SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended January 31, 2000
Commission Registrant; State of Incorporation; IRS EMPLOYER
File Number Address; and Telephone Number Identification No.
333-52529 MMH HOLDINGS, INC. 39-1924039
(a Delaware Corporation)
315 W. Forest Hill Avenue
Oak Creek, Wisconsin 53154
(414) 764-6200
333-52527 MORRIS MATERIAL HANDLING, INC. 39-1716155
(a Delaware Corporation)
315 W. Forest Hill Avenue
Oak Creek, Wisconsin 53154
(414) 764-6200
Indicate by check mark whether the registrants (1) have filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrants were required to file such reports), and (2) have been subject to
such filing requirements for the past 90 days.
Yes X No
Indicate the number of shares outstanding of each of the issuers' classes of
common stock, as of the latest practicable date (March 20, 2000):
MMH Holdings, Inc. Nonvoting common stock, $.01 Par Value,
4,350 shares outstanding. Voting common
stock, $.01 Par Value,
10,169 shares outstanding.
Morris Material Handling, Inc. Common stock, $.01 Par Value, 100 shares
outstanding. MMH Holdings, Inc. holds all of
the outstanding common stock of
Morris Material Handling, Inc.
<PAGE>
MMH HOLDINGS, INC.
MORRIS MATERIAL HANDLING, INC.
INDEX
Introduction 2
Part I -Financial Information:
Item 1. Financial Statements
MMH Holdings, Inc.
Condensed Balance Sheets 4
Condensed Statements of Operations and Comprehensive Income (Loss) 5
Condensed Statements of Cash Flows 6
Statements of Preferred Stock and Shareholders' Equity 7
Morris Material Handling, Inc.
Condensed Balance Sheets 8
Condensed Statements of Operations and Comprehensive Income (Loss) 9
Condensed Statements of Cash Flows 10
Statements of Shareholder's Equity 11
Notes to Financial Statements of
MMH Holdings, Inc. and
Morris Material Handling, Inc. 12
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations of
MMH Holdings, Inc. and Morris Material
Handling, Inc. 27
Item 3. Quantitative and Qualitative Disclosures about Market Risk 37
Part II - Other Information:
Item 1. Legal Proceedings 38
Item 2. Changes in Securities 38
Item 3. Defaults upon Senior Securities 38
Item 4. Submission of Matters to a Vote of Security Holders 38
Item 5. Other Information 38
Item 6. Exhibits and Reports on Form 8-K 38
Introduction
MMH Holdings, Inc. ("Holdings") is a holding company whose sole direct
subsidiary is Morris Material Handling, Inc. ("MMH"), a manufacturer,
distributor and service provider of "through-the-air" material handling
equipment with operations in the United States, United Kingdom, South Africa,
Singapore, Canada, Australia, Thailand, Chile and Mexico. Unless the context
requires otherwise, references to the "Company" in this combined 10-Q are to
MMH, its subsidiaries and their predecessors. For periods prior to March 30,
1998, references to the Company are to the "through-the-air" material handling
equipment business (the "MHE Business") of Harnischfeger Corporation ("HarnCo")
and those subsidiaries and affiliates of HarnCo that were engaged therein.
This combined Form 10-Q is separately filed by MMH Holdings, Inc. and by Morris
Material Handling, Inc. The unaudited interim financial statements presented in
<PAGE>
this combined report (collectively, the "Financial Statements") include the
financial statements of Holdings, as well as separate financial statements for
MMH. Information contained herein relating to any individual Registrant is filed
by such Registrant on its own behalf.
Certain sections of this Form 10-Q, including "Management's Discussion and
Analysis of Financial Condition and Results of Operations," contain various
forward looking statements within the meaning of Section 21E of the Securities
Exchange Act of 1934, which represent management's expectations or beliefs
concerning future events. The 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. Factors that might cause such a
difference include, without limitation, general economic conditions and
competition in the markets in which the Registrants' operations are located and
are detailed herein under "Management's Discussion and Analysis of Financial
Condition and Results of Operations - Cautionary Factors." Consequently, all
forward-looking statements made herein are qualified by these cautionary
statements. There can be no assurance that the actual results, events or
developments referenced herein will occur or be realized.
