- $ -- $ 2,534
--------- --------- --------- ---------
--------- --------- --------- ---------
</TABLE>
57
<PAGE>
SUPPLEMENTAL CONDENSED COMBINING STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED OCTOBER 31, 1997
($ in 000's)
<TABLE>
<CAPTION>
Non
Guarantor Guarantor
Subsidiaries Subsidiaries Eliminations Combined
------------ ------------ ------------ --------
<S> <C> <C> <C> <C>
Operating Activities
Net income (loss) $ 20,853 $ (1,316) $ 1,316 $ 20,853
Add (deduct) - items not affecting cash provided by
operating activities:
Depreciation and amortization 6,400 336 -- 6,736
Equity in loss of combined activities 1,334 -- (1,334) --
Deferred income taxes - net 89 -- -- 89
Gain on fire insurance claim (2,011) -- -- (2,011)
Other (800) -- (18) (818)
Changes in working capital, excluding the
effects of acquisition opening balance sheets:
Accounts receivable (2,318) (1,338) -- (3,656)
Inventories 5,984 60 -- 6,044
Other current assets 2,113 (36) -- 2,077
Trade accounts payable and bank overdrafts (3,026) 174 -- (2,852)
Other current liabilities (22,071) (252) 36 (22,287)
Activity with parent and other affiliates - net 5,976 2,748 -- 8,724
-------- -------- -------- --------
Net cash provided by operating activities 12,523 376 -- 12,899
-------- -------- -------- --------
Investment and Other Transactions
Fixed asset additions - net (6,117) (381) -- (6,498)
Acquisition of businesses - net of cash acquired (11,787) -- -- (11,787)
Fire insurance claim activity - net 3,441 -- -- 3,441
Other - net (70) (33) -- (103)
-------- -------- -------- --------
Net cash used for investment and other transactions (14,533) (414) -- (14,947)
-------- -------- -------- --------
Financing Activities
Repayments of short-term debt and notes payable (99) -- -- (99)
Repayments of long-term debt (101) (54) -- (155)
-------- -------- -------- --------
Net cash provided by financing activities (200) (54) -- (254)
-------- -------- -------- --------
Effect of Exchange Rate Changes on Cash and Cash Equivalents 21 (8) -- 13
-------- -------- -------- --------
Decrease in Cash and Cash Equivalents (2,189) (100) -- (2,289)
Cash and Cash Equivalents
Beginning of Year 3,582 239 -- 3,821
-------- -------- -------- --------
End of Year $ 1,393 $ 139 $ -- $ 1,532
-------- -------- -------- --------
-------- -------- -------- --------
</TABLE>
58
<PAGE>
SUPPLEMENTAL CONDENSED COMBINING STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED OCTOBER 31, 1996
($ in 000's)
<TABLE>
<CAPTION>
Non
Guarantor Guarantor
Subsidiaries Subsidiaries Eliminations Combined
------------ ------------ ------------ --------
<S> <C> <C> <C> <C>
Operating Activities
Net income (loss) $ 18,446 $ 674 $ (674) $ 18,446
Add (deduct) - items not affecting cash provided
by operating activities:
Depreciation and amortization 4,944 348 -- 5,292
Equity in earnings of combined activities (674) -- 674 --
Deferred income taxes - net 1,347 -- -- 1,347
Other (750) -- -- (750)
Changes in working capital, excluding the effects
of acquisition opening balance sheets:
Accounts receivable (4,252) (2,965) -- (7,217)
Inventories (7,281) (1,370) -- (8,651)
Other current assets (410) (120) -- (530)
Trade accounts payable and bank overdrafts (2,825) 2,955 -- 130
Other current liabilities 8,482 119 -- 8,601
Activity with parent and other affiliates - net 6,230 558 -- 6,788
-------- -------- -------- --------
Net cash provided by operating activities 23,257 199 -- 23,456
-------- -------- -------- --------
Investment and Other Transactions
Fixed asset additions - net (6,373) (379) -- (6,752)
Acquisition of businesses - net of cash acquired (15,272) -- -- (15,272)
Fire insurance claim activity - net 1,613 -- -- 1,613
Other - net (629) (118) -- (747)
-------- -------- -------- --------
Net cash used for investment and other transactions (20,661) (497) -- (21,158)
-------- -------- -------- --------
Effect of Exchange Rate Changes on Cash and
Cash Equivalents 168 (129) -- 39
-------- -------- -------- --------
Increase (Decrease) in Cash and Cash Equivalents 2,764 (427) -- 2,337
Cash and Cash Equivalents
Beginning of Year 818 666 -- 1,484
-------- -------- -------- --------
End of Year $ 3,582 $ 239 $ -- $ 3,821
-------- -------- -------- --------
-------- -------- -------- --------
</TABLE>
59
<PAGE>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
60
d<PAGE>
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANTS
The following sets forth certain information with respect to the
persons who are members of Holdings' Board of Directors, MMH's Board of
Directors or the senior management team of MMH and/or Holdings.
<TABLE>
<CAPTION>
NAME AGE POSITION
---- ------ ---------
<S> <C> <C>
Michael S. Erwin 45 President, Chief Executive Officer and Director of MMH
and Holdings
David D. Smith 43 Vice President--Finance of MMH and Vice President and
Director of Holdings
Peter A. Kerrick 41 Vice President--Equipment of MMH
Richard J. Niespodziani 47 Vice President--Aftermarket Products of MMH
Edward J. Doolan 46 Vice President--Distribution & Service of MMH
K. Bruce Norridge 51 Vice President--Europe & Africa of MMH
Michael J. Maddock 55 Vice President--Pacific Rim & Middle East of MMH
Martin L. Ditkof 41 General Counsel and Secretary of MMH and Secretary of Holdings
J. Bradley Wiedmann 55 Vice President--Human Resources of MMH
Ross C. Smith 42 Vice President--Business Development and Strategic Planning of
MMH
Todd R. Berman 40 Chairman of the Board of MMH and Holdings
Jay R. Bloom (1) 42 Director of Holdings
Robert W. Hale (2) 51 Director of Holdings
Malcolm Lassman (1) 60 Director of Holdings
Michael S. Shein (2) 34 Director of MMH and Vice President and Director of Holdings
Michael R. Young (1) 53 Director of Holdings
Larry Zine (2) 43 Director of Holdings
</TABLE>
- --------------
(1) Member of the Compensation Committee.
(2) Member of the Audit Committee.
MICHAEL S. ERWIN--Michael Erwin serves as President and Chief Executive
Officer of Holdings and MMH. He has run the Company since December 1994 and has
served as a director of Holdings since 1995 and of MMH since 1998. Since joining
the Company in 1974, he has held a variety of positions, including General
Manager, Equipment Division; Operations Manager, Oak Creek; Marketing Manager,
Hoist Division; and Material Handling Regional Manager, Chicago. Mr. Erwin holds
a Bachelor of Science degree in Business Management, System/Operations
Management from Milwaukee School of Engineering and an Associate's Degree in
Mechanical Technology from Milwaukee Area Technical College.
DAVID D. SMITH--David Smith has been serving as Vice President--Finance
of the Company since March 30, 1998 and as a director and Vice President of
Holdings since 1997. Previously, he served as Vice President and Controller of
the Company since 1993. Mr. Smith joined the Company in 1988 as a Senior
Operations Auditor. Mr. Smith received his Bachelor of Science in Business
Administration from Bucknell University and his M.B.A. from the University of
Pittsburgh. Mr. Smith is a Certified Public Accountant.
PETER A. KERRICK--Peter Kerrick assumed his current position as Vice
President--Equipment of the Company in 1995. Since joining the Company in 1978
as a Design & Project Engineer, Mr. Kerrick has held numerous positions with the
Company, primarily in the sales capacity. Mr. Kerrick obtained a Bachelor of
Science degree in Mechanical Engineering from Purdue University.
RICHARD J. NIESPODZIANI--Richard Niespodziani has served as Vice
President--Aftermarket Products of the Company since 1994. Prior to his current
position, Mr. Niespodziani served as General Manager for five different business
areas at the Company. He also has held multiple positions related to the
Company's aftermarket operations since joining the Company in 1974. Mr.
Niespodziani received his Bachelor of Science degree in Business Administration
from the University of Wisconsin Stevens Point and his M.B.A. from the
University of Wisconsin Whitewater.
61
<PAGE>
EDWARD J. DOOLAN--Edward Doolan serves as Vice President--Distribution
& Service of the Company. Prior to being promoted to his current position in
1994, Mr. Doolan served in a variety of positions in the aftermarket products
and service groups. He joined the Harnischfeger team in 1979 and became Director
of Product Support for the Company in 1985. Mr. Doolan has a Bachelor of Science
in Industrial Engineering from Georgia Tech and an M.B.A. from Marquette
University.
K. BRUCE NORRIDGE--Bruce Norridge has been Vice President--Europe &
Africa of the Company since September 1997. Prior to that, he was Managing
Director of Morris Ltd.'s Engineered Products Division from 1992 to 1997. Mr.
Norridge has been employed with Morris Ltd. since 1979. Mr. Norridge received a
National Diploma in Structural Engineering and an Advanced Diploma in Production
Management and is a graduate fellow of the Production Management Institute of
South Africa. Mr. Norridge is a Registered Professional Technologist in
Engineering and a Registered Professional Production Manager.
MICHAEL J. MADDOCK--Michael Maddock has been Vice President--Pacific
Rim & Middle East of the Company since September 1997. Previously, Mr. Maddock
held a number of positions at Morris Ltd., including Director and General
Manager, Hoist Division, and Managing Director, Standard Products Division. He
joined Morris Ltd. in 1989. Mr. Maddock received his M.I. in Mechanical
Engineering from the Institute of Mechanical Engineers, a Bachelor of Science in
Metallurgy from the University of Surrey, a Higher National Diploma in
Mechanical Engineering and a Higher National Certificate in Production
Engineering. He received his Membership from the Institute of Mechanical
Engineers.
MARTIN L. DITKOF--Martin Ditkof currently serves as General Counsel and
Secretary of the Company and as Secretary of Holdings. He joined the
Harnischfeger team as a Corporate Attorney in 1988 and assumed his current
position at the Company in November 1995. Mr. Ditkof received a Bachelors degree
in Business Administration from the University of Michigan and his Juris
Doctorate from Cornell Law School.
J. BRADLEY WIEDMANN--Bradley Wiedmann has served as Vice
President--Human Resources of the Company since joining the Company in June
1998. Previously, he held the same position at Applied Power, Inc., a
supplier of tools, equipment and systems to end-users and original equipment
manufacturers in many industries, since 1995. Mr. Wiedmann performed
consulting services for an outplacement counseling firm and for ManPower from
1993 to 1995 and taught Human Resources courses at Concordia University
during that time. Mr. Wiedmann received his B.A. from Iowa Wesleyan College
and his M.S from Cardinal Stritch College.
ROSS C. SMITH--Ross Smith currently serves as Vice President of
Business Development and Strategic Planning of the Company. Mr. Smith joined
the Company in July 1998 from Siebe plc., a global supplier of intelligent
automation, controls and industrial equipment, where he held a similar
position in strategic planning and market development since 1989. Mr. Smith
received his B.A. from Northwestern University and an M.B.A. from the Owen
School at Vanderbilt University.
TODD R. BERMAN--Todd Berman has been Chairman of the Board of Holdings
and Chairman of the Board of the Company since March 30, 1998. Mr. Berman is the
founder and President of Chartwell Investments Inc. He has served as Chairman of
the Board of Griffith Consumers Company, one of the nation's largest independent
distributors of heating oil and other petroleum products, since December 1994;
as Chairman of Carl King, Inc., the leading operator of gas stations and
convenience stores in the Delmarva peninsula (Delaware, Maryland, Virginia),
since December 1994; and as a director of Petro Stopping Centers, L.P., a
leading operator of large, full-service truck stops, since January 1997. Mr.
Berman has been with Chartwell Investments Inc. or its predecessor since 1992.
He received his A.B. from Brown University and an M.B.A. from Columbia
University Graduate School of Business.
JAY R. BLOOM--Jay Bloom has been a director of Holdings since March 30,
1998. Mr. Bloom is a Managing Director and co-head of the High Yield Group of
CIBC Oppenheimer. In addition, he is the co-head of CIBC High Yield Merchant
Banking Funds. At CIBC Oppenheimer, he has been responsible for overall
portfolio strategy, numerous high yield financings and investments in numerous
companies through the merchant banking funds. Prior to joining CIBC Oppenheimer
in 1995, Mr. Bloom was a founder and managing director of The Argosy Group L.P.
Before Argosy, Mr. Bloom was a managing director in the Mergers and Acquisitions
Group of Drexel Burnham Lambert Incorporated. Mr. Bloom serves on the board of
directors of GT Crossing Limited, Global Telesystems Limited, Heating Oil
Partners, L.P., Consolidated Advisers Limited, L.L.C., and Riverside Millwork
Company, Inc. and is on the Board of Advisors of Oak Hill Securities Fund, L.P.
Mr. Bloom received his B.S. and M.B.A. degrees from Cornell University,
graduating summa cum laude, and his Juris Doctorate from Columbia University
School of Law.
62
<PAGE>
ROBERT W. HALE--Robert Hale was appointed as the representative of
HarnCo to the board of directors of Holdings (pursuant to the terms of the
Stockholders' Agreement (as defined herein)) on March 30, 1998 and has served as
a director of Holdings since that date. Mr. Hale is President of HII's P&H
Mining Equipment division, a position he has held since 1994. Previously, Mr.
Hale ran the Company, serving as Senior Vice President and General Manager of
HII's P&H Material Handling division from 1988 to 1994. Mr. Hale received a
Bachelor of Science in civil engineering from Marshall University and is a
graduate of Harvard's AMD Program.
MALCOLM LASSMAN--Malcolm Lassman has been a director of Holdings since
August 31, 1998. Mr. Lassman is a managing partner of the Washington, D.C.
office of the law firm Akin, Gump, Strauss, Hauer & Feld, L.L.P., where he has
practiced law since 1971. Mr. Lassman currently serves as a director of Project
NorthStar, a company committed to assisting underprivileged children, and as a
director of Petro Stopping Centers, L.P., a leading operator of large,
full-service truck stops since September 1997. Mr Lassman received a B.A. in
Economics from Washington & Lee University and a L.L.B. CUM LAUDE from
Washington & Lee University.
MICHAEL S. SHEIN--Michael Shein has been a director and Vice-President
of Holdings and a director of the Company since March 30, 1998. Mr. Shein is a
Managing Director and co-founder of Chartwell Investments Inc. and has been with
Chartwell Investments Inc. or its predecessor since 1992. Mr. Shein has served
as a director of Griffith Consumers Company, one of the nation's largest
independent distributors of heating oil and other petroleum products, since
December 1994; a director of Carl King, Inc., the leading operator of gas
stations and convenience stores in the Delmarva peninsula (Delaware, Maryland,
Virginia), since December 1994; and a director of Petro Stopping Centers, L.P.,
a leading operator of large, full-service truck stops, since January 1997. Mr.
Shein received a B.S. summa cum laude from The Wharton School at the University
of Pennsylvania.
MICHAEL R. YOUNG--Michael Young has served as a director of Holdings
since March 30, 1998. Mr. Young has served as the Chairman, Chief Executive
Officer and President of Bristol Compressors from 1983 to 1987 and since 1996.
Mr. Young was the Chairman and Chief Executive Officer of Evcon Industries from
1991 to 1995 and was integrally involved in selling the company to York
International. Mr. Young was the President and Chief Operating Officer of York
International from 1988 to 1989. From 1976 to 1983, Mr. Young was Director of
Product Development for Rockwell International's Automotive Operations and prior
to that was Chief Engineer of Eaton Corporation's Engineering & Research Center.
Mr. Young received B.S., M.S. and Doctorate degrees from the University of
Detroit.
LARRY ZINE--Larry Zine has served as a director of Holdings since March
30, 1998. Mr. Zine has been Executive Vice President and Chief Financial Officer
of Petro Stopping Centers, L.P., a leading operator of large full-service truck
stops since December 1996. Mr. Zine served as the Executive Vice President and
Chief Financial Officer for The Circle K Corporation, the second largest chain
of convenience stores in the United States, from 1988 to 1996. Mr. Zine was an
integral part of The Circle K Corporation's reorganization from bankruptcy in
July 1993, its initial public offering in March 1995 and subsequent sale in June
1996. Mr. Zine has worked for The Circle K Corporation for 15 years in various
capacities. Mr. Zine was educated at the University of North Dakota and holds an
M.S. degree in accounting and a B.S.B.A. in marketing.
DIRECTOR COMPENSATION
Holdings pays directors fees to certain of its directors. Malcolm
Lassman, Larry Zine and Michael Young each receive $3,000 per meeting. In
addition, the Company has commited to grant 50 options to purchase shares of
Holdings Series A Senior Preferred Stock at an exercise price of $1,000.
Holdings and MMH reimburse all of their directors for reasonable out-of-pocket
expenses incurred in connection with attending Board meetings.
63
<PAGE>
ITEM 11. EXECUTIVE COMPENSATION
1998 SUMMARY COMPENSATION TABLE
The following table presents information concerning compensation paid
for services to the Company during fiscal year 1998 to the Chief Executive
Officer of the Company and the four other most highly paid executive officers
employed by the Company at the end of fiscal year 1998 (collectively, the "Named
Executive Officers").
<TABLE>
<CAPTION>
Annual Compensation
---------------------------------------
Name and Other All
Principal Position Annual LTIP Other
------------------ Salary Bonus Compensation Bonus Payouts Compensation
($) ($) ($) ($) (a) ($) (b) ($) (c)
----------- ------------ -------------- ---------- ---------- ------------
<S> <C> <C> <C> <C> <C> <C>
Michael S. Erwin ......................... 176,670 11,484 0 17,736 7,010 384,789(d)
President and Chief Executive Officer
Richard J. Niespodziani .................. 112,005 23,941 0 16,991 2,210 134,631(d)
Vice President - Aftermarket
Edward J. Doolan ......................... 114,040 24,376 0 7,323 2,659 134,087(d)
Vice President - Distribution & Service
Michael J. Maddock ....................... 133,485 0 19,465 (e) 0 0 94,388(f)
Vice President - Pacific Rim &
Middle East
K. Bruce Norridge ........................ 130,350 0 75,926 (e) 0 0 94,388(f)
Vice President - Europe
</TABLE>
(a) Represents the cash portion of the bonus earned in 1998 that resulted
from bonuses that were "banked" in prior years under the HII EVA Bonus
Program, for which Messrs. Erwin, Doolan and Niespodziani were eligible
until the Recapitalization Closing.
(b) Represents HII common stock purchased through conversion of each
executive's banked bonus at a 25% discount on the purchase price of
$46.04 in accordance with the provisions of the HII Executive Incentive
Plan. Mr. Erwin and Mr. Niespodziani had elected to defer 25% and 10%
of their respective prior year cash bonuses into HII common stock under
the HII Executive Incentive Plan in which Messrs. Erwin, Doolan and
Niespodziani participated until the Recapitalization Closing.
(c) Includes divestiture bonuses of $375,000, $125,000, $125,000, $125,000
and $125,000 for Messrs. Erwin, Doolan, Niespodziani, Maddock, and
Norridge, respectively. See "--Divestiture Bonus Agreements."
(d) Includes $689, $445, and $437 paid to Messrs. Erwin, Doolan and
Niespodziani, respectively, under the HII profit sharing plan, in which
Messrs. Erwin, Doolan and Niespodziani participated until the
Recapitalization Closing, and the profit sharing component of the
Company's Retirement Plan (as defined herein), which was adopted on
April 1, 1998, and which permits the employee to elect to receive half
of the payment in cash, rather than as a contribution to the Retirement
Plan. Also includes employer matching, transition and age-based
contributions of $7,200, $7,643 and $8,549 for Messrs. Erwin, Doolan
and Niespodziani, respectively, and the following amounts paid by HII
and the Company during fiscal 1998 for group term life insurance
premiums for the benefit of the executives: Mr. Erwin, $1,900; Mr.
Doolan, $999; and Mr. Niespodziani, $1,082.
(e) Includes $14,641 and $14,469 in car allowance for Mr. Norridge and Mr.
Maddock, respectively, as well as $56,549 for an expatriate allowance
paid to Mr. Norridge by the Company pursuant to the terms of his
employment agreement. Also includes taxable benefits such as private
health insurance, fuel allowance and telephone allowance.
(f) Represents an annual earn-out paid to Messrs. Maddock and Norridge
pursuant to the terms of their employment agreements.
64
<PAGE>
ARRANGEMENTS PRIOR TO CONSUMMATION OF THE TRANSACTIONS
The following describes certain compensation and benefit arrangements
applicable to members of the senior management team of the Company for periods
prior to March 30, 1998. Such employees' participation in such plans and
programs, except as otherwise noted, terminated on March 30, 1998, except with
respect to vested benefits.