<PAGE>
<TABLE>
MMH HOLDINGS, INC.
CONDENSED BALANCE SHEETS
(Dollars in Thousands)
ASSETS
<CAPTION>
January 31, October 31,
2000 1999
---------- -----------
(Unaudited)
Current Assets
<S> <C> <C>
Cash and cash equivalents $ 237 $ 3,929
Accounts receivable-net 62,982 64,481
Inventories 39,907 39,994
Other current assets 8,611 7,842
--------- ---------
111,737 116,246
Property, Plant and Equipment
Land and improvements 3,354 3,349
Buildings 23,087 23,235
Machinery and equipment 45,005 45,219
--------- ---------
71,446 71,803
Less accumulated depreciation (31,685) (30,829)
--------- ---------
39,761 40,974
--------- ---------
Other Assets
Goodwill 41,190 42,844
Debt financing costs 15,859 16,398
Other 10,452 10,374
--------- ---------
67,501 69,616
--------- ---------
$ 218,999 $ 226,836
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
January 31, October 31,
2000 1999
---------- -----------
(Unaudited)
Current Liabilities
Short-term notes payable and current
portion of long-term obligations (Note 6) $ 443 $ 383
Revolving Credit Facility Borrowings (Note 6) 23,645 27,925
Term Loans (Note 6) 49,107 52,225
Acquisition Facility Line Borrowings (Note 6) 12,094 12,430
Senior Notes (Note 6) 200,000 200,000
Bank overdrafts 2,759 1,367
Trade accounts payable 18,392 26,757
Employee compensation and benefits 8,165 8,020
Advance payments and progress billings 10,717 8,336
Accrued warranties 1,637 1,821
Accrued interest 7,345 1,804
Income taxes payable 4,371 2,205
Other current liabilities 10,882 9,791
--------- ---------
349,557 353,064
Other Long-Term Obligations 2,655 2,784
Other Long-Term Liabilities 1,221 1,307
Minority Interest 301 504
Commitments and Contingencie
Mandatorily Redeemable Preferred Stock 111,710 108,245
Shareholders' Equity (246,445) (239,068)
--------- ---------
$ 218,999 $ 226,836
========= =========
</TABLE>
The accompanying notes are an integral part of the financial statements.
<PAGE>
<TABLE>
MMH HOLDINGS, INC.
CONDENSED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS)
(UNAUDITED)
(Dollars in Thousands)
<CAPTION>
For the Three Months
Ended January 31,
2000 1999
------- --------
Revenues
<S> <C> <C>
Equipment and Part Sales $ 52,165 $ 53,065
Service Sales 14,554 14,855
-------- --------
Net Sales 66,719 67,920
Other Income - Net -- 102
-------- --------
66,719 68,022
Cost of Sales 50,872 50,614
Selling, General and Administrative Expenses 16,860 15,933
-------- --------
Operating Income (Loss) (1,013) 1,475
Gain on Sale of a Business 6,380 --
Interest Expense - Net (7,750) (6,908)
-------- --------
Loss Before Income Taxes and
Minority Interest (2,383) (5,433)
Benefit (Provision) for Income Taxes (1,788) 2,453
Minority Interest 16 6
-------- --------
Net Loss (4,155) (2,974)
Foreign Currency Translation Adjustments 243 (970)
-------- --------
Comprehensive Income (Loss) $ (3,912) $ (3,944)
======== ========
</TABLE>
The accompanying notes are an integral part of the financial statements.
<PAGE>
<TABLE>
MMH HOLDINGS, INC.