PENSION PLAN TABLE
Until March 30, 1998, executive officers of the Company located in the
United States participated in HII's defined benefit pension plan. The following
table sets forth the estimated annual benefits payable upon retirement at normal
retirement age for the years of service indicated under the plan (and excess
benefit arrangements defined below) at the indicated remuneration levels.
Remuneration covered by the plan includes the following amounts
reported in the 1998 Summary Compensation Table: salary and bonus (including the
cash value of bonuses foregone for stock under the HII Executive Incentive
Plan). "Banked" bonuses are not included.
The years of service credited for each of the Named Executive Officers
are: Michael Erwin 25 years, Edward Doolan 19 years and Richard Niespodziani 24
years.
Benefits are based upon years of service and the highest consecutive
five year average annual salary and incentive compensation during the last ten
calendar years of service. Estimated benefits under the retirement plan are
subject to the provisions of the Internal Revenue Code of 1986, as amended,
which limit the annual benefits which may be paid from a tax qualified
retirement plan. Amounts in excess of such limitations will either be paid from
the general funds of HII or funded with HII common stock under the terms of the
HII Supplemental Retirement and Stock Funding Plan. The estimated benefits in
the table above do not reflect offsets under the plan of 1.25% per year of
service (up to a maximum of 50%) of the Social Security benefit.
<TABLE>
<CAPTION>
Years of Service
--------------------------------------------------------------------------------------------------------
Remuneration 5 10 15 20 25 30
- ------------ ----------- ------------ ------------- ------------ ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
$140,000 $10,500 $21,000 $31,500 $42,000 $52,500 $63,000
180,000 13,500 27,000 40,500 54,000 67,500 81,000
220,000 16,500 33,000 49,500 66,000 82,500 99,000
260,000 19,500 39,000 58,500 78,000 97,500 117,000
300,000 22,500 45,000 67,500 90,000 112,500 135,000
340,000 25,500 51,000 76,500 102,000 127,500 153,000
380,000 28,500 57,000 85,500 114,000 142,500 171,000
</TABLE>
Executive officers of the Company located in the United Kingdom were
and remain eligible to participate in an executive section of the Harnischfeger
Industries Pension Scheme specific to the Company (the "UK Scheme"), which
provides defined benefits. Pension income in the UK Scheme at normal retirement
age is based on the employee's years of service and his last twelve months'
taxable earnings (excluding certain benefits in kind and fluctuating payments),
or on an average of those taxable earnings over the last 24 months, if greater.
There is no offset for United Kingdom social security benefits.
In addition to United Kingdom social security benefits to which such a
person may be entitled, the following table illustrates the amount of annual
pension benefits (in pounds sterling) payable from the UK Scheme to an
individual with the indicated earnings and years of service at the individual's
normal retirement age of 65.
65
<PAGE>
<TABLE>
<CAPTION>
Years of Service
---------------------------------------------------------------------------------------------------------
Remuneration 10 15 20 25 30 35
- ------------ -------------- ------------- ------------- ------------ ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
(pounds)50,000 16,667 25,000 33,333 33,333 33,333 33,333
75,000 25,000 37,500 50,000 50,000 50,000 50,000
100,000 33,333 50,000 66,667 66,667 66,667 66,667
125,000 41,667 62,500 83,333 83,333 83,333 83,333
150,000 50,000 75,000 100,000 100,000 100,000 100,000
</TABLE>
Mr. Maddock and Mr. Norridge continue to be members of the UK Scheme.
At October 31, 1998, Mr. Maddock had 9.75 years of service and Mr. Norridge had
4.42 years of service for purposes of this plan. Because Mr. Norridge joined the
plan after June 1, 1989, as a matter of United Kingdom law, his benefits after
20 or more years of service would be capped at (pounds)56,000.
DIVESTITURE BONUS AGREEMENTS
In October 1998, Michael S. Erwin, Edward J. Doolan, Richard J.
Niespodziani, Michael J. Maddock, and K. Bruce Norridge were each paid a
divestiture bonus of $375,000, $125,000, $125,000, $125,000 and $125,000,
respectively. These amounts were paid under agreements with HarnCo which
provided for bonuses to be paid to certain employees in the event of a purchase
by a third party not affiliated with HarnCo of substantially all of the assets
and liabilities of the MHE Business. Under these agreements, each employee had
agreed to release HarnCo and its affiliates from certain claims and agreed not
to voluntarily terminate his employment with the MHE Business within the first
six months following any such divestiture unless there is a substantial change
in the employee's duties, functions and responsibilities or the employee is
required to perform the principal portion of his duties outside his current
locale.
ARRANGEMENTS AFTER CONSUMMATION OF THE TRANSACTIONS
EMPLOYEE RETIREMENT SAVINGS PLAN
Effective April 1, 1998, the Company established a retirement savings
plan under Section 401(k) of the Internal Revenue Code (the "Retirement Plan").
The Retirement Plan covers all non-bargaining unit employees in the United
States from their first day of service. Employees can contribute from 1% to 10%
of their eligible pre-tax pay. The company matches 100% of the first 3% and 50%
of the next 2% of each employee's contribution to the Retirement Plan ("matching
contributions"). Once an employee turns 35, the Company contributes an
additional percentage of the employee's pay based on his/her age ("age-based
contributions"). In addition, the Company makes a special contribution for
long-service and older employees who were participants in the former HII pension
plan in order to make up for future years of nonparticipation in that plan. If
an employee's age plus years of service add up to 65 or more, the Company
contributes an additional percentage of the employee's pay to the Retirement
Plan ("transition contributions"). All contributions are 100% vested upon
contribution. An employee must be active on December 31 of the plan year in
order to qualify for annual Company contributions. During fiscal year 1998, the
Company contributed $7,200, $7,643 and $8,549 in matching, transition and
age-based contributions to the Retirement Plan for Messrs. Erwin, Doolan and
Niespodziani, respectively.
PROFIT SHARING PLAN
The Company has continued the HII profit sharing plan as a component of
its Retirement Plan. The profit sharing plan covers substantially all domestic
employees, except those covered by collective bargaining agreements and
employees of affiliates with separate defined contribution plans. During fiscal
1998, contributions to this plan were based on the Company's "economic value
added" performance. Effective November 1, 1998, contributions will be based on
earnings of the Company before interest and taxes. Employees have the option to
receive half of the payment in cash rather than in the form of a contribution to
the Retirement Plan. Messrs. Erwin, Doolan and Niespodziani received cash
payments of $689, $445, and $437, respectively, under the profit sharing plan in
fiscal 1998.
66
<PAGE>
EMPLOYMENT AGREEMENTS
On March 30, 1998, the Company entered into new employment agreements
with certain senior managers of the Company, including the Named Executive
Officers. The agreements with Messrs. Erwin, Doolan and Niespodziani provide for
their employment in their current capacities for three years, and for additional
one year periods thereafter unless canceled by either party on 60 days notice
prior to such renewal date. They provide Messrs. Erwin, Doolan and Niespodziani
a base salary (subject to annual review by the Board of Directors) of $180,000,
$109,800 and $111,540, respectively, and an annual performance-based bonus plan
(based on Economic Value Added for 1998 and on EBITDA for years thereafter), the
terms of which are to be agreed upon by the Compensation Committee of the Board
of Directors and the Company's Chief Executive Officer. The agreements also
provide for the indemnification of the executives, and include non-competition
and confidentiality provisions. If the executive resigns for Good Reason (as
defined therein, which definition includes a material reduction of the
executive's duties or substantial change in work conditions, a material decrease
in compensation or benefits, and changes in control of the Company), the
executive is entitled to continuance of his then current base salary for 12
months, continuation of health and life insurance benefits for 24 months, a
pro-rated bonus, the continuation of other perquisites for six months and
payment, if requested, for all equity in Holdings or the Company held by the
executive or his family. If the executive is terminated by the Company without
Cause (as defined therein, which definition includes the willful failure of the
executive to substantially perform his duties, and the commission of a fraud on
the Company, if not cured within 30 days' written notice thereof), he is
entitled to a lump sum payment equal to his then current annual base salary plus
a lump sum payment equal to the base salary which would otherwise have been
payable for the balance of the fiscal year in which termination occurs, and the
same benefits as if he resigned for Good Reason.
The Company also entered into new employment agreements with Messrs.
Norridge and Maddock on March 30, 1998. These agreements generally continue
in effect until the death of the executive, the executive's reaching normal
retirement age, termination by the Company for Cause (as defined therein,
which definition includes the executive being absent from work through
sickness or disability for more than six months in any 12 month period, and
the executive neglecting to perform his duties in a material way),
termination by the executive for Good Reason (as defined therein, which
definition includes the failure by the Company to pay the compensation and
benefits required by the agreement and a material diminishment in the duties
of the executive), or until terminated by either party upon 12 months notice.
Messrs. Maddock and Norridge are entitled to (pounds)80,900 and
(pounds)79,000 base salary, respectively, subject to review annually, a bonus
calculated and paid in accordance with the provisions of the management bonus
scheme, an additional payment of (pounds)56,250 for each of 1998 and 1999,
pension benefits at least equal in value to the benefits the executive would
have been entitled to under the previous benefit plan in which such executive
participated, and various other benefits. The executive may terminate the
agreement at any time for Good Reason, in which case the executive is
entitled to receive his annual base salary immediately prior to termination
for an additional 12 months and a lump sum of (pounds)56,250 multiplied by
two minus the number of times the executive received this additional payment.
The executive is also entitled to continue participating in the medical,
dental and life insurance plans for one year or until he receives equivalent
benefits from a new employer.
EQUITY INCENTIVE PLAN
In connection with the Recapitalization, the Company committed to
establish a new equity incentive plan to attract and retain key personnel,
including senior management, and to enhance their interest in the Company's
continued success. Holdings reserved 1,186.0849 shares of Holdings Nonvoting
Common Stock and 4,328.25 shares of Holdings Series C Junior Voting Preferred
Stock with a value of $8.1 million on March 30, 1998 for this plan (such shares
to be denominated in 8,100 units consisting of 0.1464 shares of Holdings
Nonvoting Common Stock and 0.5344 shares of Holdings Series C Junior Voting
Preferred Stock (the "Equity Units")). The Company has committed to make an
initial option grant to each member of the Company's senior management on March
30, 1998 under such executive's employment agreement. Mr. Erwin is to be granted
1,990 Equity Units (representing 291.3 shares of Holdings Nonvoting Common Stock
and 1,063.5 shares of Holdings Series C Junior Voting Preferred Stock) Messrs.
Doolan, Niespodziani, Maddock and Norridge each are to be granted 676 Equity
Units (representing 99.0 shares of Holdings Nonvoting Common Stock and 361.3
shares of Holdings Series C Junior Voting Preferred Stock). The initial exercise
price of each Equity Unit covered by the initial option grants to the members of
the Company's senior management is to be $1,000. The Company does not anticipate
making additional option grants to these executives under the plan, but does
anticipate making grants to other or to new members of management. Options not
previously exercised or terminated will expire ten years from the date of grant.
The Company is in the process of establishing the vesting terms for such Equity
Units.
67
<PAGE>
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth the number and percentage of outstanding
shares of voting stock of Holdings beneficially owned by: (i) each executive
officer of Holdings and MMH and each director of Holdings and MMH; (ii) all
directors of Holdings and MMH and all executive officers of Holdings and MMH as
a group; and (iii) each person known by Holdings to own beneficially more than
five percent of Holdings voting stock, respectively. Holdings believes that each
individual or entity named has sole investment and voting power with respect to
shares of voting stock of Holdings indicated as beneficially owned by them,
except as otherwise noted.
<TABLE>
<CAPTION>
VOTING PERCENT SERIES C PERCENT
NAME AND ADDRESS OF BENEFICIAL OWNER COMMON STOCK OF CLASS PREFERRED STOCK OF CLASS
- ------------------------------------ ------------ -------- --------------- --------
<S> <C> <C> <C> <C>
5% OWNERS:
Chartwell L.P. (a).......................................... 7,907 77.8% 28,855 100.0%
c/o KPMG
Genesis Building
448 GT
Grand Cayman
Cayman Islands
Harnischfeger Corporation................................... 2,261 22.2% -- --
3600 South Lake Drive
St. Francis, Wisconsin 53235
Executive Officers and Directors:
Todd R. Berman (b).......................................... 7,907 77.8% 28,855 100.0%
Michael S. Shein (b)........................................ 7,907 77.8% 28,855 100.0%
Michael S. Erwin (c)........................................ -- -- -- --
David D. Smith (c).......................................... -- -- -- --
Peter A. Kerrick (c)........................................ -- -- -- --
Richard J. Niespodziani (c)................................. -- -- -- --
Edward J. Doolan (c)........................................ -- -- -- --
K. Bruce Norridge (c)....................................... -- -- -- --
Michael J. Maddock (c)...................................... -- -- -- --
Martin L. Ditkof (c)........................................ -- -- -- --
Jay R. Bloom................................................ -- -- -- --
Robert W. Hale.............................................. -- -- -- --
Malcolm Lassman.............................................
Michael R. Young............................................ -- -- -- --
Larry Zine.................................................. -- -- -- --
All directors and officers as a group (14 persons).......... 7,907 77.8% 28,855 100.0%
</TABLE>
- --------------
(a) Chartwell L.P., a Cayman Islands limited partnership, is the managing
member of Frasier L.L.C., a Delaware limited liability company, and of
Niles L.L.C., a Delaware limited liability company, which own 62.4% and
37.6%, respectively, of the shares of common stock of MHE Investments,
a Delaware corporation. MHE Investments, in turn, owns 77.8% of the
shares of Holdings Voting Common Stock and 100.0% of the Holdings
Series C Junior Voting Preferred Stock. The general partner of
Chartwell L.P. is Chartwell G.P. Corp., a Cayman Islands company.
Chartwell G.P. Corp. may be deemed to beneficially own all of the
shares of Holdings beneficially owned by Chartwell L.P. Mr. Donald
Gales owns all of the issued and outstanding capital stock of Chartwell
G.P. Corp. and, consequently, may be deemed to beneficially own all of
the shares of Holdings beneficially owned by Chartwell G.P. Corp.
However, Holdings has been advised by each of Chartwell L.P., Chartwell
G.P. Corp. and Mr. Gales that each disclaims beneficial ownership of
such Holdings shares. Todd R. Berman, who is Chairman of the Board of
Holdings and MMH, is a limited partner of Chartwell L.P. Michael S.
Shein, who serves as a director and Vice President of Holdings and as a
director of MMH, is also a limited partner of Chartwell L.P. Mr. Berman
and Mr. Shein are the managers of Frasier L.L.C. and Niles L.L.C.
Concurrent with the Recapitalization Closing, an affiliate of CIBC
Oppenheimer Corp., the initial purchaser in the offering of Series A
Units, acquired an approximately 25.0% interest in each of Frasier
L.L.C. and Niles L.L.C. Accordingly, CIBC Oppenheimer Corp. holds an
indirect equity interest in 19.4% of the shares of voting common stock
of Holdings, but does not have any beneficial ownership in such shares.
Jay R. Bloom, who is a director of Holdings, is a Managing Director of
CIBC Oppenheimer Corp.
(b) Chartwell L.P., a Cayman Islands limited partnership, is the managing
member of Frasier L.L.C., a Delaware limited liability company, and of
Niles L.L.C., a Delaware limited liability company, which together own
100.0% of the shares of common stock of MHE Investments, a Delaware
corporation. MHE Investments, in turn, owns 77.8% of the shares of
Holdings Voting Common Stock and 100.0% of the Holdings Series C Junior
Voting Preferred Stock. Todd R. Berman, who is Chairman of the Board of
Holdings and MMH, is a limited partner of Chartwell L.P. Michael S.
Shein, who serves as a director and Vice President of Holdings and as a
director of MMH, is also a limited partner of Chartwell L.P. Mr.
68
<PAGE>
Berman and Mr. Shein are the managers of Frasier L.L.C. and Niles
L.L.C. The address of each of Mr. Berman and Mr. Shein is c/o Chartwell
Investments Inc., 717 Fifth Avenue, 23rd Floor, New York, New York
10022.
(c) Concurrent with the Recapitalization Closing, members of the Company's
senior management purchased $900,000 of equity interests of Niles
L.L.C., constituting 4.4% of the total equity interest in Niles L.L.C.
Accordingly, members of the Company's senior management collectively
hold an indirect equity interest in 1.3% of the shares of Holdings
Voting Common Stock, but do not have any beneficial ownership interests
in such shares.
69
<PAGE>
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
RELATIONSHIP WITH HARNISCHFEGER
Until the Recapitalization Closing, HII and/or HarnCo performed
centrally a number of functions necessary for the operations of the Company.
Under a management services arrangement with HII, the Company was provided with
certain services, including, but not limited to, matters of organization and
administration, cash management, labor relations, employee benefits, public
relations, financial policies and practices, taxation and legal affairs
(intellectual property, environmental, labor, securities and ERISA compliance,
as well as assistance with product liability cases). The annual fee charged the
Company for these services was based upon a pro rata share of corporate
administration costs using an allocation methodology based on consolidated
worldwide sales. Such fees totaled approximately $1.2 million in fiscal 1998.
Prior to the consummation of the Transactions, the Company also
obtained volume discounts by entering into joint purchase agreements in the
United States with HII, HII's mining equipment operations unit ("Mining") and
paper equipment operations unit ("Paper") for items such as bearings, motors,
steel, maintenance, repair and operational supplies, domestic telephone service
and rates, and fleet and equipment leases (including master capital leases for
vehicles and other equipment). In the United Kingdom, the Company, Mining and
Paper entered into joint purchase agreements for energy, steel and automobile
leases. The Company also had a joint banking program with the other HII
affiliates and participated in a consolidated pension plan in the United
Kingdom. Until August 31, 1998, the Company's hourly shop employees at its Oak
Creek, Wisconsin facility were covered by a collective bargaining agreement
between HarnCo and the United Steelworkers of America, Local 1114 that also
covered certain employees of Mining. Effective September 1, 1998, these
employees were covered by a renegotiated collective bargaining agreement between
the Company and the United Steelworkers of America, Local 1114.
In addition, computer hardware, software licenses and other technology
necessary to operate the Company were owned and/or held by HII and/or HarnCo and
were used by HarnCo. Virtually all information systems necessary to the United
States operations of the Company were shared with HarnCo. Furthermore, the
Company (including all of its foreign operations) was insured pursuant to HII's
insurance program until March 30, 1998. Effective April 1, 1998, the Company
obtained its own insurance coverage, with the exception of medical, dental, life
and long-term disability insurance, which the Company obtained effective January
1, 1999 . The Company had a number of other arrangements with HII, HarnCo and/or
their affiliates, including tax allocation agreements and inter-company notes,
all of which terminated upon consummation of the Transactions.
Throughout fiscal 1998, the Company also sold certain products and
services to Paper and Mining at negotiated rates and performed certain
administrative functions for HarnCo in Mexico. Sales to Mining and Paper
amounted to $3.2 million during fiscal 1998. In addition, Mining and Paper
provided certain products and services to the Company which management estimates
amounted to approximately $12.4 million in fiscal 1998. HarnCo manufactured
electric motors, fabricated larger steel girders and did machining on certain
cranes for the Company at cost or at cost plus a percentage. Mining and Paper
also acted as motor rewind subcontractors for the Company. It is contemplated
that these transactions, none of which individually or in the aggregate are
significant to the Company, will continue in the future.
Prior to March 30, 1998, in a number of instances, HII, HarnCo and/or
the Non-MHE HarnCo Affiliates provided contracting credit support in connection
with the Company's business. Certain customers for large crane supply contracts
require the supplier to provide contracting credit support and/or parent
guarantees of performance. This credit support included HarnCo and the Non-MHE
HarnCo Affiliates: (i) providing working capital; (ii) guaranteeing financial
and performance obligations with respect to customer and supply contracts and
relationships; (iii) providing collateral and credit support with respect to
letters of credit, surety bonds or other arrangements of the MHE Business; and
(iv) otherwise being directly and contingently liable for the MHE Business's
obligations (collectively, the "Credit Support Obligations"). In addition, HII
and/or HarnCo guaranteed Company debt and the Company's performance under
certain real estate, vehicle and equipment leases. At October 31, 1998, there
was approximately $33.3 million outstanding under the letters of credit and
bonds provided by HarnCo and Non-MHE HarnCo Affiliates. At October 31, 1998,
HarnCo continues to be shown as the guarantor on the Birmingham, Alabama
facility lease with the Industrial Revenue Board of Birmingham.
Management believes that in the aggregate these products and services
can be obtained on comparable terms from third parties.