CONDENSED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(Dollars in Thousands)
<CAPTION>
For the Three Months
Ended January 31,
2000 1999
-------- ---------
Operating Activities
<S> <C> <C>
Net income (loss) $ (4,155) $ (2,974)
Add (deduct) - items not affecting
cash provided by operating activities:
Depreciation and amortization 2,445 1,806
Amortization of debt financing costs 585 493
Deferred income taxes - net -- (2,957)
Gain on sale of business (6,380) --
Other (6) (6)
Changes in working capital,
excluding the effects of acquisition opening
balance sheets:
Accounts receivable 805 11,912
Inventories (1,229) 810
Other current assets (574) (3,747)
Trade accounts payable and bank overdrafts (6,587) (8,317)
Advance payments and progress billings 2,319 (1,349)
Accrued interest 5,524 4,836
Other current liabilities 3,263 (2,909)
-------- --------
Net cash provided by (used for) operating activities (3,990) (2,402)
-------- --------
Investment and Other Transactions
Fixed asset additions - net (334) (1,634)
Capitalized software (624) (276)
Acquisition of businesses - net of cash acquired -- (4,989)
Net proceeds on divestiture of business 9,115 --
Other - net 79 126
-------- --------
Net cash used for investment and other transactions 8,236 (6,773)
-------- --------
Financing Activities
Changes in short-term debt
and notes payable 1,920 10,354
Repayments of Revolving Credit Facility borrowings (6,200) (1,200)
Repayment of Term Loans (3,100) --
Proceeds from/(repayments of)
Acquisition Facility Line borrowings (336) 1,235
Repayments of long-term debt (87) (337)
Payment of fees for amendment
of Credit Facility (133) --
-------- --------
Net cash provided by (used for)
financing activities (7,936) 10,052
-------- --------
Effect of Exchange Rate Changes on
Cash and Cash Equivalents (2) (51)
-------- --------
Increase (decrease) in Cash
and Cash Equivalents (3,692) 826
Cash and Cash Equivalents
Beginning of Period 3,929 2,534
-------- --------
End of Period $ 237 $ 3,360
======== ========
</TABLE>
The accompanying notes are an integral part of the financial statements.
<PAGE>
<TABLE>
MMH HOLDINGS, INC.
STATEMENTS OF PREFERRED STOCK AND SHAREHOLDERS' EQUITY
FOR THE THREE MONTHS ENDED JANUARY 31, 2000
(UNAUDITED)
(Dollars in Thousands)
<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, 1999 68,741 $ 67,443 5,750 $ 5,808 34,633 $ 34,994 $ 108,245
Net loss -- -- -- -- -- -- --
Change in
foreign currency translation -- -- -- -- -- -- --
Preferred stock dividends -- 2,062 -- 176 -- 1,082 3,320
Issuance of non-voting common shares -- -- -- -- -- -- --
Amortization of
preferred stock discount -- 145 -- -- -- -- 145
-----------------------------------------------------------------------------------------------
Balance at January 31, 2000 68,741 $ 69,650 5,750 $ 5,984 34,633 $ 36,076 $ 111,710
===============================================================================================
</TABLE>
<TABLE>
<CAPTION>
Common Stock Parent Accumulated
------------------- Investment/ Other Total
Shares Par Additional Comprehensive Retained Shareholders'
Outstanding Value Paid-in-Capital Loss Earnings Equity
------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Balance at October 31, 1999 12,099 $-- $(121,860) $ (3,428) $ (113,780) $(239,068)
Net loss -- -- -- -- (4,155) (4,155)
Change in
foreign currency translation -- -- -- 243 -- 243
Preferred stock dividends -- -- -- -- (3,320) (3,320)
Issuance of non-voting common shares 2,420 -- -- -- -- --
Amortization of
preferred stock discount -- -- -- -- (145) (145)
-----------------------------------------------------------------------------------------------
Balance at January 31, 2000 14,519 $-- $(121,860) $ (3,185) $ (121,400) $(246,445)
===============================================================================================
</TABLE>
The accompanying notes are an integral part of the financial statements.
<PAGE>
<TABLE>
MORRIS MATERIAL HANDLING, INC.