70
<PAGE>
HARNISCHFEGER SEPARATION AGREEMENT
The organizational structure of Holdings and its subsidiaries was
substantially reorganized in connection with the anticipated sale of the MHE
Business. In connection therewith, in October 1997 HarnCo transferred the assets
of its Material Handling Equipment Division to MHLLC, a newly-created
wholly-owned subsidiary of the Company. All non-cash assets held by HarnCo and
used exclusively by the MHE Division were transferred or, in the case of leased
personal property, subleased to MHLLC or to one of its affiliates. In return,
MHLLC assumed substantially all of the liabilities of HarnCo and the Non-MHE
HarnCo Affiliates relating to the MHE Business (other than as described below).
HarnCo has retained certain income and other tax liabilities relating
to the MHE Business, all environmental liabilities relating to the ownership or
operation of any shared facilities and of HarnCo's Orchard Street facility, any
liabilities for which HarnCo or its affiliates have been named as potentially
responsible parties with respect to two 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. In addition, among other matters, HarnCo and
certain of HarnCo's affiliates have retained all liability for medical and
disability benefit claims for current United States employees made prior to the
Recapitalization Closing, all claims by United States employees who were on
short-term or long-term disability as of the Recapitalization Closing and all
claims with respect to any of the HII benefit plans for former United States
employees of the Company.
TRADEMARK LICENSE AGREEMENT
On March 30, 1998, the Company entered into a trademark licensing
agreement with Harnischfeger Technologies, Inc. ("HTI"), a subsidiary of HarnCo,
pursuant to which the Company was granted a sole and exclusive worldwide license
to use the "P&H" trade name, trademark and service mark on or in connection with
the MHE Business. The term of the license for original equipment is 15 years
after the earlier to occur of (i) the sale of Holdings to an unaffiliated third
party or (ii) the consummation of a public offering of the common stock of
Holdings, the Company or their parents or successors. The term of the license
for aftermarket parts and services is for an additional seven years. The license
agreement provides for a royalty payment to HTI during the ten year period
commencing March 30, 1999 equal to 0.75% of the total net sales of the MHE
Business. There will be no royalty fee for the remainder of the term.
COMPONENT AND MANUFACTURED PRODUCTS SUPPLY AGREEMENT
At the Recapitalization Closing, the Company entered into a two year
agreement with HarnCo pursuant to which HarnCo is to sell, or have its
affiliates sell, to the Company and to its subsidiaries located in the United
States, at cost, certain products, repair parts and rebuilds as have been
previously manufactured by HarnCo for the Company. The price for these products
is the fully absorbed standard cost for normal production products and repair
parts, and the fully absorbed job cost for rebuilds and repairs.
TRANSITION SERVICES AGREEMENT
On March 30, 1998, the Company entered into a Transition Services
Agreement with HarnCo pursuant to which HarnCo and/or its affiliates provide the
Company and the Company's subsidiaries located in the United States certain
specified transition services for a set monthly price per service, plus cost
sharing in certain instances, for periods ranging up to three years. These
services had been provided historically, and for all of fiscal 1998, but were
not covered by a written agreement until the date of the Transactions. These
services include financial support (including payroll, accounts payable and some
accounting), MIS support (including mainframe applications, PC support,
engineering applications, maintenance, shared products and telephone system
support), human resources support (including assistance in union negotiations,
processing support for workers' compensation claims, screening and hiring of
hourly employees and benefits administration), shared space, warehouse services
for repair parts at one of HarnCo's facilities until July 1998, order
processing, office space and lobby services at HarnCo's offices, employee
communications, use of corporate aircraft owned by HarnCo or its affiliates, and
all traffic functions and transportation of materials between Milwaukee area
operations until May 1998. The Company was charged $5.0 million for such
services during fiscal 1998 and estimates it will be charged $2.5 million in
fiscal 1999. The charge will continue to decrease as certain of the services
provided by HarnCo become no longer necessary.
71
<PAGE>
HEALTH AND WELFARE ARRANGEMENTS
Under the terms of the Recapitalization Agreement, the current United
States employees of the Company continued to participate, from the
Recapitalization Closing until December 31, 1998, in the medical, dental, life
and long-term disability insurance benefit plans that were sponsored by HarnCo
for the benefit of these employees as of the Recapitalization Closing. The
Company is to pay HarnCo the cost of all benefits provided under these plans.
STOCKHOLDERS AGREEMENT
At the Recapitalization Closing, Holdings entered into a stockholders'
agreement and registration rights agreement with HarnCo and MHE Investments (the
"Stockholders' Agreement") pursuant to which HarnCo has the right to appoint a
representative to the board of directors of Holdings, so long as HarnCo owns at
least 5% of the outstanding Holdings Voting Common Stock. Certain actions by
Holdings require HarnCo's approval, including non-pro rata redemptions, certain
post-closing affiliate and insider transactions, granting of conflicting rights
or entering into conflicting agreements, and dividends or distributions on, or
redemptions or purchases of, any junior equity stock at any time when dividends
are in arrears on the Holdings Series B Junior Preferred Stock owned by HarnCo.
The Stockholders' Agreement also provides that HarnCo has the right to purchase
its pro rata share of future issuances of Holdings Common Stock except for
issuances of management stock and options and common stock sold in an
underwritten public offering. HarnCo's shares are subject to a right of first
refusal in favor of Holdings and its designees and certain other rights.
CREDIT INDEMNIFICATION AGREEMENT
On March 30, 1998, HII and the Company entered into a Credit
Indemnification Agreement pursuant to which HII will maintain in place the
Credit Support Obligations in existence on March 30, 1998 but have no further
duty to extend, renew or enter into any new Credit Support Obligations, other
than with respect to the MHE Business obligations existing at the
Recapitalization Closing. The Company has agreed to pay in advance an annual fee
equal to 1% of the amounts outstanding under each letter of credit and bond
provided by HarnCo and the Non-MHE HarnCo Affiliates (approximately $33.3
million as of October 31, 1998). The Company paid a pro-rated fee of $290,106
for calendar year 1998 at the Recapitalization Closing. HII will 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 pay HII the full amount of future fees
and other expenses that may be paid by HII or its affiliates to third parties in
connection with maintaining the Credit Support Obligations. The Credit
Indemnification Agreement provides that the Company is to reimburse HII on
demand for any payment made by HII or its affiliates under any of the Credit
Support Obligations.
CONFIDENTIALITY AND NON-COMPETITION AGREEMENT
At the Recapitalization Closing, Holdings and HII entered into a
Confidentiality and Non-Competition Agreement, pursuant to which HII agreed, on
behalf of itself and of its subsidiaries, not to, directly or indirectly,
participate or engage in, or assist any person that is engaged in, any business
or enterprise that is competitive with the MHE Business as conducted at the
Recapitalization Closing. In addition, the agreement provides for HII and its
affiliates to maintain in confidence and not use any confidential information of
the MHE Business. The non-compete covenants, which apply worldwide, will be in
effect until the later of (i) the fourth anniversary of the Recapitalization
Closing or (ii) the third anniversary of the date on which a director designated
by HII or its affiliates ceases to serve on the board of directors of Holdings.
HII and its affiliates also agreed not to induce or encourage any current
employee of the Company or any of its affiliates to leave the Company or its
affiliates, and not to employ certain specified officers and employees of the
MHE Business for 18 months after the Recapitalization Closing.
TAX SHARING AGREEMENT
Holdings, its subsidiaries and MHE Investments have entered into a tax
sharing agreement (the "Tax Sharing Agreement") which provides for, among other
things, the allocation of federal, state and local tax liabilities between
Holdings, its subsidiaries and MHE Investments. In general, under the Tax
Sharing Agreement, Holdings and its subsidiaries will be responsible for paying
their allocable share of all income taxes shown to be due on the consolidated
federal (and any comparable state or local) income tax return filed by MHE
Investments.
72
<PAGE>
LOANS TO MANAGEMENT
At the Recapitalization Closing, the Company made short-term loans in
an aggregate principal amount of $900,000 to members of the Company's senior
management to purchase equity interests in Niles L.L.C., an indirect minority
shareholder of Holdings, in accordance with the terms of certain promissory
notes, with proceeds from the Senior Notes and/or the New Credit Facility. The
original principal amounts of the loans to Messrs. Erwin, Smith, Kerrick,
Niespodiziani, Doolan, Maddock, Norridge and Ditkof are $250,000, $110,000,
$70,000, $70,000, $100,000, $125,000, $125,000 and $50,000, respectively. At
October 31, 1998, the principal amount of the notes outstanding for Messrs.
Erwin, Smith and Doolan were $50,000, $40,000 and $30,000, respectively. The
remaining balances will be payable upon payment of previously deferred amounts
from the Harnischfeger Rabbi Trust or on March 30, 1999 (whichever is earlier).
All other notes have been paid in full. Interest was charged on each of the
notes at a rate per annum equal at all times to the Federal Short-Term Rate in
effect from time to time, from the date of issuance until such note was repaid
in full. The principal amounts of any loans and the interest thereon will be
payable in full in the event the executive ceases to be employed by the Company
as a result of termination for Cause (as defined therein), or by reason of the
executive's death or resignation for other than Good Reason (as defined
therein), or upon an Event of Default (as defined therein). As collateral for
the notes, each of the executives granted to the Company a security interest in
the equity interests in Niles L.L.C. each of them acquired with the proceeds of
the loans, in their respective Divestiture Bonuses and in any proceeds
therefrom.
CHARTWELL FINANCIAL ADVISORY AGREEMENT
The Company entered into an agreement with Chartwell Investments Inc.,
providing for the payment of fees and reimbursement of expenses to Chartwell
Investments Inc. for acting as financial advisor with respect to the
Transactions, including soliciting, structuring and arranging the financing of
the Transactions. The fees, totaling $5.0 million, equal to 1% of the
consolidated capitalization of Holdings and the reimbursement of expenses, were
paid at the Recapitalization Closing. Mr. Berman and Mr. Shein are,
respectively, Chairman of the Board and a director of each of Holdings and MMH
and both are officers and directors of Chartwell Investments Inc.
CHARTWELL MANAGEMENT CONSULTING AGREEMENT
The Company has entered into a management consulting agreement with
Chartwell Investments Inc. pursuant to which Chartwell Investments Inc. provides
the Company with certain management, advisory and consulting services for a fee
of $1.0 million for each fiscal year of the Company during the term of the
agreement, plus reimbursement of expenses. The term of the management consulting
agreement is 10 years commencing at the Recapitalization Closing and is
renewable for additional one year periods unless the Board of Directors of the
Company gives prior written notice of non-renewal to Chartwell Investments Inc.
Mr. Berman and Mr. Shein are, respectively, Chairman of the Board and a director
of each of Holdings and MMH and both are officers and directors of Chartwell
Investments Inc. The Company paid Chartwell $0.6 million plus expenses during
fiscal 1998.
73
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a)1. FINANCIAL STATEMENTS
Reference should be made to the index included in Item 8 of
this Form 10-K for a complete list of the financial statements
filed as part of this report.
2. FINANCIAL STATEMENT SCHEDULES INCLUDED IN PART IV OF THIS
REPORT
Reference should be made to the index included in Item 8 of
this Form 10-K for a complete list of the financial statements
filed as part of this report.
3. EXHIBITS AND EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT
- ----------- -----------
<S> <C>
2.1(aa) Recapitalization Agreement, dated January 28, 1998, among
Harnischfeger Corporation, the sellers named therein and MHE
Investments, Inc., as amended.
3.1(aa) Second Amended and Restated Certificate of Incorporation of MMH
Holdings, Inc.
3.2(cc) Certificate of Incorporation of Morris Material Handling, Inc.
3.3(aa) Bylaws of MMH Holdings, Inc.
3.4(cc) Bylaws of Morris Material Handling, Inc.
3.5(aa) Certificate of Designations of the Powers, Preferences and
Relative, Participating, Optional and Other Special Rights of 12%
Series A Senior Exchangeable Preferred Stock, and Qualifications,
Limitations and Restrictions Thereof.
3.6(aa) Certificate of Designations of the Powers, Preferences and
Relative, Participating, Optional and Other Special Rights of
12 1/4% Series B Junior Exchangeable Preferred Stock, and
Qualifications, Limitations and Restrictions Thereof.
3.7(aa) Certificate of Designations of the Powers, Preferences and
Relative, Participating, Optional and Other Special Rights of
12 1/2% Series C Junior Preferred Stock, and Qualifications,
Limitations and Restrictions Thereof.
4.1(aa) Preferred Stock Registration Rights Agreement, dated as of March
30, 1998, by and among MMH Holdings, Inc. and CIBC Oppenheimer
Corp.
4.2(cc) Registration Rights Agreement, dated as of March 30, 1998, by and
among Morris Material Handling, Inc, the Guarantors named therein
and CIBC Oppenheimer Corp., Goldman, Sachs & Co. and Indosuez
Capital.
4.3(aa) Common Stock Registration Rights and Stockholders Agreement, dated
as of March 30, 1998, among MMH Holdings, Inc., Chartwell, L.P.
and CIBC Oppenheimer Corp.
4.4(cc) Indenture, dated as of March 30, 1998, between Morris Material
Handling, Inc. and United States Trust Company of New York, as
Trustee, relating to Morris Material Handling, Inc.'s
</TABLE>
74
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT
- ----------- -----------
<S> <C>
9 1/2% Senior Notes due 2008.
4.5(cc) Form of 9 1/2% Senior Note due 2008.
4.6(bb) Credit Agreement, dated March 30, 1998, among MMH Holdings, Inc.,
Morris Material Handling, Inc., Material Handling, LLC, Morris
Material Handling, Ltd., Mondel ULC, Kaverit Steel and Crane ULC
and Canadian Imperial Bank of Commerce, as Administrative Agent,
Credit Agricole Indosuez, as Syndication Agent, BankBoston, N.A.,
as Documentation Agent, and the Lending Institutions listed
therein.
4.7(cc) U.S. Security Agreement, dated as of March 30, 1998, made by
Morris Material Handling, Inc., the Guarantors listed therein, in
favor of Canadian Imperial Bank of Commerce.
4.8(aa) Guarantee, dated as of March 30, 1998, by MMH Holdings, Inc., in
favor and for the benefit of Canadian Imperial Bank of Commerce.
4.9(aa) Guarantee, dated as of March 30, 1998, by each of the subsidiary
Guarantors named therein, in favor and for the benefit of Canadian
Imperial Bank of Commerce.
4.10(aa) Stockholders and Registration Rights Agreement, dated as of March
30, 1998, by and among MMH Holdings, Inc., MHE Investments, Inc.
and Harnischfeger Corporation.
4.11(aa) Form of Indenture dated as of ____________, among MMH Holdings,
Inc., as the Issuer, and _______________, as the Trustee for
$___________ 12% Exchange Debentures Due 2009.
4.12(aa) Form of 12% Exchange Debenture Due 2009.
10.1(aa) Surety Arrangement, dated March 30, 1998, among Reliance Insurance
Companies, MMH Holdings, Morris Material Handling, Inc. and
certain of their subsidiaries.
10.2(aa) Credit Indemnification Agreement between Harnischfeger Industries,
Inc. and Morris Material Handling, Inc., dated as of March 30,
1998.
10.3(aa) Tax Sharing Agreement between MHE Investments, Inc., MMH Holdings,
Inc. and certain of MMH Holdings, Inc.'s subsidiaries, dated March
30, 1998.
10.4(aa) Component and Manufactured Products Supply Agreement between
HarnCo and Morris Material Handling, Inc., dated as of March 30,
1998.
10.5(aa) Transition Services Agreement between HarnCo and Morris Material
Handling, Inc., dated as of March 30, 1998.
10.6(aa) Trademark License Agreement between Harnischfeger Technologies,
Inc. and Morris Material Handling, Inc., dated as of March 30,
1998.
10.7(aa) Management Consulting Agreement between Morris Material Handling,
Inc. and Chartwell Investments Inc., dated March 30, 1998.
10.8(aa) Financial Advisory Agreement between Morris Material Handling,
Inc. and Chartwell Investments Inc., dated March 30, 1998.
10.9(aa) Separation Agreement, dated October 26, 1997, between
Harnischfeger Corporation and Material Handling, LLC.
</TABLE>
75
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT
- ----------- -----------
<S> <C>
10.10(aa) Share and Asset Purchase Agreement between PHMH Holding Company,
James Gann, Sr., James Gann, Jr. and Gail Gann, dated February 14,
1997.
10.11(bb) Employment Agreement, dated March 30, 1998, between Morris
Material Handling, Inc. and Michael S. Erwin.
10.12(bb) Employment Agreement, dated March 30, 1998, between Morris
Material Handling, Inc. and David D. Smith.
10.13(bb) Employment Agreement, dated March 30, 1998, between Morris
Material Handling, Inc. and Martin L. Ditkof.
10.14(bb) Employment Agreement, dated March 30, 1998, between Morris
Material Handling, Inc. and Richard J. Niespodziani.
10.15(bb) Employment Agreement, dated March 30, 1998, between Morris
Material Handling, Inc. and Peter A. Kerrick.
10.16(bb) Employment Agreement, dated March 30, 1998, between Morris
Material Handling, Inc. and Edward J. Doolan.
10.17(bb) Service Agreement, dated March 30, 1998, between Morris Mechanical
Handling Limited and M J Maddock.
10.18(bb) Service Agreement, dated March 30, 1998, between Morris Mechanical
Handling Limited and K B Norridge.
10.19(bb) Form of Promissory Note, dated March 30, 1998, between Michael S.
Erwin and Morris Material Handling, Inc.
10.20(bb) Form of Promissory Note, dated March 30, 1998, between David D.
Smith and Morris Material Handling, Inc.
10.21(bb) Form of Promissory Note, dated March 30, 1998, between Martin L.
Ditkof and Morris Material Handling, Inc.
10.22(bb) Form of Promissory Note, dated March 30, 1998, between Richard J.
Niespodziani and Morris Material Handling, Inc.
10.23(bb) Form of Promissory Note, dated March 30, 1998, between Peter A.
Kerrick and Morris Material Handling, Inc.
10.24(bb) Form of Promissory Note, dated March 30, 1998, between Edward J.
Doolan and Morris Material Handling, Inc.
10.25(bb) Form of Promissory Note, dated March 30, 1998, between M J Maddock
and Morris Material Handling, Inc.
10.26(bb) Form of Promissory Note, dated March 30, 1998, between K B
Norridge and Morris Material Handling, Inc.
10.27* Morris Material Handling Employee Retirement Savings Plan.
22.(aa) Subsidiaries of MMH Holdings, Inc. and Morris Material Handling,
Inc.
</TABLE>
76
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT
- ----------- -----------
<S> <C>
27.* Financial Data Schedule.
</TABLE>
- --------------
(aa) Incorporated by reference to the Issuer's Registration Statement on Form
S-4 (Registration No. 333-52529) filed with the Commission on May 13, 1998.
(bb) Incorporated by reference to Amendment No. 2 to the Issuer's Registration
Statement on Form S-4 (Registration No. 333-52529) filed with the
Commission on July 22, 1998.
(cc) Incorporated by reference to the Company's Registration Statement on Form
S-4 (Registration No. 333-52527) filed with the Commission on May 13, 1998.
* Filed herewith.
(b) REPORTS ON FORM 8-K.
None.
77
<PAGE>
MMH HOLDINGS, INC.
SCHEDULE II
VALUATION AND QUALIFYING ACCOUNTS
(THOUSANDS OF DOLLARS)
<TABLE>
<CAPTION>
Balance at Additions Currency Balance at
Beginning Charged to Translation End of
Classification of Year Expense Deductions (1) Effects Other (2) Year
-------------- ------- ------- -------------- ------- -------- ----
<S> <C> <C> <C> <C> <C> <C>
Allowance Deducted in Balance Sheet
from Accounts Receivable:
For the year ended October 31, 1998
Doubtful accounts $ 1,330 $ 1,219 $ (861) $ (16) $ (66) $ 1,606
------- ------- ------ ----- ----- -------
------- ------- ------ ----- ----- -------
For the year ended October 31, 1997
Doubtful accounts $ 1,408 $ 439 $ (537) $ 20 - $ 1,330
------- ------ ------ ----- -------
------- ------ ------ ----- -------
For the year ended October 31, 1996
Doubtful accounts $ 1,520 $ 354 $ (515) $ 49 - $ 1,408
------- ------ ------ ----- -------
------- ------ ------ ----- -------
</TABLE>
(1) Represents write-off of bad debts, net of recoveries.
(2) Represents reclasses to other reserve accounts.
78
<PAGE>
MORRIS MATERIAL HANDLING, INC.
SCHEDULE II
VALUATION AND QUALIFYING ACCOUNTS
(THOUSANDS OF DOLLARS)
<TABLE>
<CAPTION>
Balance at Additions Currency Balance at
Beginning Charged to Translation End of
Classification of Year Expense Deductions (1) Effects Other (2) Year
-------------- ------- ------- -------------- ------- --------- ----
<S> <C> <C> <C> <C> <C> <C>
Allowance Deducted in Balance Sheet
from Accounts Receivable:
For the year ended October 31, 1998
Doubtful accounts $ 1,330 $ 1,219 $ (861) $ (16) $ (66) $ 1,606
--------- --------- -------- ------- ------- ---------
--------- --------- -------- ------- ------- ---------
For the year ended October 31, 1997
Doubtful accounts $ 1,408 $ 439 $ (537) $ 20 - $ 1,330
--------- --------- -------- ------- ------- ---------
--------- --------- -------- ------- ------- ---------
For the year ended October 31, 1996
Doubtful accounts $ 1,520 $ 354 $ (515) $ 49 - $ 1,408
--------- --------- -------- ------- ------- ---------
--------- --------- -------- ------- ------- ---------
</TABLE>
(1) Represents write-off of bad debts, net of recoveries.
(2) Represents reclasses to other reserve accounts.
79
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
behalf by the undersigned, thereunto duly authorized, on the 29th day of
January, 1999.
MMH HOLDINGS, INC.
By:/s/ Todd R. Berman
-------------------------------
Todd R. Berman
Chairman of the Board
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the date indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ------- -----
<S> <C> <C>
/S/ TODD R. BERMAN Chairman of the Board of Directors January 29, 1999
- -----------------------------
(Todd R. Berman)
/S/ MICHAEL S. ERWIN President, Chief Executive Officer January 29, 1999
- ----------------------------- and Director (Principal Executive Officer)
(Michael S. Erwin)
/S/ DAVID D. SMITH Vice President January 29, 1999
- ----------------------------- (Principal Financial and Accounting Officer)
(David D. Smith)
/S/ MICHAEL S. SHEIN Vice President and Director January 29, 1999
- -----------------------------
(Michael S. Shein)
/S/ JAY R. BLOOM Director January 29, 1999
- -----------------------------
(Jay R. Bloom)
/S/ ROBERT W. HALE Director January 29, 1999
- -----------------------------
(Robert W. Hale)
/S/ MALCOLM LASSMAN Director January 29, 1999
- -----------------------------
(Malcolm Lassman)
/S/ MICHAEL R. YOUNG Director January 29, 1999
- -----------------------------
(Michael R. Young)
/S/ LARRY ZINE Director January 29, 1999
- -----------------------------
(Larry Zine)
</TABLE>
80
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
behalf by the undersigned, thereunto duly authorized, on the 29th day of
January, 1999.
MORRIS MATERIAL HANDLING, INC.
By:/s/Todd R. Berman
-------------------------------
Todd R. Berman
Chairman of the Board
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the date indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- -----
<S> <C> <C>
/S/ TODD R. BERMAN Chairman of the Board of Directors January 29, 1999
-----------------------------
(Todd R. Berman)
/S/ MICHAEL S. ERWIN President, Chief Executive Officer January 29, 1999
----------------------------- and Director (Principal Executive Officer)
(Michael S. Erwin)
/S/ DAVID D. SMITH Vice President January 29, 1999
- ----------------------------- (Principal Financial and Accounting Officer)
(David D. Smith)
/S/ MICHAEL S. SHEIN Director January 29, 1999
-----------------------------
(Michael S. Shein)
</TABLE>
81
<PAGE>
SUPPLEMENTAL INFORMATION TO BE FURNISHED
WITH REPORTS FILED PURSUANT TO SECTION 15(d)
OF THE ACT BY REGISTRANTS WHICH HAVE NOT
REGISTERED SECURITIES PURSUANT TO SECTION 12 OF THE ACT
No annual report or proxy material has been sent to security holders of either
Holdings or MMH.
82
<PAGE>
Exhibit 10.27
062498
MORRIS MATERIAL HANDLING
EMPLOYEE RETIREMENT
SAVINGS PLAN
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
ARTICLE/SECTION TITLE/SECTION HEADINGS PAGE
- --------------- ---------------------- -----
PREAMBLE
<S> <C> <C> <C>
I DEFINITIONS 1
1.01 Accounting Year 1
1.02 Accounts 1
1.03 Affiliate 1
1.04 Beneficiary 1
1.05 Board of Directors 1
1.06 Code 1
1.07 Committee 1
1.08 Compensation 2
1.09 Effective Date 2
1.10 Employee 2
1.11 Employee After-Tax Contributions 2
1.12 Employee After-Tax Contribution Account 2
1.13 Employee Pre-Tax Contributions 3
1.14 Employee Pre-Tax Contribution Account 3
1.15 Employer or Employers 3
1.16 Employer Discretionary Contributions 3
1.17 Employer Discretionary Contribution Account 3
1.18 Employer Fixed Contributions 3
1.19 Employer Fixed Contribution Account 3
1.20 Employer Matching Contributions 4
1.21 Employer Matching Contribution Account 4
1.22 Employer Qualified Non-Elective Contributions 4
1.23 Employer Qualified Non-Elective
Contribution Account 4
1.24 Employer Transition Contributions 4
1.25 Employer Transition Contribution Account 4
1.26 Entry Date 4
1.27 ERISA 4
1.28 Highly Compensated Employee 4
1.29 Investment Funds 5
1.30 Nondiscrimination Compensation 5
1.31 Nonhighly Compensated Employee 5
1.32 Normal Retirement Age 5
1.33 Participant 5
1.34 Plan 5
1.35 Rollover Account 5
1.36 Section 415 Compensation 5
1.37 Service 6
` 1.38 Sponsoring Employer 6
1.39 Spouse 6
</TABLE>
<PAGE>
TABLE OF CONTENTS (CONT.)
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ARTICLE/SECTION TITLE/SECTION HEADINGS PAGE
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1.40 Trust Agreement 6
1.41 Trustee 6
1.42 Trust Fund 7
1.43 Valuation Date 7
1.44 Non-Gender Clause 7
II PARTICIPATION 8
2.01 Eligibility to Participate 8
2.02 Transfer of Employment/Change
of Employment Classification 8
III CONTRIBUTIONS 10
3.01 Employee Contributions 10
3.02 Employer Contributions 11
3.03 Forfeitures 12
3.04 Maximum Deductible Contributions 12
3.05 Limitations on Contributions 12
3.06 Section 415 Combined Plans Limit 14
3.07 Mathematical Nondiscrimination Test for
Employee Pre-Tax Contributions; Disposition
of Excess Amounts 15
3.08 Mathematical Nondiscrimination Test for Employee
After-Tax and Employer Matching Contributions;
Disposition of Excess Amounts 17
3.09 Rollover Contributions 19
3.10 Military Leave 20
IV ACCOUNTS OF PARTICIPANTS 21
4.01 Investment Funds 21
4.02 Investment of Accounts 21
4.03 Valuation of Trust Fund and Investment Funds 21
4.04 Adjustment of Participant Accounts 21
4.05 Trustee's and Committee's Determination Binding 22
V DISTRIBUTIONS UNDER THE PLAN 23
5.01 Valuation of Accounts for Distribution 23
5.02 Distributable Events/Amount of Distributions 23
5.03 Timing of Distributions 23
5.04 Forms of Distributions 24
5.05 Qualified Domestic Relations Orders 24
5.06 In-Service Withdrawals by Participants 24
5.07 Direct Rollovers to Eligible Retirement Plans 26
</TABLE>
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TABLE OF CONTENTS (CONT.)
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ARTICLE/SECTION TITLE/SECTION HEADINGS PAGE
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VI PLAN LOANS 27
6.01 Loans 27
VII ADMINISTRATION 29
7.01 Fiduciaries/Allocation of Fiduciary Responsibilities 29
7.02 Committee 29
7.03 Committee's Powers and Duties 30
7.04 Claims Procedure 31
7.05 Claim Review Procedure 31
7.06 Indemnification 31
7.07 Payment of Expenses 31
VIII THE TRUST FUND AND THE TRUSTEE 32
8.01 Trust Agreement 32
8.02 Separate Investment Funds 32
8.03 Non-Reversion; Exclusive Benefit Clause 32
8.04 Removal of Trustee 32
8.05 Powers of Trustee 32
8.06 Trust Agreement Part of the Plan 32
8.07 Trustee's Settlement of Accounts 32
IX AMENDMENT AND TERMINATION 33
9.01 Amendment 33
9.02 Termination 33
9.03 Distribution of Accounts Upon Plan Termination 33
X ENTRY AND WITHDRAWAL OF AN EMPLOYER 34
10.01 Entry of an Employer 34
10.02 Withdrawal of an Employer 34
XI MISCELLANEOUS PROVISIONS 35
11.01 Plan Merger, Consolidation or Transfer of Assets 35
11.02 No Assignment of Benefits 35
11.03 Plan Voluntary 35
11.04 Reservation of Right to Suspend or
Discontinue Contributions 35
11.05 Non-Guarantee of Employment 35
11.06 Governing Law 36
11.07 Facility of Payment 36
11.08 Severability 36
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TABLE OF CONTENTS (CONT.)
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11.09 Construction of Plan Document 36
11.10 Plan in Effect at Termination of
Employment Controls 36
XII TOP-HEAVY PLAN PROVISIONS 37
12.01 Application 37
12.02 Special Minimum Benefit 38
12.03 Special Combined Plans Limit 38
12.04 Key Employee Defined 38
12.05 Aggregation Group of Plans Defined 39
SIGNATURES 39
</TABLE>
<PAGE>
MORRIS MATERIAL HANDLING
EMPLOYEE RETIREMENT SAVINGS PLAN
PREAMBLE
Effective March 30, 1998, Morris Material Handling, Inc., a Delaware
corporation, (hereinafter referred to as the "Sponsoring Employer" or as an
"Employer") established the Morris Material Handling Employee Retirement Savings
Plan and Trust for the benefit of its eligible employees. Soon thereafter, a
portion of the Harnischfeger Industries Employees Savings Plan was spun off and
merged with this Plan.
It is intended that this Plan shall be approved and qualified by the Internal
Revenue Service as satisfying the pertinent requirements of the Internal Revenue
Code with respect to employee plans and trusts so that (1) the contributions
resulting from reduction of wages by participants will not be subject to federal
income tax when made; (2) the employers may deduct for federal income tax
purposes their contributions to the Trust Fund; (3) the employers' contributions
so made and the income of the Trust Fund shall not be taxable to the
participants as income until received; and (4) the income of the Trust Fund
shall be exempt from federal income tax.
It is also intended that this Plan and Trust shall satisfy the pertinent
requirements of the Employee Retirement Income Security Act of 1974, as amended,
and the Plan and Trust shall be interpreted, wherever possible, to comply with
the terms of such Act.
<PAGE>
ARTICLE I
DEFINITIONS
The following terms, as used in this Plan, shall have the meaning specified in
this Article I, unless a different meaning is clearly required by the context in
which it is used:
SECTION 1.01 The term "ACCOUNTING YEAR" shall mean a twelve (12) month period
beginning on each January 1 and ending on the following December 31, provided
that there shall be an initial short Accounting Year beginning March 30, 1998
and ending December 31, 1998. The Accounting Year is the "Plan Year" for this
Plan.
SECTION 1.02 The term "ACCOUNTS" shall mean, if applicable, a Participant's
Employee Pre-Tax Contribution Account, Employee After-Tax Contribution Account,
Employer Matching Contribution Account, Employer Discretionary Contribution
Account, Employer Fixed Contribution Account, Employer Transition Contribution
Account, Employer Qualified Non-Elective Contribution Account and his Rollover
Account.
SECTION 1.03 The term "AFFILIATE" shall mean any corporation or unincorporated
trade or business which is a member of a group to which an Employer belongs that
is a controlled group of corporations, a group of controlled trades or
businesses (whether or not incorporated), or an affiliated service group, as
such terms are defined in Sections 414(b), (c), (m) and (o) of the Internal
Revenue Code.
SECTION 1.04 The term "BENEFICIARY" shall mean the Spouse of the Participant,
or, in the event that either:
(i) the Participant has no Spouse at his death; or
(ii) his surviving Spouse has consented to the designation of another
Beneficiary, in writing, specifically identifying the Beneficiary
with respect to which consent is given and witnessed by a Plan
representative or a notary public,
the person or persons (including a trust) designated by the Participant in the
latest written notice to the Committee. The Participant shall have the right to
change his Beneficiary from time to time in the manner hereinabove described. In
the event no designation is effective, upon the Participant's death, his
Accounts shall be paid to his estate.
SECTION 1.05 The term "BOARD OF DIRECTORS" shall mean the Board of Directors of
the Sponsoring Employer.
SECTION 1.06 The term "CODE" shall mean the Internal Revenue Code of 1986, as
amended from time to time.
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SECTION 1.07 The term "COMMITTEE" shall mean the Committee provided for in
Article VII hereof.
SECTION 1.08 The term "COMPENSATION" shall mean, with respect to each Accounting
Year, a Participant's total compensation paid by an Employer for the Accounting
Year, including Employee Pre-Tax Contributions to this Plan and amounts
contributed pursuant to a salary reduction arrangement under Section 125 of the
Code, but excluding nontaxable fringe benefits. Notwithstanding the above, the
term "Compensation" shall exclude profit sharing bonus payments as provided in
Sections 3.01(e) and 3.02(a).
No amount in excess of one hundred sixty thousand dollars ($160,000) (as such
amount may be adjusted by the Secretary of the Treasury, pursuant to Section
401(a)(17) of the Code) for any Accounting Year shall be treated as Compensation
for purposes of this Plan (provided that this annual limit will be prorated for
the initial short Accounting Year beginning March 30, 1998 and ending December
31, 1998).
SECTION 1.09 The term "EFFECTIVE DATE" shall mean March 30, 1998, the effective
date of the Plan.
SECTION 1.10 The term "EMPLOYEE" shall mean each current or future Employee of
an Employer other than leased employees and employees covered by collective
bargaining agreements which do not provide for their participation in the Plan.
For purposes of this Section, the term "leased employee" shall mean any person
(other than an Employee of the recipient) who pursuant to an agreement between
the recipient and any other person ("leasing organization") has performed
services for the recipient (or for the recipient and related persons determined
in accordance with Section 414(n)(6) of the Code) on a substantially full-time
basis for a period of at least one (1) year, and such services are performed
under the primary direction and control of an Employer.
In addition, the term Employee shall exclude individuals during the period when
they are not designated as "employees" in an Employer's employment records. The
individuals excluded under this paragraph shall include, but not be limited to,
individuals who are engaged by an Employer to perform services for an Employer
in a relationship that the Employer characterizes as other than an employment
relationship. For example, individuals engaged to perform services in a
relationship which an Employer characterizes as that of an "independent
contractor" with respect to the Employer shall not be Employees. Likewise,
individuals whose services an Employer leases from a third party shall not be
Employees. The individuals excluded under this paragraph shall not be Employees
during a period, even if a determination is made by the Internal Revenue
Service, the United States Department of Labor, another governmental agency, a
court or other tribunal that the individual is an "employee" of an Employer
during that period, for purposes of the Code or for any other purpose. An
individual who has not been an Employee on account of this paragraph shall be an
Employee effective on the date as of which an Employer characterizes the
individual as an "employee" in the Employer's employment records, if, on that
date, the individual also meets the other requirements of this Section.
SECTION 1.11 The term "EMPLOYEE AFTER-TAX CONTRIBUTIONS" shall mean the
contributions made by the Participant pursuant to Section 3.01(b) hereof.
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SECTION 1.12 The term "EMPLOYEE AFTER-TAX CONTRIBUTION ACCOUNT" shall mean the
account established on behalf of a Participant to which shall be credited (i) an
amount which represents the transfer of the Participant's after-tax contribution
account from the Harnischfeger Industries Employees Savings Plan, (ii) the
amount of his contributions pursuant to Section 3.01(b), and (iii) the account's
proportionate share of any net investment gains, determined in accordance with
Article IV. From said account, its proportionate share of any net investment
losses, determined in accordance with Article IV, and any benefit payments,
withdrawals or other disbursements shall be deducted. The Participant's interest
in his Employee After-Tax Contribution Account shall be fully vested and
nonforfeitable at all times.
SECTION 1.13 The term "EMPLOYEE PRE-TAX CONTRIBUTIONS" shall mean the
contributions made by a Participant pursuant to Section 3.01(a) hereof which are
considered "elective deferrals" as described in Section 402(g)(3) of the Code.
SECTION 1.14 The term "EMPLOYEE PRE-TAX CONTRIBUTION ACCOUNT" shall mean the
account established on behalf of a Participant to which shall be credited: (i)
an amount which represents the transfer of the Participant's pre-tax
contribution account from the Harnischfeger Industries Employees Savings Plan,
(ii) the amount of his contributions pursuant to Section 3.01(a) and (iii) the
account's proportionate share of any net investment gains, determined in
accordance with Article IV. From said account, its proportionate share of any
net investment losses, determined in accordance with Article IV, and any benefit
payments, withdrawals or other disbursements shall be deducted. The
Participant's interest in his Employee Pre-Tax Contribution Account shall be
fully vested and nonforfeitable at all times.
SECTION 1.15 The term "EMPLOYER" or "EMPLOYERS" shall mean the Sponsoring
Employer and any Affiliate who adopts this Plan with the consent of the
Sponsoring Employer and, subject to the provisions of Article XI, any
corporation into which an Employer may be merged or consolidated or to which all
or substantially all of its assets may be transferred.
SECTION 1.16 The term "EMPLOYER DISCRETIONARY CONTRIBUTIONS" shall mean the
additional contributions an Employer may make as described in Section 3.02(b).
SECTION 1.17 The term "EMPLOYER DISCRETIONARY CONTRIBUTION ACCOUNT" shall mean
the account established on behalf of a Participant to which shall be credited:
(i) the amount of any Employer Discretionary Contributions allocated to the
Participant and (ii) the account's proportionate share of any net investment
gains, determined in accordance with Article IV. From said account its
proportionate share of any net investment losses, as determined in accordance
with Article IV, and any benefit payments, or other disbursements shall be
deducted. The Participant's interest in his Employer Discretionary Contribution
Account shall be fully vested and nonforfeitable at all times.
SECTION 1.18 The term "EMPLOYER FIXED CONTRIBUTIONS" shall mean the additional
contributions an Employer shall make as described in Section 3.02(c).
SECTION 1.19 The term "EMPLOYER FIXED CONTRIBUTION ACCOUNT" shall mean the
account established on behalf of a Participant to which shall be credited: (i)
the amount of any Employer Fixed Contributions allocated to the Participant and
(ii) the account's proportionate share of any net investment gains, determined
in accordance with Article IV. From said account, its proportionate share of any
net
3
<PAGE>
investment losses, as determined in accordance with Article IV, and any
benefit payments, or other disbursements shall be deducted. The Participant's
interest in his Employer Discretionary Contribution Account shall be fully
vested and nonforfeitable at all times.
SECTION 1.20 The term "EMPLOYER MATCHING CONTRIBUTIONS" shall mean the matching
contributions an Employer may make as described in Section 3.02(a).
SECTION 1.21 The term "EMPLOYER MATCHING CONTRIBUTION ACCOUNT" shall mean the
account established on behalf of a Participant to which shall be credited: (i)
the amount of any Employer Matching Contributions allocated to the Participant
and (ii) the account's proportionate share of any net investment gains,
determined in accordance with Article IV. From said account its proportionate
share of any net investment losses, as determined in accordance with Article IV,
and any benefit payments or other disbursements shall be deducted. The
Participant's interest in his Employer Matching Contribution Account shall be
fully vested and nonforfeitable at all times.
SECTION 1.22 The term "EMPLOYER QUALIFIED NON-ELECTIVE CONTRIBUTIONS" shall mean
the additional contributions an Employer may make as described in Section
3.02(e).
SECTION 1.23 The term "EMPLOYER QUALIFIED NON-ELECTIVE CONTRIBUTION ACCOUNT"
shall mean the account established on behalf of a Participant to which shall be
credited: (i) the amount of any Employer Qualified Non-Elective Contributions
allocated to the Participant and (ii) the account's proportionate share of any
net investment gains, determined in accordance with Article IV. From said
account, its proportionate share of any net investment losses as determined in
accordance with Article IV, and any benefit payments or other disbursements
shall be deducted. The Participant's interest in his Employer Qualified
Non-Elective Contribution Account shall be fully vested and nonforfeitable at
all times.
SECTION 1.24 The term "EMPLOYER TRANSITION CONTRIBUTIONS" shall mean the
additional contributions an Employer shall make as described in Section 3.02(d).
SECTION 1.25 The term "EMPLOYER TRANSITION CONTRIBUTION ACCOUNT" shall mean the
account established on behalf of a Participant to whom shall be credited: (i)
the amount of any Employer Transition Contributions allocated to the Participant
and (ii) the account's proportionate share of any net investment gains,
determined in accordance with Article IV. From said account, its proportionate
share of any net investment losses, as determined in accordance with Article IV,
and any benefit payments or other disbursements shall be deducted. The
Participant's interest in his Employer Transition Contribution Account shall be
fully vested and nonforfeitable at all times.