CONDENSED BALANCE SHEETS
(Dollars in Thousands)
ASSETS
<CAPTION>
January 31, October 31,
2000 1999
---------- ----------
(Unaudited)
Current Assets
<S> <C> <C>
Cash and cash equivalents $ 237 $ 3,929
Accounts receivable-net 62,982 64,481
Inventories 39,907 39,994
Other current assets 8,611 7,842
--------- ---------
111,737 116,246
--------- ---------
Property, Plant and Equipment
Land and improvements 3,354 3,349
Buildings 23,087 23,235
Machinery and equipment 45,005 45,219
--------- ---------
71,446 71,803
Less accumulated depreciation (31,685) (30,829)
--------- ---------
39,761 40,974
--------- ---------
Other Assets
Goodwill 41,190 42,844
Debt financing costs 15,859 16,398
Other 10,452 10,374
--------- ---------
67,501 69,616
--------- ---------
$ 218,999 $ 226,836
========= =========
LIABILITIES AND SHAREHOLDER'S EQUITY
Current Liabilities
Short-term notes payable
portion of long-term obligations (Note 6) $ 443 $ 383
Revolving Credit Facility Borrowings (Note 6) 23,645 27,925
Term Loans (Note 6) 49,107 52,225
Acquisition Facility Line Borrowings (Note 6) 12,094 12,430
Senior Notes (Note 6) 200,000 200,000
Bank overdrafts 2,759 1,367
Trade accounts payable 18,392 26,757
Employee compensation andbenefits 8,165 8,020
Advance payments andprogress billings 10,717 8,336
Accrued warranties 1,637 1,821
Accrued interest 7,345 1,804
Income taxes payable 4,371 2,205
Other current liabilities 10,882 9,791
--------- ---------
349,557 353,064
Other Long-Term Obligations 2,655 2,784
Other Long-Term Liabilities 1,221 1,307
Minority Interest 301 504
Commitments and Contingencies (Note 7)
Shareholders' Equity (134,735) (130,823)
--------- ---------
$ 218,999 $ 226,836
========= =========
</TABLE>
The accompanying notes are an integral part of the financial statement
<PAGE>
<TABLE>
CONDENSED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS)
(UNAUDITED)
(Dollars in Thousands)
<CAPTION>
For the Three Months
Ended January 31,
-----------------------
2000 1999
-------- ---------
Revenues
<S> <C> <C>
Equipment and Part Sales $ 52,165 $ 53,065
Service Sales 14,554 14,855
-------- --------
Net Sales 66,719 67,920
Other Income - Net -- 102
-------- --------
66,719 68,022
Cost of Sales 50,872 50,614
Selling, General and Administrative Expenses 16,860 15,933
-------- --------
Operating Income (Loss) (1,013) 1,475
Gain on Sale of a Business 6,380 --
Interest Expense - Net
Third Party (7,750) (6,908)
-------- --------
Loss Before Income Taxes and
Minority Interest (2,383) (5,433)
Benefit (Provision) for Income Taxes (1,788) 2,453
Minority Interest 16 6
-------- --------
Net Loss (4,155) (2,974)
Foreign Currency Translation Adjustments 243 (970)
-------- --------
Comprehensive Income (Loss) $ (3,912) $ (3,944)
======== ========
</TABLE>
The accompanying notes are an integral part of the financial statements.
<PAGE>
<TABLE>
MORRIS MATERIAL HANDLING, INC.
CONDENSED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(Dollars in Thousands)
<CAPTION>
For the Three Months
Ended January 31,
---------------------------
2000 1999
--------- ----------
Operating Activities
<S> <C> <C>
Net income (loss) $ (4,155) $ (2,974)
Add (deduct) - items not affecting cash provided by
operating activities:
Depreciation and amortization 2,445 1,806
Amortization of debt financing costs 585 493
Gain on sale of business (6,380) --
Deferred income taxes - net -- (2,957)
Other (6) (6)
Changes in working capital, excluding the effects of acquisition opening
balance sheets:
Accounts receivable 805 11,912
Inventories (1,229) 810
Other current assets (574) (3,747)
Trade accounts payable and bank overdrafts (6,587) (8,317)
Advance payments and progress billings 2,319 (1,349)
Accrued interest 5,524 4,836
Other current liabilities 3,263 (2,909)
-------- --------
Net cash provided by (used for) operating activities (3,990) (2,402)
-------- --------
Investment and Other Transactions
Fixed asset additions - net (334) (1,634)
Capitalized software (624) (276)
Acquisition of businesses - net of cash acquired -- (4,989)
Net proceeds on divestiture of business 9,115 --
Other - net 79 126
-------- --------
Net cash used for investment and other transactions 8,236 (6,773)
-------- --------
Financing Activities
Changes in short-term debt and notes payable 1,920 10,354
Repayments of Revolving Credit Facility borrowings (6,200) (1,200)
Repayment of Term Loans (3,100) --
Proceeds from/(repayments of) Acquisition Facility Line borrowings (336) 1,235
Repayments of long-term debt (87) (337)
Payment of fees for amendment of Credit Facility (133) --
-------- --------
Net cash provided by (used for) financing activities (7,936) 10,052
-------- --------
Effect of Exchange Rate Changes on
Cash and Cash Equivalents (2) (51)
-------- --------
Increase (decrease) in Cash and Cash Equivalents (3,692) 826
Cash and Cash Equivalents
Beginning of Period 3,929 2,534
-------- --------
End of Period $ 237 $ 3,360
======== ========
</TABLE>
The accompanying notes are an integral parto fo the financial statements.