SECTION 1.26 The term "ENTRY DATE" shall mean the first day of any payroll
period.
SECTION 1.27 The term "ERISA" shall mean the Employee Retirement Income Security
Act of 1974, as amended from time to time.
SECTION 1.28 The term "HIGHLY COMPENSATED EMPLOYEE" shall mean any Employee of
an Employer or an Affiliate who is described in Section 414(q) of the Code and
the regulations thereunder, and generally means an Employee who is employed by
an Employer during the current
4
<PAGE>
Accounting Year or the previous Accounting Year, whichever is applicable, and is
in one or both of the following groups:
(i) Employees who at any time during the current Accounting Year or
the previous Accounting Year were "five percent (5%) owners" of an
Employer or an Affiliate. A "five percent (5%) owner" is defined
in Section 416(i)(1)(B)(i) of the Code and Section 1.416-1 of the
Treasury Regulations.
(ii) Employees who had Section 415 Compensation during the previous
calendar year from an Employer or an Affiliate in excess of eighty
thousand dollars ($80,000) (as adjusted pursuant to Section 415(d)
of the Code) and, if elected by the Committee, were in the
"top-paid group" of Employees as defined in Section 414(q)(3) of
the Code.
SECTION 1.29 The term "INVESTMENT FUNDS" shall mean the funds established
pursuant to Section 4.01 in which a Participant's Accounts shall be invested.
SECTION 1.30 The term "NONDISCRIMINATION COMPENSATION" shall mean for each
Participant, that portion of his total compensation with respect to an
Accounting Year earned while a Participant which would be nondiscriminatory
within the meaning of Code Section 414(s) and the regulations thereunder. The
Committee may determine the Nondiscrimination Compensation of each Participant
from year to year for purposes of performing the mathematical nondiscrimination
tests described in Sections 3.07 and 3.08, if applicable, and such determination
shall be made consistently among all Participants to the extent required by Code
Section 414(s) and the regulations thereunder.
SECTION 1.31 The term "NONHIGHLY COMPENSATED EMPLOYEE" shall mean any Employee
of an Employer or an Affiliate who is not a Highly Compensated Employee.
SECTION 1.32 The term "NORMAL RETIREMENT AGE" shall mean age sixty-five (65).
SECTION 1.33 The term "PARTICIPANT" shall mean any Employee of an Employer who
has become a Participant as provided in Article II, or any other person with an
Account in the Plan.
SECTION 1.34 The term "PLAN" shall mean the Morris Material Handling Employee
Retirement Savings Plan as set forth herein.
SECTION 1.35 The term "ROLLOVER ACCOUNT" shall mean an account established on
behalf of an Employee to which shall be credited: (i) the value of any amounts
rolled over into this Plan pursuant to Section 3.09 hereof; and (ii) the
Account's proportionate share of any net investment gains. From said Account the
Account's proportionate share of any net investment losses and any benefit
payments, withdrawals or other disbursements shall be deducted. The
Participant's interest in his Rollover Account shall be fully vested and
nonforfeitable.
SECTION 1.36 The term "SECTION 415 COMPENSATION" shall mean for each calendar
year, the Employee's earned income, wages, salaries, fees for professional
services, commissions paid to salesmen, compensation based on a percentage of
profits, bonuses and other amounts received for
5
<PAGE>
personal services actually rendered in the course of employment with his
Employer and excluding the following:
(i) Except as otherwise provided below, any employer contributions to
a plan of deferred compensation to the extent contributions are
not included in the gross income of the Employee for the taxable
year in which contributed, or on behalf of an Employee to a
"simplified employee pension plan" to the extent such
contributions are deductible under Section 219(b)(7) of the Code,
and any distributions from a plan of deferred compensation whether
or not includable in the gross income of the Employee when
distributed;
(ii) Amounts realized from the exercise of a non-qualified stock
option, or when restricted stock (or property) held by an Employee
becomes freely transferable or is no longer subject to a
substantial risk of forfeiture;
(iii) Amounts realized from the sale, exchange or other disposition of
stock acquired under a qualified stock option; and
(iv) Other amounts which receive special tax benefits, such as premiums
for group term life insurance (but only to the extent that the
premiums are not includable in the gross income of the Employee).
In the alternative, the Committee may determine Employees' compensation on the
basis of either (i) his wages subject to federal income tax withholding or (ii)
wages subject to federal income tax withholding plus payments which an Employer
is required to report (on under Code Sections 6041(d) and 6051(a)(3), excluding
moving expense reimbursements which the Employer reasonably believes an Employee
may deduct under Code Section 217. Notwithstanding the preceding provisions of
this Section, in any event Section 415 Compensation shall include Employee
Pre-Tax Contributions to this Plan, elective deferrals (as defined in Code
Section 402(q)(3) to any other plan of an Employer or an Affiliate and amounts
not includable in an Employee's gross income by application of Code Section 125.
SECTION 1.37 The term "SERVICE" shall mean the period for which an Employee is
given credit for the purpose of determining allocations under Section 3.02(d).
An Employee's Service shall be equal to the total number or years (measured from
the date an Employee commences employment until the date the Employee terminates
employment) the Employer or an Affiliate prior to January 1, 1999, but including
employment prior to the Effective Date with Harnischfeger Industries or a
related corporation.
SECTION 1.38 The term "SPONSORING EMPLOYER" shall mean Morris Material Handling,
Inc., a Delaware corporation whose principal offices are located in Oak Creek,
Wisconsin.
SECTION 1.39 The term "SPOUSE" shall mean the legally married husband or wife of
the Participant at the earlier of his date of death or the date benefits
commence to the Participant under this Plan. To the extent required by a
"qualified domestic relations order," as defined in Section 414(p) of the Code,
the term Spouse shall include the former husband or wife of the Participant.
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SECTION 1.40 The term "TRUST AGREEMENT" shall mean the agreement between the
Sponsoring Employer and the Trustee as such agreement may be amended from time
to time.
SECTION 1.41 The term "TRUSTEE" shall mean the Trustee under the Trust Agreement
or any successor or substitute Trustee therefore.
SECTION 1.42 The term "TRUST FUND" shall mean all cash, securities and other
property held by the Trustee pursuant to the terms of the Trust Agreement,
together with any income therefrom.
SECTION 1.43 The term "VALUATION DATE" shall mean every day the New York Stock
Exchange is open.
SECTION 1.44 The term "NON-GENDER CLAUSE" shall mean any words herein used in
the masculine shall be read and construed in the feminine where they would so
apply. Words in the singular shall be read and construed as though used in the
plural in all cases where they would so apply.
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ARTICLE II
PARTICIPATION
SECTION 2.01 - ELIGIBILITY TO PARTICIPATE Each Employee of an Employer shall
become a Participant in this Plan as provided below.
SECTION 2.01(a) - PARTICIPATION Any Employee shall become a Participant
as of the first Entry Date coincident with or immediately following the
Participant's date of hire by an Employer. A Participant may elect to
make Employee Pre-Tax Contributions pursuant to the provisions of
Section 3.01(a) as of the first Entry Date after he becomes eligible by
filing an enrollment form with the Committee. A Participant shall share
in the allocation of Employer Contributions under Section 3.02 based on
his Compensation earned for the entire Accounting Year, if applicable.
Notwithstanding any other provision of the Plan, only Participants who
were participants in the Harnischfeger Industries Salaried Employees
Retirement Plan as of March 30, 1998 will be eligible to share in the
allocation of the Employer Transition Contribution under Section
3.02(d). Furthermore, Participants who are covered by a collective
bargaining agreement are not eligible to share in the allocation of any
Employer Contributions under Section 3.02. Finally, Participants who
were not participants in the Harnischfeger Industries Salaried
Employees Retirement Plan and who are employed at the CMH, BCH, and MPH
locations, are not eligible to share in the allocation of Employer
Contributions under Sections 3.02(a), 3.02(c) or 3.02(d).
SECTION 2.01(b) - PARTICIPATION UPON REEMPLOYMENT OF A FORMER EMPLOYEE
A Participant who terminates employment and later resumes employment
with an Employer as an Employee shall be eligible to become a
Participant on his reemployment date.
SECTION 2.02 - TRANSFER OF EMPLOYMENT/CHANGE OF EMPLOYMENT CLASSIFICATION The
effect under this Plan of a transfer of employment or change in employment
status shall be as set forth in this Section.
SECTION 2.02(a) If a transfer of employment is such that a Participant
is transferred from one Employer to another Employer, he shall continue
to be an active Participant in the Plan. Each Employer shall contribute
to the Plan based only on the Participant's Compensation while an
Employee of that Employer.
SECTION 2.02(b) If a transfer of employment is such that a Participant
is no longer an Employee, but rather is an Employee of an Affiliate
that is not an Employer or the change in employment status is such that
the Participant ceases to be an Employee described in Section 1.10, but
remains employed by an Employer, then:
(i) Such Participant shall become an inactive Participant
and shall share in the allocation of Employer
Contributions, if applicable, for the Accounting Year
in which such transfer of employment occurs. Such
allocation shall be based only on Compensation earned
while an Employee of an Employer.
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Thereafter, the inactive Participant shall cease to
share in the allocation of Employer Contributions, if
applicable, until the date he again becomes an
Employee;
(ii) Such inactive Participant shall not be entitled to
make Employee Pre-Tax Contributions or Employee
After-Tax Contributions to the Plan while he is an
inactive Participant; and
(iii) The inactive Participant's Accounts shall continue to
be held in the Trust Fund for the Plan and shall be
adjusted as provided for in Article IV hereof.
SECTION 2.02(c) If a transfer of employment is such that a person who
was an Employee of a nonparticipating Affiliate first becomes an
Employee, or if an Employee otherwise previously excluded as an
Employee under Section 1.10 becomes an Employee, then he shall be
eligible to become a Participant on his reemployment date (or, if
applicable, the date of his change in employment status.
9
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ARTICLE III
CONTRIBUTIONS
SECTION 3.01 - EMPLOYEE CONTRIBUTIONS Each Employee who becomes a Participant in
this Plan shall specify on an enrollment form or other method approved by the
Committee, the rate of Employee Pre-Tax Contributions he wishes to make, by
payroll deduction, as set forth in this Section 3.01. Such contributions, if
any, shall be transmitted by an Employer to the Trustee as soon as reasonably
practicable after each payroll deduction, but in no event later than the
fifteenth (15) business day of the month following the month of such deduction.
SECTION 3.01(a) - EMPLOYEE PRE-TAX CONTRIBUTIONS A Participant may make
Employee Pre-Tax Contributions of not less than one percent (1%) nor
more than ten percent (10%) of his Compensation for a payroll period,
in one percent (1%) increments.
SECTION 3.01(b) - EMPLOYEE AFTER-TAX CONTRIBUTIONS A Participant may
make Employee After-Tax Contributions of not less than one percent (1%)
nor more than ten percent (10%) of his Compensation for a payroll
period, in one percent (1%) increments. After May 31, 1998, this
Section 3.01(b) shall only apply to Participants who are covered by a
collective bargaining agreement or who are employed at the CMH, BCH and
MPH locations and were not participants in the Harnischfeger Industries
Salaried Employees Retirement Plan.
SECTION 3.01(c) - CHANGE OF CONTRIBUTIONS A Participant may, by giving
notice to the Committee, elect to change the rate of his Employee
Pre-Tax Contributions and/or Employee After-Tax Contributions within
the limitations of Section 3.01(a) and 3.01(b), effective as of any pay
period. Such notice shall be provided to the Committee at least thirty
(30) days (or as otherwise required by the Committee) prior to the pay
period for which the change is to be effective.
SECTION 3.01(d) - SUSPENSION OF CONTRIBUTIONS A Participant may, by
giving notice to the Committee, elect to suspend his Employee Pre-Tax
Contributions and/or Employee After-Tax Contributions in their
entirety, effective as of any pay period. Such notice shall be provided
to the Committee at least thirty (30) days (or as otherwise required by
the Committee) prior to the date it is to be effective. A Participant
may revoke the suspension and resume Employee Pre-Tax Contributions
and/or Employee After-Tax Contributions, effective as of any pay
period, by providing notice to the Committee at least thirty (30) days
(or as otherwise required by the Committee) prior to the pay period for
which the change is to be effective.
SECTION 3.01(e) - SEPARATE ELECTION FOR PROFIT SHARING BONUS For
purposes of Sections 3.01(a) and 3.01(b), the term "Compensation" shall
not include any profit sharing bonus payment; however, a Participant
may make a separate election under Section 3.01(a) with respect to a
profit sharing bonus payment. Furthermore, notwithstanding the
limitations in Section 3.01(a), this separate election shall be either
zero percent (0%) or one hundred
10
<PAGE>
percent (100%) of the Participant's profit sharing bonus payment (after
applicable payroll taxes), provided that for 1998 such separate
election may also be fifty percent (50%).
SECTION 3.02 - EMPLOYER CONTRIBUTIONS The Employers will make contributions on
behalf of eligible Participants as provided in Section 2.01(a) as set forth in
this Section 3.02. The amount of each Employer's contributions shall be paid to
the Trustee either in cash or other property as the Sponsoring Employer may
determine.
SECTION 3.02(a) - EMPLOYER MATCHING CONTRIBUTIONS For each payroll
period in an Accounting Year after March 31, 1998, the Employers will
make an Employer Matching Contribution equal to one hundred percent
(100%) of each eligible Participant's Employee Pre-Tax Contributions
for the payroll period up to three percent (3%) of the Participant's
Compensation for such payroll period plus fifty percent (50%) of such
Participant's Employee Pre-Tax Contributions of the next two percent
(2%) of his Compensation. For purposes of this Section, the term
"Compensation" shall not include any profit sharing bonus payment.
SECTION 3.02(b) - EMPLOYER DISCRETIONARY CONTRIBUTIONS The Employers
may make an Employer Discretionary Contribution to the Plan for an
Accounting Year. Such Employer Discretionary Contribution shall be
allocated as of the last day of the Accounting Year to each eligible
Participant during such Accounting Year. Each such Participant's share
of any Employer Discretionary Contribution made pursuant to this
Section 3.02(b) for an Accounting Year shall be that amount which bears
the same ratio to the total contribution made pursuant to this Section
3.02(b) for the Accounting Year as the Participant's Compensation for
the Accounting Year bears to the Compensation of all Participants
entitled to share in the allocation. For purposes of this Section
3.02(b) Compensation shall exclude management bonuses.
SECTION 3.02(c) - EMPLOYER FIXED CONTRIBUTION The Employers will make
an Employer Fixed Contribution for each Accounting Year. Such Employer
Fixed Contribution shall be allocated as of the last day of an
Accounting Year to each eligible Participant during such Accounting
Year and shall be a fixed percentage of each such Participant's
Compensation for such Accounting Year based on the Participant's
attained age on the last day of such Accounting Year determined as
follows:
<TABLE>
<CAPTION>
PARTICIPANT'S CONTRIBUTION AS A
ATTAINED AGE PERCENTAGE OF COMPENSATION
------------- ----------------------------
<S> <C>
Under 35 0%
35 to 44 1%
45 to 54 3%
55 or older 5%
</TABLE>
SECTION 3.02(d) - EMPLOYER TRANSITION CONTRIBUTION The Employers will
make an Employer Transition Contribution for each Accounting Year. Such
Employer Transition Contribution shall be allocated as of the last day
of an Accounting Year to each eligible Participant during such
Accounting Year and shall be a fixed percentage of each such
11
<PAGE>
Participant's Compensation for such Accounting Year based on the
Participant's attained age and Service as of December 31, 1998
determined as follows:
<TABLE>
<CAPTION>
PARTICIPANT'S ATTAINED CONTRIBUTION AS A
AGE PLUS SERVICE PERCENTAGE OF COMPENSATION
------------------------ --------------------------
<S> <C>
Under 65 0%
65 to 69 2%
70 to 79 3%
80 to 89 4%
90 or older 5%
</TABLE>
SECTION 3.02(e) - EMPLOYER QUALIFIED NON-ELECTIVE CONTRIBUTION The
Employers may choose to make an Employer Qualified Non-Elective
Contribution on behalf of any or all Nonhighly Compensated Employees
for an Accounting Year.
SECTION 3.03 - FORFEITURES A forfeiture is that portion of a terminated
Participant's Fixed Contribution Account, if applicable, which is forfeited
pursuant to Sections 3.05(a) or 3.07 of the Plan. Such forfeitures shall be used
to reduce future Employer Contributions.
SECTION 3.04 - MAXIMUM DEDUCTIBLE CONTRIBUTIONS The contributions of the
Employers shall be subject to the following limitations:
(i) In no event shall an Employer be obligated to make a
contribution for an Accounting Year in excess of the maximum
amount deductible under Section 404(a)(3)(A) of the Code, or
any statute or rule of similar import; and
(ii) The contributions made to the Plan by an Employer are
conditioned upon the following: (a) the contributions are
deductible under Section 404 of the Code; and (b) no good
faith mistake of fact was made in making the contribution. If
a deduction for federal income tax purposes is disallowed
under Section 404 of the Code, the Employer shall withdraw any
such disallowed contribution within one (1) year of receipt by
the Employer of a notice of the disallowance of a claimed
deduction. If within one (1) year of making a contribution, it
is discovered all or part of the contribution was due to a
good faith mistake of fact, the Employer shall withdraw the
portion of the contribution attributable to the mistake within
one (1) year of the contribution.
If the Employer cannot withdraw a contribution, such amount shall be applied to
reduce its Employer Contributions for the next Accounting Year.
SECTION 3.05 - LIMITATIONS ON CONTRIBUTIONS
SECTION 3.05(a) ANNUAL LIMIT ON PRE-TAX CONTRIBUTIONS Notwithstanding
any provision of the Plan to the contrary, in no event shall a
Participant's Employee Pre-Tax Contributions (when combined with other
elective deferrals as defined under Section 402(g)(3) of the Code made
by the Participant under all other plans, contracts or arrangements of
the Employers or their Affiliates), exceed ten thousand dollars
($10,000) in a calendar year (or such other amount which shall result
from adjustments under
12
<PAGE>
Section 415(d) of the Code). The Sponsoring Employer shall monitor each
Participant's Employee Pre-Tax Contributions throughout the year and
may, as necessary, reduce a Participant's Employee Pre-Tax
Contributions if the applicable annual dollar limit will be exceeded.
If it is determined that the Participant has exceeded the limit set
forth in this Section for a calendar year, the excess amount and any
income allocable to such excess amount shall be distributed to the
Participant no later than April 15 following the calendar year in which
such excess contribution was made. Any Employer Matching Contributions
attributable to excess Employee Pre-Tax Contributions, with the income
allocable to such Employer Matching Contributions calculated in
accordance with regulations under Section 401(m) of the Code, shall be
withdrawn from the affected Participants' Accounts and used to reduce
future Employer Matching Contributions as described in Section 3.03.
The return of Employee Pre-Tax Contributions and income and forfeiture
of Employer Matching Contributions and income shall be accomplished by
a proportionate reduction of each affected Participant's investments in
the Investment Funds or as otherwise determined by the Committee.
A distribution shall be made during the same calendar year in which the
excess Employee Pre-Tax Contributions were made, only if (i) the
Participant and the Plan designate the distribution as a distribution
of an excess deferral, and (ii) the distribution is made after the date
on which the Plan received the excess deferral. Even though
distributed, excess Employee Pre-Tax Contributions made by Highly
Compensated Employees shall continue to be considered as Employee
Pre-Tax Contributions for purposes of determining the average deferral
percentage under Section 3.07 for the Accounting Year in which they are
made.
SECTION 3.05(b) SECTION 415 DEFINED CONTRIBUTION LIMITS Notwithstanding
any provisions contained herein to the contrary, except for
contributions to a Rollover Account, the total annual additions to any
Participant's Accounts in this Plan and any other defined contribution
plan of an Employer and Affiliates for any Accounting Year (which shall
be the Plan's limitation year) shall not exceed the lesser of (i)
thirty thousand dollars ($30,000) or one-fourth (1/4) of the dollar
amount described in Section 415(b)(1)(A) of the Code, as such amount
may hereafter be adjusted pursuant to Section 415(d)(1)(B) of the Code,
whichever is greater, or (ii) twenty-five percent (25%) of the
Participant's Section 415 Compensation for such Accounting Year.
The term "annual addition" shall mean the total additions in the
Accounting Year to the Participant's Accounts in this Plan and any
other defined contribution plan of the Employers and Affiliates
attributable to:
(i) employer contributions;
(ii) employee contributions;
(iii) forfeitures; and
(iv) any post-retirement medical benefits or individual
medical accounts maintained under any pension or
annuity plans of the Employers or Affiliates
13
<PAGE>
pursuant to Sections 419(d)(3) and 415(l)(2) of the
Code which are treated as "annual additions" for
purposes of Section 415 of the Code.
If a Participant receives annual additions under another defined
contribution plan of the Employers and Affiliates, as well as under
this Plan, the limitation on aggregate annual additions described in
this Section 3.05(b) shall be complied with by a reduction, if
necessary, in the contributions under this Plan. During each Accounting
Year, the Sponsoring Employer shall monitor the aggregate annual
additions made to defined contribution plans of the Employers and
Affiliates and may suspend or decrease the rate of the Participant's
Employee Pre-Tax Contributions and/or Employee After-Tax Contributions
(and Employer Matching Contributions attributable thereto) so that the
aggregate limit will be satisfied.
If, as a result of a miscalculation of a Participant's Section 415 Compensation
or such other limited circumstances as the Commissioner of Internal Revenue
finds justify the use of the rules described in Treasury Regulation Section
1.415-6(b)(6), it becomes necessary to reduce the annual additions to a
Participant's Accounts, such reduction shall be accomplished by:
(i) A reduction in Participant's Employee After-Tax Contribution
Account during the Accounting Year and the earnings for the
Accounting Year attributable to such Employee After-Tax
Contributions;
(ii) Then by a reduction in the Participant's Employee Pre-Tax
Contribution Account by the amount of any unmatched Employee
Pre-Tax Contributions during the Accounting Year and the earnings
for the Accounting Year attributable to such Employee Pre-Tax
Contributions;
(iii) Then, by a reduction in the Participant's Employee Pre-Tax
Contribution Account by the amount of matched Employee Pre-Tax
Contributions for the Accounting Year and the related earnings and
by a reduction in the Employer Matching Account by the amount of
Employer Matching Contributions attributable to the aforementioned
Employee Pre-Tax Contributions; and
(iv) Then, by a reduction in the Participant's Employer Contribution
Accounts (other than the Employer Matching Account) by the amount
of any Employer Contributions (other than Employer Matching
Contributions) for the Accounting Year.
Such reductions shall be made from the Investment Funds in the manner determined
by the Committee. The amount of any such corrective adjustments attributable to
Employee Pre-Tax Contributions and Employee After-Tax Contributions shall be
accomplished by distributing such amounts. The amount of corrective adjustments
attributable to Employer Contributions shall be held in suspense and applied to
reduce later Employer Contributions to this Plan on behalf of all Participants.
SECTION 3.06 - SECTION 415 COMBINED PLANS LIMIT If a Participant is a
participant in a defined benefit plan maintained by his Employer or an
Affiliate, the sum of his defined benefit plan fraction and his defined
contribution plan fraction for any limitation year may not exceed 1.0.
14
<PAGE>
For purposes of this Section, the term "defined contribution plan fraction"
shall mean a fraction, the numerator of which is the sum of all of the annual
additions to (a) the Participant's Accounts under this Plan and (b) the
Participant's Accounts under any other defined contribution plans which may be
maintained by the Employers and their Affiliates as of the close of the
Accounting Year and the denominator of which is the sum of the lesser of the
following amounts determined for such Accounting Year and for each prior
Accounting Year of his employment by the Employers or their Affiliates:
(i) The product of 1.25 multiplied by the dollar limitation
calculated pursuant to Section 3.05(b) for such Accounting Year;
or
(ii) The product of 1.4 multiplied by the percentage limitation
calculated pursuant to Section 3.05(b) with respect to the
Participant for such Accounting Year.
For purposes of this Section, the term, "defined benefit plan fraction" shall
mean a fraction, the numerator of which is the Participant's projected annual
benefit (as defined in the defined benefit plan) determined as of the close of
the Accounting Year and the denominator of which is the lesser of:
(i) The product of 1.25 multiplied by the dollar limitation under
Section 415(b)(1)(A) of the Code for such Accounting Year; or
(ii) The product of 1.4 multiplied by the percentage limitation which
may be taken into account pursuant to Section 415(b)(1)(A) of the
Code with respect to the Participant for such Accounting Year.
The limitation on aggregate benefits from a defined benefit plan and a defined
contribution plan set forth in this Section shall be complied with by a
reduction (if necessary) in the Participant's benefits under the defined benefit
plan in accordance with the provisions of said plan and his benefits hereunder
shall not be affected by such aggregate limitation. This Section shall not apply
after December 31, 1999.
SECTION 3.07 - MATHEMATICAL NONDISCRIMINATION TEST FOR EMPLOYEE PRE-TAX
CONTRIBUTIONS; DISPOSITION OF EXCESS AMOUNTS Notwithstanding any of the
provisions of this Plan to the contrary, in each Accounting Year prior to 1999,
and in each Accounting Year after 1998 except to the extent such testing is not
required under Section 401(k) of the Code, the Participant's Employee Pre-Tax
Contributions shall be subject to the mathematical nondiscrimination test set
forth in Section 401(k) of the Code: that is, the "average deferral percentage"
of the eligible Highly Compensated Employees for such Accounting Year shall not
exceed the average deferral percentage of the Nonhighly Compensated Employees
for the prior for such Accounting Year by more than the limit determined in
accordance with the following table counting for this purpose each Employee
Pre-Tax Contribution (including zero (0) Employee Pre-Tax Contributions in the
case of any nonparticipating eligible Employee):
15
<PAGE>
<TABLE>
<CAPTION>
If the average The average deferral
deferral percentage percentage (ADP) of
(ADP) of the Nonhighly the Highly Compensated
Compensated Employees is Employees can be
------------------------ -------------------------
<S> <C>
Less than two percent (2%) Up to the ADP of the eligible Nonhighly
Compensated Employees multiplied by 2.0 (the
"alternative test").
Two percent (2%) but not Up to the ADP of the eligible
more than eight percent (8%) Nonhighly Compensated Employees plus two percent
(2%) (the "alternative test").
Eight percent (8%) or more Up to the ADP of the eligible Nonhighly
Compensated Employees multiplied by 1.25 (the
"general test").
</TABLE>
"Average deferral percentage" as used herein shall mean the average of the
ratios (calculated separately for each eligible Employee) of (i) the amount of
Employee Pre-Tax Contributions actually paid over to the Trust Fund on behalf of
each such Employee for an Accounting Year and (ii) the Employee's
Nondiscrimination Compensation for such Accounting Year. In calculating the
ratio of each Employee for an Accounting Year, an Employee Pre-Tax Contribution
shall be taken into account only if allocated to the Employee as of a date
within such Accounting Year and only if the Employee Pre-Tax Contribution
relates to compensation for services performed within such Accounting Year and
would have been received by the Employee during the Accounting Year or within
two and one-half (2 1/2) months thereafter if not for the election to make an
Employee Pre-Tax Contribution.
The Committee shall monitor the average deferral percentages of the Nonhighly
Compensated Employees and the Highly Compensated Employees during each
Accounting Year. If it appears at any time within an Accounting Year that the
mathematical nondiscrimination test may not be satisfied, the Employers may
suspend or decrease the rate of Employee Pre-Tax Contributions by Highly
Compensated Employees (in accordance with Plan procedures) for the remainder of
the Accounting Year. Further, the Sponsoring Employer shall have the discretion
to declare an Employer Qualified Non-Elective Contribution to the Plan allocable
to the Employer Qualified Non-Elective Contribution Accounts of any or all of
the participating Nonhighly Compensated Employees for an Accounting Year. Any
such Employer Qualified Non-Elective Contribution shall be treated as an
Employee Pre-Tax Contribution for purposes of this Section. If, after the end of
the Accounting Year, it is determined that the mathematical nondiscrimination
test has not been satisfied, the Committee shall direct the Trustee to return
the required amount under Section 401(k) of the Code of the affected
Participants' Employee Pre-Tax Contributions for such Accounting Year, with the
income allocable to such Participants' Employee Pre-Tax Contributions calculated
in accordance with the regulations under Section 401(k) of the Code, beginning
with the Highly Compensated Employees who contributed the highest dollar amount
of Employee Pre-Tax Contributions. Income or loss allocable to the period
between the end of the Accounting Year and the date of distribution shall be
disregarded in determining income or loss. In addition, any Employer Matching
Contributions determined to be attributable to Participant Employee Pre-Tax
16
<PAGE>
Contributions returned pursuant to this Section, with the income allocable to
the Employer Matching Contributions, calculated in accordance with regulations
under Section 401(m) of the Code, shall be withdrawn from the affected
Participants' Employer Matching Contribution Accounts and used to reduce future
Employer Matching Contributions as described in Section 3.03. The return of
Employee Pre-Tax Contributions and income and the withdrawal of Employer
Matching Contributions and income shall occur before the end of the Accounting
Year following the Accounting Year in which the Plan failed to satisfy the
mathematical nondiscrimination test and shall be accomplished by a proportionate
reduction of the investments of the affected Participant's Accounts in the
Investment Funds or as otherwise determined by the Committee.
Notwithstanding any provision of this Section to the contrary:
(i) in the event this Plan is aggregated with one or more other plans,
in order for this Plan or such other plan or plans to satisfy the
requirements of Sections 401(a)(4) of 410(b) of the Code, then the
mathematical nondiscrimination test described in this Section
shall be applied by determining the average deferral percentages
of eligible Employees as if the aggregated plans were a single
plan; and
(ii) the individual deferral percentage for any eligible Highly
Compensated Employee who is eligible to make elective deferrals
(as defined in Section 402(g) of the Code) under two (2) or more
cash or deferred arrangements of an Employer and its Affiliates
shall be determined as if all such elective deferrals were made
under a single arrangement (unless regulations under Sections
401(k), 401(a)(4) or 410(b) of the Code provide that such cash or
deferred arrangements must not be aggregated).
SECTION 3.08 - MATHEMATICAL NONDISCRIMINATION TEST FOR EMPLOYEE AFTER-TAX AND
EMPLOYER MATCHING CONTRIBUTIONS; DISPOSITION OF EXCESS AMOUNTS Notwithstanding
any other provisions of this Plan to the contrary, in each Accounting Year prior
to 1999, and in each Accounting Year after 1998 except to the extent such
testing is not required under Section 401(m) of the Code, the Employee After-Tax
and Employer Matching Contributions made to the Plan shall be subject to the
mathematical nondiscrimination test set forth in Section 401(m)(2)(A) of the
Code: that is, the average contribution percentage of the eligible Highly
Compensated Employees in each Accounting Year shall not exceed the average
contribution percentage of the eligible Nonhighly Compensated Employees for such
Accounting Year by more than the limit determined in accordance with the
following table, counting for this purpose each Employee After-Tax and Employer
Matching Contribution (including zero (0) Employee After-Tax and Employer
Matching Contributions in the case of any nonparticipating eligible Employee):
17
<PAGE>
<TABLE>
<CAPTION>
If the average The average contribution
contribution percentage percentage (ACP) of
(ACP) of the Nonhighly the Highly Compensated
Compensated Employees is Employees can be
------------------------ --------------------------
<S> <C>
Less than two percent (2%) Up to the ACP of the eligible Nonhighly
Compensated Employees multiplied by 2.0 (the
"alternative test").
Two percent (2%) but not Up to the ACP of the eligible Nonhighly
more than eight percent (8%) Compensated Employees plus two percent (2%)
(the "alternative test").
Eight percent (8%) or more Up to the ACP of the eligible Nonhighly
Compensated Employees multiplied by 1.25 (the
"general test").
</TABLE>
The term "average contribution percentage" as used herein shall mean the average
of the ratios (calculated separately for each eligible Employee) of the Employee
After-Tax and Employer Matching Contributions paid over to the Trust Fund on
behalf of the Employee for an Accounting Year over the Employee's
Nondiscrimination Compensation for such Accounting Year.
During each Accounting Year, the Committee shall monitor the average
contribution percentages of the eligible Highly Compensated Employees and the
eligible Nonhighly Compensated Employees for such Accounting Year and may make
prospective adjustments in the Employee After-Tax and Employer Matching
Contributions, if any, of the eligible Highly Compensated Employees (in
accordance with Plan procedures) to meet the average contribution test herein.
Further, the Sponsoring Employer shall have the discretion to declare a special
contribution to the Plan allocable to the Employer Matching Contribution
Accounts of any or all of the participating Nonhighly Compensated Employees for
an Accounting Year. Any such special contribution shall be treated as an
Employer Matching Contribution for purposes of this Section. If, after the end
of the Accounting Year, it is determined that the average contribution
percentage test herein has not been satisfied, the Committee shall direct the
Trustee to return/distribute to the affected Participants the required amount
for such Accounting Year under Section 401(m) of the Code of Employee After-Tax
Contributions and Employer Matching Contributions, with the income allocable to
such Employee After-Tax Contributions and Employer Matching Contributions
calculated in accordance with regulations under Section 401(m) of the Code,
beginning with the Highly Compensated Employees who had the highest dollar
amount of Employee After-Tax Contributions and Employer Matching Contributions.
Income or loss allocable to the period between the end of the Accounting Year
and the date of distribution shall be disregarded in determining income or loss.
If such a distribution of contributions becomes necessary, the Committee shall
direct the Trustee to first return Employee After-Tax Contributions and income
allocable to such Employee After-Tax Contributions. Second, if necessary, the
Committee shall direct the Trustee to distribute Employer Matching Contributions
and the income allocable to such Employer Matching Contributions. Employee
After-Tax Contributions and/or Employer Matching Contributions distributed in
accordance with this Section shall be distributed no later than the close of the
Accounting Year following the Accounting Year for which the Plan failed to
satisfy the average contribution
18
<PAGE>
percentage test. The distribution of Employee After-Tax Contributions and
Employer Matching Contributions and income allocable thereto shall be
accomplished by a proportionate reduction of the respective Accounts'
investments in the Investment Funds or as otherwise determined by the Committee.
The "alternative test" described above may only be used to meet one of the
mathematical nondiscrimination tests described in Section 3.07 and this Section
3.08 for the same Accounting Year. The determination of whether there has been a
multiple use of the alternative test shall be made in accordance with
regulations under Section 401(m) of the Code. If, for any Accounting Year, it is
determined that there has been a multiple use of the alternative test, the
Trustee shall reduce the contribution percentage of Highly Compensated Employees
as described in regulations under Section 401(m) of the Code, by returning
Employee After-Tax Contributions/Employer Matching Contributions and income
allocable thereto.
Notwithstanding any provision of this Section to the contrary:
(i) in the event this Plan is aggregated with one or more other plans
in order for this Plan or such other plan or plans to satisfy the
requirements of Sections 401(a)(4) or 410(b) of the Code, then the
mathematical nondiscrimination test described in this Section
shall be applied by determining the average contribution
percentages of eligible Employees as if the aggregated plans were
a single plan;
(ii) the individual contribution percentage for any eligible Highly
Compensated Employee who is eligible to make contributions or to
receive allocations of matching contributions (as defined in
regulations under Section 401(m) of the Code) under two or more
plans of an Employer and its Affiliates subject to Section 401(m)
of the Code, shall be determined as if all such matching
contributions were made under a single plan (unless regulations
under Sections 401(m), 401(a)(4) or 410(b) of the Code provide
that such plans must not be aggregated).
SECTION 3.09 - ROLLOVER CONTRIBUTIONS An Employee who has received or is
entitled to receive an "eligible rollover distribution" within the meaning of
Section 402 of the Code from a qualified retirement plan may, with the approval
of the Committee, contribute or authorize the direct rollover of all or part of
the distribution to the Trust Fund for this Plan, regardless of whether he is
presently eligible to contribute to this Plan; provided, however, no such
contribution may be made unless all of the following conditions are satisfied:
(a) If the distribution is contributed by the Employee, such
contribution occurs on or before the sixtieth (60th) day
following the Employee's receipt of the distribution from the
other plan or, if such distribution had previously been
deposited in an individual retirement account (as defined in
Section 408 of the Code), the contribution occurs on or before
the sixtieth (60th) day following his receipt of such
distribution from the individual retirement account;
19
<PAGE>
(b) The amount contributed or directly rolled over is not more
than the distribution from the other plan (or conduit
individual retirement account) less the amount, if any,
considered to be a return of employee after-tax contributions;
and
(c) The contribution or direct rollover consists of cash.
The Committee shall develop such procedures and may require such information
from the Employee desiring to make such a contribution or direct rollover as it
deems necessary or desirable to determine that the proposed contribution or
direct rollover shall satisfy the requirements of this Section. Upon approval by
the Committee, the amount contributed or directly rolled over shall be credited
to a Rollover Account established on the Employee's behalf. Upon such a
contribution by an Employee who is not yet a Participant hereunder, his Rollover
Account shall represent his sole interest in this Plan until he becomes a
Participant.
SECTION 3.10 - MILITARY LEAVE Notwithstanding any provision of this Plan to the
contrary, contributions, benefits and service credit with respect to qualified
military service will be provided in accordance with Section 414(u) of the Code.
20
<PAGE>
ARTICLE IV
ACCOUNTS OF PARTICIPANTS
SECTION 4.01 - INVESTMENT FUNDS There shall be established within the Trust Fund
two (2) or more separate Investment Funds selected by the Committee. The
Committee may change the Investment Funds at its discretion.
SECTION 4.02 - INVESTMENT OF ACCOUNTS All Accounts shall be invested as
hereinafter provided:
SECTION 4.02(a) - DIRECTION BY PARTICIPANTS A Participant shall direct
the investment of the contributions to his Accounts in one percent (1%)
increments among the Plan's Investment Funds.
Any such direction must be submitted to the Committee in accordance
with procedures prescribed by the Committee. In the absence of any such
direction, such contributions shall be invested in a money market fund
or such other Investment Fund as may be designated by the Committee.
SECTION 4.02(b) - CHANGE OF INVESTMENT FOR FUTURE CONTRIBUTIONS A
Participant may elect daily to change the investment of his future
contributions to his Accounts in one percent (1%) increments among the
Investment Funds.
Any such election must be submitted to the Committee in accordance with
procedures prescribed by the Committee.
SECTION 4.02(c) - CHANGE OF INVESTMENT FOR CURRENT ACCOUNTS A
Participant may elect daily to change the investment of his Accounts
among the Plan's Investment Funds. Any such election must be submitted
to the Committee in accordance with procedures prescribed by the
Committee.
SECTION 4.03 - VALUATION OF TRUST FUND AND INVESTMENT FUNDS As of each Valuation
Date the Trustee shall determine the fair market value of the Trust Fund and
each Investment Fund in the Trust Fund and the fair market value of the Accounts
of each Participant shall be determined. Such valuations shall be made in
accordance with usual and customary practices consistently followed and
uniformly applied.
SECTION 4.04 - ADJUSTMENT OF PARTICIPANT ACCOUNTS As of each Valuation Date, the
Accounts of each Participant shall be adjusted in the following manner:
SECTION 4.04(a) The respective Accounts of each Participant shall be
increased by the allocation of any contributions to such Accounts since
the last preceding Valuation Date. The Accounts shall be decreased by
any distributions, forfeitures, withdrawals or other disbursements
since the last preceding Valuation Date.
21
<PAGE>
SECTION 4.04(b) Investment earnings (or losses) of each Investment Fund
shall be allocated to the Accounts invested in such Investment Funds in
the ratio that the value of each such Account's investment in the
Investment Fund as of the last preceding Valuation Date; less any
distributions, withdrawals or other disbursements from the Account's
investment in the Investment Fund since the last preceding Valuation
Date; bears to the total value of all Accounts invested in such
Investment Fund as of the last preceding Valuation Date after such
adjustments.
SECTION 4.05 - TRUSTEE'S AND COMMITTEE'S DETERMINATION BINDING In determining
the value of the Trust Fund, Investment Funds and or each Participant's
Accounts, the Trustee and the Committee shall exercise their best judgment and
all such determinations (in the absence of bad faith) shall be binding upon all
Participants and their Beneficiaries. All allocations shall be deemed to have
been made as of the appropriate Valuation Date regardless of when the
allocations are actually made.
22
<PAGE>
ARTICLE V
DISTRIBUTIONS UNDER THE PLAN
SECTION 5.01 - VALUATION OF ACCOUNTS FOR DISTRIBUTION When a Participant's
Accounts become distributable pursuant to Section 5.02 hereof, the distributable
amount shall be equal to the value of the Accounts determined as of the most
recent Valuation Date for which a valuation has been completed prior to the date
distribution is made or commences; plus any contribution made to the Accounts
and less any distributions or other disbursements from the Accounts since such
Valuation Date.
SECTION 5.02 - DISTRIBUTABLE EVENTS/AMOUNT OF DISTRIBUTIONS If a Participant
terminates employment with the Employers and all Affiliates at any time and for
any reason, the entire balance of all his Accounts shall become distributable;
valued in the manner set forth in Section 5.01 hereof.
SECTION 5.03 - TIMING OF DISTRIBUTIONS Unless a Participant elects a later
distribution, any benefits that become distributable to the Participant under
this Article V shall commence as soon as reasonably practicable after the
Valuation Date coincident with or next following the occurrence of a
distributable event described in Section 5.02, but in no event later than sixty
(60) days after the end of the Accounting Year in which occurs the latest of:
(i) the Participant's attainment of Normal Retirement Age;
(ii) the tenth (10th) anniversary of the commencement of his Plan
participation; or
(iii) his termination of employment.
If the value of a terminating Participant's Accounts following his termination
of employment is more than five thousand dollars ($5,000) payments from such
Participant's Accounts shall not be made prior to the Participant's Normal
Retirement Age without the written consent of the Participant obtained within
ninety (90) days prior to the date distribution commences.
Notwithstanding any provision of the Plan to the contrary, distribution of a
Participant's Accounts shall commence by April 1 of the calendar year
immediately following the later of the calendar year in which the Participant
attains age seventy and one-half (70 1/2) or the calendar year in which the
Participant retires, unless the Participant is a five percent (5%) or greater
owner (as defined in Section 416(i) of the Code), in which event distribution of
the Participant's Accounts shall commence no later than April 1 of the calendar
year immediately following the calendar year in which the Participant attains
age seventy and one-half (70 1/2). Accounts shall be distributed in accordance
with the requirements of Section 401(a)(9) of the Code and regulations
thereunder over a period not longer than the joint life expectancies of the
Participant and any designated Beneficiary. Life expectancies shall not be
recalculated after the initial determination. Solely for the purposes of this
Section, if the designated Beneficiary is not the Participant's Spouse and is
more than ten (10) years younger than the Participant, the joint life expectancy
shall be calculated
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as though the age difference were ten (10) years. If a Participant dies before
his distribution commences, distribution of a Participant's Accounts shall be
completed within five (5) years of the Participant's death. Such distribution
need not be completed within five (5) years of the Participant's death if the
distribution is paid over a period not longer than the life expectancy of the
Beneficiary and commences within one (1) year of the Participant's death, or if
the Beneficiary is the Participant's Spouse, not later than the date the
Participant would have attained age seventy and one-half (70 1/2). If a
Participant dies after his distribution commences, but before his entire
interest has been distributed to him, the remaining portion of such interest
shall be distributed to his Spouse or Beneficiary at least as rapidly as under
the method of distribution as of his date of death.
SECTION 5.04 - FORMS OF DISTRIBUTION Within the ninety (90) day period prior to
the date that distribution commences, a Participant (or the Beneficiary of the
Participant) whose Accounts become distributable under Section 5.02 may elect to
receive the amounts to which he is entitled under the Plan in a lump sum,
substantially equal monthly, quarterly or annual installments over a period not
exceeding ten (10) years, or a combination of such lump sum and installment
payments. Distribution of a Participant's benefit may be made in cash or
Harnischfeger Industries Stock or both, provided, however, that a Participant or
Beneficiary may request distribution of his Accounts in kind to the extent they
are invested in Harnischfeger Industries Stock. No less than thirty (30) and no
more than ninety (90) days prior to the date distribution is to commence, the
Participant (or his Beneficiary, if applicable) shall be provided with a written
notice of the manner of benefit payments available and of the Participant's
right to defer commencement of the distribution until Normal Retirement Age.
Notwithstanding the preceding sentence, distribution may occur less than thirty
(30) days after the notice is given provided that: (i) the Committee clearly
informs the Participant that the Participant has a right to a period of at least
thirty (30) days after receiving the notice to consider the decision of whether
or not to elect a distribution or a particular distribution option, and (ii) the
Participant, after receiving the notice, affirmatively elects a distribution.
Notwithstanding any provision of this Section to the contrary, if the value of a
Participant's Accounts following his termination of employment does not exceed
five thousand dollars ($5,000), then the value of such Accounts shall
automatically be paid in a single lump sum payment of cash provided that the
Participant may request distribution of his Accounts in kind to the extent they
are invested in Harnischfeger Industries Stock. If such a distribution is or
includes an "eligible rollover distribution" (within the meaning of Section 402
of the Code), a written notice regarding the distribution shall be provided to
the Participant (or, if applicable, his Spouse) no less than thirty (30) and no
more than ninety (90) days prior to the date of the distribution provided that
the thirty (30) day minimum notice period may be waived in the same manner as
provided above.
SECTION 5.05 - QUALIFIED DOMESTIC RELATIONS ORDERS Notwithstanding any provision
of the Plan to the contrary, the Plan and Trustee shall comply with the
provisions of a "qualified domestic relations order" as defined in Section
414(p) of the Code.
SECTION 5.06 - IN-SERVICE WITHDRAWALS BY PARTICIPANTS A Participant may, while
employed by an Employer, withdraw amounts from his Employee Pre-Tax Contribution
Account, his Employee After-Tax Contribution Account or his Rollover Account,
provided the withdrawal satisfies the terms and conditions of this Section. The
withdrawal shall be accomplished by a reduction in the Accounts' investment in
the Investment Funds in the manner prescribed by the Committee. Any withdrawal
under this Section 5.06 shall be paid from the Trust Fund as soon as reasonably
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practicable after the Valuation Date coincident with or immediately following
approval by the Committee of the Participant's written request for such
distribution. (Under Section 5.06(a), the approval of the Committee shall
automatically be given if the Committee determines that the applicable objective
requirements are satisfied.)
SECTION 5.06(a) - NON-HARDSHIP WITHDRAWALS With respect to his Employee
After-Tax Contribution Account, the Participant may withdraw an amount
of not less than three hundred dollars ($300) and not more than the
value of such Account as of the Valuation Date coincident with or
immediately preceding the withdrawal. Such a withdrawal shall not be
made more frequently than twice in any twelve (12) month period and
shall be made in a single lump sum payment.
A Participant who has attained age fifty-nine and one-half (59 1/2)
years may elect at any time prior to the Participant's termination of
employment to withdraw all or any part of the balance of his Employee
Pre-Tax Contribution Account, Employee After-Tax Contribution Account
and Rollover Account as of the Valuation Date coincident with or
immediately preceding the withdrawal. Such withdrawal shall be in a
single lump sum payment.
SECTION 5.06(b) - HARDSHIP WITHDRAWAL A Participant may, while employed
by an Employer and after taking the maximum withdrawal available under
Section 5.06(a), obtain a withdrawal from his Employee Pre-Tax
Contribution Account, except for earnings which accrue after December
31, 1988, upon his establishment to the satisfaction of the Committee
that the withdrawal is necessary to alleviate a financial hardship. In
no event shall such a hardship withdrawal exceed the greater of the
amount necessary to alleviate the financial hardship or the amount of
the Participant's Employee Pre-Tax Contribution Account as of the
Valuation Date coincident with or immediately preceding the withdrawal.
Such a hardship withdrawal shall be made in a single lump sum payment.
For purposes of this Section, financial hardship shall mean an
immediate and heavy financial need of the Participant which cannot be
satisfied from other reasonably available resources on account of:
(i) Medical expenses incurred by the Participant, his spouse
or his dependents, or expenses necessary to obtain
medical care;
(ii) The payment of tuition and fees for the next twelve (12)
months of post-secondary education for the Participant,
his spouse or his dependents;
(iii) The purchase of a principal residence of the Participant
(not including mortgage payments);
(iv) The need to prevent eviction of the Participant from his
principal residence or foreclosure on the mortgage of
such principal residence; or
(v) Any other extraordinary financial situation which is
approved by the Committee under uniform standards,
consistently applied, which shall be
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limited to those matters which the Commissioner of the
Internal Revenue Service may approve from time to time.
Prior to a hardship withdrawal, the Participant must first obtain all
distributions, other than hardship distributions, and all nontaxable
loans, if any, currently available under all plans maintained by an
Employer. Immediately following a hardship withdrawal, a Participant's
Employee Pre-Tax Contributions and Employee After-Tax Contributions
will be suspended for a period of twelve (12) months.
For purposes of determining a Participant's maximum Employee Pre-Tax
Contributions for an Accounting Year under Section 3.05(a), if a
Participant resumes making Employee Pre-Tax Contributions during the
Accounting Year immediately following the Accounting Year in which a
withdrawal under this Section 5.06(b) occurs, the Participant's
Employee Pre-Tax Contributions made in the Accounting Year during which
the withdrawal occurs shall be included with the Participant's Employee
Pre-Tax Contributions for the Accounting Year in which his
participation resumes.
SECTION 5.07 - DIRECT ROLLOVERS TO ELIGIBLE RETIREMENT PLANS At the election of
a Participant (or other distributee) who is eligible for a distribution from the
Plan (including in-service withdrawals pursuant to Section 5.06) that is an
"eligible rollover distribution" (within the meaning of Section 401(a)(31) of
the Code), the Committee shall authorize the direct rollover of the distributed
amount from the Trust Fund of this Plan to an "eligible retirement plan" (within
the meaning of Section 401(a)(31) of the Code). Such direct rollovers shall be
made in accordance with procedures established by the Committee conforming to
the requirements of Section 410(a)(31) of the Code and regulations thereunder.
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ARTICLE VI
PLAN LOANS
SECTION 6.01 - LOANS While it is the primary purpose of the Plan to provide
funds for Participants when they terminate employment, it is recognized that
under some circumstances it would be in the best interest of Participants to
permit loans to be made to them from their Employee Pre-Tax Contribution
Accounts. Accordingly, the Committee may direct that a loan be made to a
Participant for such purposes as the Committee in its discretion may approve,
subject to the rules developed and applied by the Committee in a uniform and
nondiscriminatory manner and subject to the following:
SECTION 6.01(a) Each request for a loan under this Section must be by
application to the Committee, supported by such evidence and with such
reasonable loan processing fee as the Committee may request. Each prior
loan must be repaid in full before a new loan may be approved.
SECTION 6.01(b) Each loan must be evidenced by a note in a form
furnished by the Committee, must be secured by a pledge of the
Participant's accounts or by other adequate security, must authorize
repayment by payroll deductions and must consent to the distribution
thereof in the event of a default (provided that distribution at such
time is otherwise allowed by the Plan).
SECTION 6.01(c) Each loan will bear interest at a reasonable rate
established by the Committee in a uniform and nondiscriminatory manner
(generally the current prime rate plus two percent (2%), but not
greater than the maximum rate permitted by law), and must be amortized
in level payments, made not less frequently than quarterly, over the
life of the loan.
SECTION 6.01(d) The principal amount of each loan may not be less than
one thousand dollars ($1,000) and, when added to any other outstanding
loan balances of the Participant under this Plan and all other plans of
the Employers and Affiliates, may not exceed the least of fifty
thousand dollars ($50,000) (reduced by the aggregate of principal
payments made on any other plan loans during the one (1) year period
prior to the date of the new loan), fifty percent (50%) of the
Participant's vested Account balances, or the amount in the
Participant's Employee Pre-Tax Contribution Account.
SECTION 6.01(e) Each loan will be for a term not exceeding five (5)
years; provided that the term of a loan may be for up to fifteen (15)
years where the loan is used to acquire any dwelling unit which within
a reasonable time is to be used as the principal residence of the
Participant. Full prepayment shall be permitted at any time.
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SECTION 6.01(f) Each note evidencing a loan to a Participant shall be
held on the Participant's behalf and shall be considered an investment
of the Participant's Employee Pre-Tax Contribution Account.
Accordingly, principal and interest payments on the note shall be
credited to such Account on the Participant's behalf. The distribution
of a Participant's canceled note to the Participant (or to the
Participant's Beneficiary in the event of the Participant's death)
shall be considered as a payment for purposes of the Plan.
SECTION 6.01(g) If a Participant should be in default on any loan, the
entire amount of unpaid principal and accrued interest shall
immediately become due and payable. A default shall occur on the last
day of a calendar quarter following the calendar quarter in which a
required installment loan payment was due and which remains unpaid on
such date. Further, if a Participant is on an authorized unpaid leave
of absence, such Participant shall not be treated as in default on any
Plan loan for a period of up to one year. After the expiration of this
one year grace period, the Participant shall resume loan repayments;
otherwise, the loan shall be deemed in default on the last day of the
calendar quarter following the calendar quarter in which the one year
grace period ended. Loan repayments will be suspended under this Plan
as permitted under Section 414(u)(4) of the Code.
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ARTICLE VII
ADMINISTRATION
SECTION 7.01 - FIDUCIARIES/ALLOCATION OF FIDUCIARY RESPONSIBILITIES For purposes
of Part 4 of Title I of ERISA, the Sponsoring Employer, the other Employers, the
Committee, the Trustee, and those parties to whom fiduciary duties are allocated
pursuant to the Trust Agreement shall be named fiduciaries. All actions by named
fiduciaries shall be consistent with the terms of the Plan and Trust to the
extent such documents are consistent with the provisions of Title I of ERISA.
Each named fiduciary shall act solely in the interest of Participants and
Beneficiaries and for the exclusive purposes of providing benefits and defraying
reasonable administrative expenses of the Plan. Each named fiduciary shall
discharge his respective duties with the care, skill, prudence and diligence
under the circumstances then prevailing that a prudent man acting in a like
capacity and familiar with such matters would use in the conduct of an
enterprise of a like character and with like aims. Among the duties specifically
allocated to named fiduciaries shall be the following:
(a) The Sponsoring Employer shall have the sole authority to
appoint and remove a Trustee and to appoint and remove members
of the Committee. The Sponsoring Employer shall be the "Plan
Administrator" for purposes of ERISA.
(b) The Committee shall have the general responsibility for the
administration of this Plan, which responsibility is
specifically described in this Plan and the Trust Agreement.
(c) The Trustee shall have the sole responsibility for the
administration of the Trust and the management of the assets
held under the Trust, except to the extent delegated to an
investment manager under the Trust Agreement.
A fiduciary may rely upon any direction, information or action of another
fiduciary as being proper under this Plan or the Trust, and is not required
under this Plan or the Trust to inquire into the propriety of any such
direction, information or action.
Each named fiduciary shall be responsible only for the specific duties assigned
above and shall not be directly or indirectly responsible for the duties
assigned to another fiduciary.
SECTION 7.02 - COMMITTEE The general administration of the Plan and the
responsibility for carrying out its provisions shall be placed in a Committee
(the Morris Material Handling Benefits Committee) of one (1) or more members,
each appointed by the Sponsoring Employer and serving at the pleasure of the
latter. The Committee may designate one (1) member to act on the Committee's
behalf in all Committee responsibilities. Any member of the Committee may resign
by notice in writing filed with the Sponsoring Employer, such resignation to
become effective no earlier than the date of such written notice.
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All customary and reasonable expenses of the Committee shall be paid by the
Employers. Members of the Committee shall not receive compensation for their
services to the Committee. The Committee shall hold meetings at such places and
times as they may determine. A majority of the members of the Committee at the
time in office shall constitute a quorum for the transaction of business. All
actions taken by the Committee at a meeting shall be by majority vote of the
members present. Action by the Committee may also be taken without a formal
meeting by consent of a majority of the members.
A Committee member shall be disqualified from acting upon any matter affecting
only himself.
SECTION 7.03 - COMMITTEE'S POWERS AND DUTIES Except as specifically reserved for
the Sponsoring Employer, the Committee shall have such powers and duties as may
be necessary to discharge its functions hereunder, including but not limited to,
the following:
(a) The sole and absolute discretion to (i) construe and interpret
the Plan, (ii) decide all questions of eligibility to
participate in the Plan, (iii) determine the amount, manner and
time of payment of any benefits to any Participant or
Beneficiary;
(b) To formulate and modify rules and regulations wherever, in the
opinion of the Committee, such rules and regulations are
required by the terms of the Plan or would facilitate the
operation of the Plan;
(c) To obtain from the Employers and from Employees such information
as is necessary for the proper administration of the Plan, to
fully rely upon such information and, when appropriate, to
furnish such information promptly to the Trustee or other
persons entitled thereto;
(d) To prepare and distribute information explaining the Plan;
(e) To prescribe procedures to be followed by Participants or
Beneficiaries regarding contribution elections, investment
elections, applications for benefits, in-service withdrawals, or
loans;
(f) To furnish the Employers, upon request, such reports as are
reasonable and appropriate;
(g) To take appropriate remedial action in the event of error in the
administration of the Plan or misstatement by a Participant;
(h) To instruct the Trustee with respect to the payment of benefits
hereunder;
(i) To provide for any required bonding of fiduciaries and other
persons who may from time to time handle Plan assets;
(j) To appoint agents and clerks, and acquire such professional
services as may be required in carrying out the provisions of
the Plan;
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(k) To keep all such books of accounts, records and other data as
may be necessary for the proper administration of the Plan;
(l) To prescribe the contents of all forms and agreements it deems
necessary for administration of the Plan; and
(m) To adopt amendments as provided in Section 9.01.
SECTION 7.04 - CLAIMS PROCEDURE Claims for benefits under the Plan shall be
filed on forms approved by the Committee and filed with the Committee or its
delegate. If a claim for benefits made by a Participant, or a Participant's
Beneficiary or estate, is wholly or partially denied, the claimant shall be
provided, within sixty (60) days of receipt of such claim, a written notice of
the denial setting forth: (i) the specific reasons for the denial in a manner
calculated to be understood by the claimant; (ii) the provisions of the Plan
upon which the denial is based; (iii) a description of additional materials, if
any, needed to perfect the claim; and (iv) an explanation of the Plan's claim
review procedure.
SECTION 7.05 - CLAIM REVIEW PROCEDURE Any claimant whose request for benefits is
denied in whole or in part may, within sixty (60) days after receipt of notice
of the denial, submit a written appeal to the Committee for a review of the
denial. The claimant or his authorized representative may review pertinent
documents and submit issues and comments to the Committee in writing. Within
sixty (60) days after receipt of such an appeal (up to one hundred twenty (120)
days if special circumstances prevent a decision within sixty (60) days), the
Committee shall notify the claimant in writing of its decision and if the
Committee confirms the denial in whole or in part, the notice shall set forth
the specific reasons for the decision and the provisions of the Plan upon which
the decision is based. The decision of the Committee shall be final.
SECTION 7.06 - INDEMNIFICATION The Employers shall indemnify and save the
members of the Committee and any Employees to whom the Committee has allocated
or delegated its responsibilities in accordance with the provisions hereof, as
well as any other fiduciary who is also an officer, director or Employee of an
Employer, and each of them, harmless from and against any and all claims, loss,
damages, expense and liability arising from their responsibilities in connection
with the administration of the Plan and Trust and not otherwise paid or
reimbursed by insurance, unless the same shall result from their own willful
misconduct.
SECTION 7.07 - PAYMENT OF EXPENSES Unless otherwise determined by the Board of
Directors of the Sponsoring Employer, the members of the Committee shall serve
without compensation for services as such, but all expenses of the Committee
shall be paid by the Employer(s) or the Sponsoring Employer may cause such
expenses to be paid from the Trust Fund. Such costs and expenses shall include
any expenses incident to the functioning of the Committee, including, but not
limited to, fees of accountants, counsel, and other specialists and other costs
of administering the Plan and Trust Fund.
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ARTICLE VIII
THE TRUST FUND AND THE TRUSTEE
SECTION 8.01 - TRUST AGREEMENT The Sponsoring Employer has entered into a Trust
Agreement with the Trustee to hold the funds set aside pursuant to this Plan.
SECTION 8.02 - SEPARATE INVESTMENT FUNDS At the direction of the Sponsoring
Employer, the Trustee may establish one (1) or more Investment Funds within the
Trust Fund. The investment earnings (or losses) of such separate Investment
Funds shall be allocated to the Participant's respective Accounts pursuant to
the terms of the Plan.
SECTION 8.03 - NON-REVERSION; EXCLUSIVE BENEFIT CLAUSE The Trust Fund shall be
received, held in Trust and disbursed by the Trustee in accordance with the
provisions of the Trust Agreement and this Plan. Except as provided in Section
3.03 or Section 3.04(ii), no part of the Trust Fund shall be used for or
diverted to purposes other than for the exclusive benefit of Participants or
their Beneficiaries under this Plan. No person shall have any interest in, or
right to, the Trust Fund or any part thereof, except as specifically provided
for in this Plan or the Trust Agreement. Notwithstanding the above, nothing in
this Section nor the Plan shall preclude the Trustee from complying with a
"qualified domestic relations order" as defined in Section 414(p) of the Code.
SECTION 8.04 - REMOVAL OF TRUSTEE The Trustee may, but need not, be a banking
corporation organized and doing business under the laws of the United States of
America or any state therein, authorized under such laws to exercise corporate
trust powers and subject to supervision or examination by federal or state
authority. The Sponsoring Employer may remove the Trustee at any time upon the
notice required by the terms of the Trust Agreement and, upon such removal or
upon the resignation of the Trustee, the Sponsoring Employer shall designate and
appoint a successor Trustee.
SECTION 8.05 - POWERS OF THE TRUSTEE The Trustee shall have such powers to hold,
invest, reinvest, control, and disburse funds as at that time shall be set forth
in the Trust Agreement.
SECTION 8.06 - TRUST AGREEMENT PART OF THE PLAN The Trust Agreement shall be
deemed to form a part of the Plan and all the rights of Participants or others
under this Plan shall be subject to the provisions of the Trust Agreement to the
extent such provisions are not contradicted by specific provisions of this Plan.
SECTION 8.07 - TRUSTEE'S SETTLEMENT OF ACCOUNTS The Trust Agreement may contain
provisions granting authority to the Sponsoring Employer to settle the accounts
of the Trustee on behalf of all persons having or claiming an interest in the
Trust Fund.
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ARTICLE IX
AMENDMENT AND TERMINATION
SECTION 9.01 - AMENDMENT The Sponsoring Employer reserves the right, at any
time, to amend, in whole or in part, any or all of the provisions of the Plan,
including specifically the right to make any such amendment effective
retroactively, if necessary, to bring the Plan into conformity with any
governmental regulations which must be complied with so that the Plan and Trust
Fund shall qualify under Sections 401(a), 401(k) and 401(m) of the Code.
Notwithstanding the preceding sentence, the Committee is specifically authorized
to adopt amendments which do not materially affect the cost of the Plan and
which may be necessary or appropriate to facilitate the administration,
management, or interpretation of the Plan or to conform the Plan thereto, or to
qualify or maintain the Plan and Trust as a plan and trust meeting the
requirements of Code Sections 401(a), 401(k) and 501(a) or any other applicable
section of law (including ERISA) and governmental regulations. No amendment
shall make it possible for the Trust assets to be used for or diverted to
purposes other than the exclusive benefit of Participants and their
Beneficiaries or defraying reasonable administrative expenses except as provided
in Section 3.03 and Section 3.04(ii) hereof. No amendment shall reduce an
accrued benefit of a Participant or eliminate an optional form of benefit within
the meaning of Section 411(d)(6) of the Code, except as otherwise allowed by
Section 411(d)(6).
SECTION 9.02 - TERMINATION Any Employer may terminate its participation in this
Plan at any time. The Sponsoring Employer may terminate this Plan at any time.
SECTION 9.03 - DISTRIBUTION OF ACCOUNTS UPON PLAN TERMINATION If the Sponsoring
Employer terminates the entire Plan, contributions are completely discontinued,
or a partial termination of the Plan occurs, the Committee shall compute the
value of the Accounts of the affected Participants which shall be fully vested
and nonforfeitable. In the event of complete termination of the Plan and Trust,
subject to the limitations of Code Section 401(k)(10), the Trustee shall
liquidate the Trust and distribute the Participants' Accounts as soon as
administratively feasible in the manner provided in Article V. The distribution
of such Accounts shall be made in accordance with the Participant consent
provisions of Section 411(a)(11) of the Code to the extent such consent
provisions are applicable to Accounts having a value at the time of such
distribution or any prior distribution of more than five thousand dollars
($5,000).
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ARTICLE X
ENTRY AND WITHDRAWAL OF AN EMPLOYER
SECTION 10.01 - ENTRY OF AN EMPLOYER An Affiliate may become a party to this
Plan and Trust Agreement by delivering to the Sponsoring Employer a resolution
of its Board of Directors authorizing such participation. With the consent of
the Sponsoring Employer, any such Affiliate shall become an Employer hereunder
as of an effective date approved by the Sponsoring Employer and shall be subject
to the terms and provisions of this Plan and the Trust Agreement as then in
effect or thereafter amended.
SECTION 10.02 - WITHDRAWAL OF AN EMPLOYER An Employer hereunder who wishes to
withdraw from this Plan and the Trust Agreement shall deliver to the Sponsoring
Employer a resolution of its Board of Directors authorizing its withdrawal as an
Employer hereunder and indicating the reason or reasons for such withdrawal.
Withdrawal may take place on a Valuation Date only and notice thereof to the
Sponsoring Employer must be submitted at least thirty (30) days prior to the
Valuation Date such withdrawal is to be effective, unless such requirement is
waived by the Sponsoring Employer.
SECTION 10.02(a) Subject to the limitations of Code Section 401(k)(10),
the provisions of Article IX hereof shall apply to an Employer's
withdrawal as if the withdrawal were a part of the complete termination
of this Plan with respect to withdrawing Employer's Employees, but the
participation of other Employers hereunder shall not be affected nor
shall the continuation of the Plan with respect to the participation
therein by other Employers be affected by such a withdrawal by an
Employer.
SECTION 10.02(b) If the withdrawal of an Employer hereunder is the
result of the adoption of a different defined contribution plan for its
Employees which will, immediately upon withdrawal of the Employer from
this Plan, cover Employees of the Employer who are covered by this
Plan, the Sponsoring Employer, upon being furnished evidence of the
terms of such different defined contribution plan and that such
different plan has been approved by the Internal Revenue Service as
qualified under Section 401(a) of the Code as now in effect or
hereafter amended, shall compute the value of the Accounts of the
affected Participants and establish such Employer's interest in the
value of the Trust Fund. The Employer's interest in the value of the
Trust Fund so determined after reduction for charges and other expenses
incurred to process the withdrawal of the Employer, shall be
transferred to the trustee or trustees of the different plan or to the
insurance company which is to hold the funds of the different defined
contribution plan, whichever is applicable.
The application of the withdrawing Employer's interest in the Trust Fund,
pursuant to the terms of this Section, shall constitute a complete discharge of
the responsibility of the Sponsoring Employer and the Trustees, without any
responsibility on their part collectively or individually to see to the
application thereof.
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ARTICLE XI
MISCELLANEOUS PROVISIONS
SECTION 11.01 - PLAN MERGER, CONSOLIDATION OR TRANSFER OF ASSETS In the event of
a merger or consolidation of the Sponsoring Employer or any Employer or the
transfer of all or substantially all of its assets to any other corporation,
provision may be made by such successor corporation at its election, subject in
the case of an Employer other than the Sponsoring Employer to the consent of the
Sponsoring Employer, to continue this agreement and the Plan created hereunder
as to such successor entity. Such successor shall, upon its election to continue
this Plan and, if applicable, with the consent of the Sponsoring Employer, be
substituted in place of such Employer by an instrument duly authorizing such
substitution and duly executed by such successor. Upon notice of such
substitution accompanied by (i) a certified copy of the resolutions of the Board
of Directors of such successor authorizing such substitution, and (ii) a
certified copy of the resolutions of the Board of Directors of the Sponsoring
Employer consenting to such substitution, if applicable, delivered to the
Committee, the Trustees, and all other Employers, they shall be authorized to
recognize such successor in the place of such Employer.
In the case of any merger, consolidation or transfer of assets or liabilities to
any other plan, such plan shall provide that each Participant would, if the Plan
terminated immediately after the merger, consolidation or transfer, receive a
benefit which is equal to or greater than the benefit he would have been
entitled to receive immediately before the merger, consolidation or transfer if
the Plan had then terminated.
SECTION 11.02 - NO ASSIGNMENT OF BENEFITS Except in the case of a loan from the
Plan secured by a Participant's Accounts, none of the benefits under the Plan
are subject to the claims of creditors of Participants or their Beneficiaries
nor are they subject to attachment, garnishment or any other legal process.
Neither a Participant nor his Beneficiary may assign, sell, borrow on or
otherwise encumber his beneficial interest in the Plan and Trust Fund, nor shall
such interest be liable for or subject to the deeds, contracts, liabilities,
engagements or torts of any Participant or Beneficiary. Notwithstanding the
above, nothing in the Plan shall preclude compliance with a "qualified domestic
relations order" as defined in Section 414(p) of the Code.
SECTION 11.03 - PLAN VOLUNTARY Although the Employers intend that this Plan
shall be continued, it is entirely voluntary on the part of the Employers and
continuance of the Plan and any payments hereunder are not a contractual
obligation of any Employer.
SECTION 11.04 - RESERVATION OF RIGHT TO SUSPEND OR DISCONTINUE CONTRIBUTIONS The
Employers reserve the right in their sole and uncontrolled discretion to modify
or suspend (in whole or in part) at any time and for any period, or to
discontinue at any time their contributions under this Plan.
SECTION 11.05 - NON-GUARANTEE OF EMPLOYMENT Nothing contained in this Plan shall
give any Participant or Employee the right to be retained in the service of an
Employer or interfere with the right of an Employer to discharge any Participant
or Employee at any time regardless of the effect of such discharge upon such
individual as a Participant.
35
<PAGE>
SECTION 11.06 - GOVERNING LAW This Plan shall be construed in accordance with
the laws of the State of Delaware, except where such laws are superseded by
ERISA or the Code, in which case ERISA or the Code, as the case may be, shall
control.
SECTION 11.07 - FACILITY OF PAYMENT In making any distribution to or for the
benefit of any minor or incompetent Participant or Beneficiary, the Committee,
in its sole, absolute and uncontrolled discretion may, but need not, order the
Trustee to make such distribution to a legal or natural guardian of such minor
or incompetent and any such guardian shall have full authority and discretion to
expend such distribution for the use and benefit of such minor or incompetent
and the receipt by such guardian shall be a complete discharge of the Trustee
without any responsibility on its part or on the part of the Committee to see to
the application thereof.
SECTION 11.08 - SEVERABILITY If any provisions of this Plan document shall be
held illegal or invalid for any reason, the illegality or invalidity shall not
affect the remaining provisions of the document, which shall be fully severable,
and the document shall be construed and enforced as if the illegal or invalid
provision had never been inserted herein.
SECTION 11.09 - CONSTRUCTION OF PLAN DOCUMENT Titles of Articles and Sections in
this Plan are inserted for convenience only and in the event of any conflict,
the text of this instrument, rather than such titles, shall control.
SECTION 11.10 - PLAN IN EFFECT AT TERMINATION OF EMPLOYMENT CONTROLS Unless
expressly indicated otherwise, any amendment to this Plan shall not apply to any
Employee who terminated employment prior to the effective date of such
amendment.
36
<PAGE>
ARTICLE XII
TOP-HEAVY PLAN PROVISIONS
SECTION 12.01 - APPLICATION The provisions of this Article XII shall only be
applicable if the Plan becomes "top-heavy" as defined in Section 416(g) of the
Code aggregating this plan and any other qualified retirement plans maintained
by the Employers and Affiliates, including those plans which may have
terminated, which are part of an "aggregation group of plans" (as hereinafter
defined). Generally, the plan would be "top-heavy" if sixty percent (60%) or
more of the aggregate present value of the accrued benefits of members of the
qualified retirement plans maintained by the Employers and Affiliates which are
part of an "aggregation group of plans" as of any "determination date" (as
defined in Section 416(g)(4) of the Code, i.e., each December 31) is
attributable to "key employees" (as defined in Section 416(i)(1) of the Code).
For this purpose, benefit payments to members of the "aggregation group of
plans" during the Accounting Year (ending with such determination date) or for
any of the four (4) immediately preceding Accounting Years shall be taken into
consideration. The present value of accrued benefits of defined benefit plans
included in the aggregation group shall be determined on the basis of the
interest and mortality assumptions then being used to comply with Section
401(a)(25) of the Code. If the plan becomes "top-heavy" as of any determination
date, then effective in the next succeeding Accounting Year, the provisions of
this Article XII shall apply.
If the Employers or Affiliates maintain one (1) or more defined contribution
plans (including any simplified employee pension plan) and the Employers or
Affiliates maintain or have maintained one (1) or more defined benefit plans,
which during the five (5) year period ending on the determination date has or
has had any accrued benefits, the top-heavy ratio for any required or permissive
aggregation group, as appropriate, is a fraction, the numerator of which is the
sum of account balances under the aggregated defined contribution plans for all
"key employees," and the present value of accrued benefits under the aggregated
defined benefit plans for all "key employees" as of the determination date, and
the denominator of which is the sum of the account balances under the aggregated
defined contribution plans for all participants, and the present value of
accrued benefits under the defined benefit plans for all participants as of the
determination date, all determined in accordance with Section 416 of the Code
and the regulations thereunder. The account balances under a defined
contribution plan and accrued benefits under the defined benefit plan in both
the numerator and denominator of the top-heavy ratio are adjusted for any
distribution of an accrued benefit made in the five (5) year period ending on
the determination date. For purposes of this paragraph, the value of account
balances and the present value of accrued benefits will be determined as of the
most recent Valuation Date that falls within the twelve (12) month period ending
on the determination date, except as provided in Section 416 of the Code and the
regulations thereunder for the first and second plan years of a defined benefit
plan. The account balances and accrued benefits of a participant (1) who is not
a "key employee," but who was a key employee in a prior year, or (2) who has not
been credited with at least one (1) hour of service with any Employer
maintaining the plan at any time during the five (5) year period ending on the
determination date will be disregarded. The calculation of the top-heavy ratio
and the extent to which distributions, rollovers and transfers are taken into
account will be made in accordance with Section 416 of the Code and the
regulations thereunder. Deductible employee contributions will
37
<PAGE>
not be taken into account for purposes of computing the top-heavy ratio. When
aggregating plans, the value of account balances and accrued benefits will be
calculated with reference to the determination dates that fall within the same
calendar year. The accrued benefit of any Employee who is not a "key employee"
shall be determined as if such benefit accrued not more rapidly than the slowest
accrual rate permitted under Section 411(b)(1)(C) of the Code.
SECTION 12.02 - SPECIAL MINIMUM BENEFIT If this Plan becomes "top-heavy," for
each year the Plan is top-heavy, the Employers shall make a minimum annual
contribution for each Participant who is employed on the last day of the
Accounting Year and who is not a "key employee," to the extent not already
provided by an Employer through another qualified plan maintained by an Employer
in which the Participant also participates. No amount in excess or the
applicable dollar amount under Section 401(a)(17) of the Code shall be treated
as Section 415 Compensation for purposes of this Section. Such annual
contribution shall be an amount equal to the lesser of three percent (3%) of
this Section 415 Compensation or the highest percentage of compensation
contributed on behalf of a key employee. For purposes of this Section, Employee
Pre-Tax Contributions of "key employees" shall be treated as employer
contributions. Such Participant shall receive this contribution regardless of:
(i) his level of compensation; (ii) whether or not the Participant has made
Employee Pre-Tax Contributions, or (iii) whether or note the Participant
completes one thousand (1,000) Hours of Service during the Accounting Year. For
purposes of this Section, the term "compensation" shall mean a Participant's
Section 415 Compensation (except that only compensation earned while a
Participant will be taken into account).
The minimum annual contribution described in the preceding paragraph shall not
be made if a Participant is also a participant in a top-heavy defined benefit
plan of the Employers and the Participant receives a top-heavy minimum benefit
under such top-heavy defined benefit plan. Said benefit shall be an accrued
benefit equal to: (i) the amount otherwise provided by the top-heavy defined
benefit plan, or (ii) an amount equal to two percent (2%) of the Participant's
annual monthly Section 415 Compensation for the period of consecutive plan years
(not exceeding five (5) years) of the top-heavy defined benefit plan during
which the Participant had the greatest aggregate Section 415 Compensation,
multiplied by his years of benefit accrual service under the top-heavy defined
benefit plan, up to ten (10) years earned in plan years after 1983 in which the
defined benefit plan was top-heavy, whichever is greater.
SECTION 12.03 - SPECIAL COMBINED PLANS LIMIT Notwithstanding the provisions of
Section 3.06 hereof to the contrary, the denominators of the defined benefit
plan fraction and defined contribution plan fraction shall, if this Plan becomes
"top-heavy," be amended by the product of 1.0 rather than 1.25 of the applicable
dollar limits.
SECTION 12.04 - KEY EMPLOYEE DEFINED The term "key employee" shall have the same
meaning as is specified in Section 416(i)(1) of the Code, to wit:
(i) certain officers of an Employer or any Affiliate of an Employer
(but not more than fifty (50) officers or, if less, the greater of
three (3) officers or ten percent (10%) of all Employees of an
Employer and all Affiliates);
(ii) the ten (10) Employees with the largest equity interest in an
Employer whose total annual compensation in the applicable
Accounting Year was more than one hundred
38
<PAGE>
percent (100%) of the maximum annual additions to a defined
contribution plan for such year under Section 415(c)(1)(A) of the
Code;
(iii) any Participant with more than five percent (5%) equity interest
in an Employer or any Affiliate of an Employer; or
(iv) any Participant with more than one percent (1%) equity interest in
an Employer or its Affiliates whose total annual compensation in
the applicable Accounting Year is more than one hundred fifty
thousand dollars ($150,000).
In determining "equity interest," the attribution rules set forth in Section 318
of the Code shall be taken into consideration. The term "key employee" as of any
determination date shall be applied to any Employee or former Employee (or his
Spouse) who was a "key employee" during the Accounting Year (ending with such
determination date) or in any of the four (4) immediately preceding Accounting
Years. The term "non-key employee" shall mean any Employee who is not a "key
employee." The term "officer," for this purpose, shall only include any officer
of an Employer or its Affiliates whose total cash compensation for the
applicable Accounting Year was at least fifty percent (50%) of the maximum
annual benefit from a defined benefit plan for such year under Section
415(b)(1)(A) of the Code. For purposes of this Section, "compensation" shall
mean Section 415 Compensation.
SECTION 12.05 - AGGREGATION GROUP OF PLANS DEFINED The term "aggregation group
of plans" shall have the same meaning as is specified in Section 416(g)(2) of
the Code, including for this purpose, both required and permissive aggregation
groups of plans. A required aggregation shall include (i) each qualified plan of
the Employers or Affiliates in which at least one key employee participates or
participated at any time during the determination period (regardless of whether
the plan has terminated), and (ii) any other qualified plan of the Employers or
Affiliates which enables a plan described in (i) to meet the requirements of
Section 401(a)(4) or 410 of the Code. A permissive aggregation group shall
include the required aggregation group of plans plus any other plan or plans of
the Employers or Affiliates, when considered as a group with the required
aggregation group, will continue to satisfy the requirements of Section
401(a)(4) or 410 of the Code.
IN WITNESS WHEREOF, the Sponsoring Employer has caused this Plan to be executed
as of the _____ day of ___________________, 1998, but to be effective as of
March 30, 1998.
MORRIS MATERIAL HANDLING, INC.
BY:
---------------------------------
39
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from financial
information for MMH Holdings, Inc. and is qualified in its entirety to such
financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C> <C>
<PERIOD-TYPE> YEAR 3-MOS
<FISCAL-YEAR-END> OCT-31-1998 OCT-31-1998
<PERIOD-START> NOV-01-1997 AUG-01-1998
<PERIOD-END> OCT-31-1998 OCT-31-1998
<CASH> 2,534 2,534
<SECURITIES> 0 0
<RECEIVABLES> 83,553 83,553
<ALLOWANCES> (1,606) (1,606)
<INVENTORY> 42,561 42,561
<CURRENT-ASSETS> 138,509 138,509
<PP&E> 67,649 67,649
<DEPRECIATION> (26,579) (26,579)
<TOTAL-ASSETS> 310,997 310,997
<CURRENT-LIABILITIES> 77,953 77,953
<BONDS> 261,824 261,824
95,351 95,351
0 0
<COMMON> 0 0
<OTHER-SE> (127,193) (127,193)
<TOTAL-LIABILITY-AND-EQUITY> 310,997 310,997
<SALES> 317,857 86,182
<TOTAL-REVENUES> 319,188 86,396
<CGS> 226,991 59,667
<TOTAL-COSTS> 61,355 17,259
<OTHER-EXPENSES> 4,168<F1> 1,107<F2>
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> (17,975) (6,811)
<INCOME-PRETAX> 8,726 1,545
<INCOME-TAX> (4,435) (1,539)
<INCOME-CONTINUING> 4,291 6
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 4,291 6
<EPS-PRIMARY> 0 0
<EPS-DILUTED> 0 0
<FN>
<F1>As a result of the Recapitalization and subsequent restructuring, the
Company recognized certain non-recurring employee benefit costs. These
costs included Employee Termination costs associated with restructuring
the Company's United Kingdom and United States manufacturing operations and
Divestiture Bonuses to certain members of management. The Company's former
parent, not the Company, is responsible for making these bonus payments. The
Employee Termination costs were approximately $1.8 million and the bonuses to
management were approximately $1.2 million.
Parent management fees allocated by HII (prior to the Recapitalization) which
represented an allocation of HII's corporate expenses were $1.2 million and
$2.9 million for fiscal year 1998 and 1997, respectively.
<F2>As a result of the Recapitalization and subsequent restructuring, the
Company recognized certain non-recurring employee benefit costs. These costs
included Employee Termination costs associated with restructuring the Company's
United Kingdom and United States manufacturing operations. $1.1 million of
those costs were in recognized in the fourth fiscal quarter of 1998.
Parent management fees allocated by HII (prior to the Recapitilization) which
represented and allocation of HII's corporate expenses were $0.0 million and
$0.8 for the fourth fiscal quarter of 1998 and the fourth fiscal quarter of
1997, respectively.
</FN>
</TABLE>