<PAGE>
<TABLE>
MORRIS MATERIAL HANDLING, INC.
STATEMENTS OF SHAREHOLDER'S EQUITY
FOR THE THREE MONTHS ENDED JANUARY 31, 1999
(UNAUDITED)
(Dollars in Thousands)
<CAPTION>
Parent Accumulated
Common Stock Investment/ Other Total
Shares Par Additional Comprehensive Retained Shareholder's
Outstanding Value Paid-in-Capital Loss Earnings Equity
-------------------------- --------------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at October 31, 1999 100 $ -- $ (33,392) $ (3,428) $ (94,003) $(130,823)
Net loss -- -- -- -- (4,155) (4,155)
Change in foreign currency translation -- -- -- 243 -- 243
--------- --------- --------- --------- --------- ----------
Balance at January 31, 2000 100 $ -- $ (33,392) $ (3,185) $ (98,158) $(134,735)
========= ========= ========= ========= ========= =========
</TABLE>
The accompanying notes are an integral part of the financial statements.
<PAGE>
MMH HOLDINGS, INC.
MORRIS MATERIAL HANDLING, INC.
NOTES TO FINANCIAL STATEMENTS
UNAUDITED
(Dollar amounts in thousands unless indicated)
Note 1 - Basis of Presentation
On January 28, 1998, Harnischfeger Industries, Inc. ("HII") reached an agreement
with MHE Investments, Inc. ("MHE Investments") an affiliate of Chartwell
Investments Inc. ("Chartwell") for the sale of an approximately 80 percent
common ownership interest in HII's Material Handling Equipment Business (the
"MHE Business"). As more fully described in Note 2, the resulting transactions
(the "Recapitalization"), which closed on March 30, 1998 (the "Recapitalization
Closing"), led to a significant change in the capital structure and a
reorganization of the underlying legal entities of the MHE Business. As a result
of the Recapitalization, MMH Holdings, Inc. ("Holdings"), a pre-existing company
engaged in the MHE Business, became an indirect holding company for the
operating entities engaged in the MHE Business. Specifically, Morris Material
Handling, Inc. ("MMH" and collectively with its subsidiaries and their
predecessors, the "Company"), a newly formed wholly-owned direct subsidiary of
Holdings, directly or indirectly acquired the various operating entities engaged
in the MHE Business. Holdings was recapitalized in order to effect the
redemption of certain shares of common stock of Holdings held by Harnischfeger
Corporation ("HarnCo"). As a result of the reorganization of the legal entities
of the MHE Business, Holdings and MMH became the successor companies to the MHE
Business. The transactions have been accounted for as a recapitalization and
accordingly, the financial statements presented herewith reflect the underlying
historical accounting basis of the MHE Business.
For periods prior to the Recapitalization Closing, the financial statements
presented represent the combined financial statements of the entities comprising
the MHE Business. For purposes hereof, it is assumed that Holdings has
historically owned the capital stock of MMH, that all of the assets of the MHE
Business were owned by subsidiaries of MMH and that, immediately prior to the
consummation of the Recapitalization, the historical combined financial
statements of Holdings were identical to those of the Company.
All significant intercompany balances and transactions have been eliminated.
Payables and receivables with HII and affiliates prior to the Recapitalization
are recorded as a component of parent investment.
The accompanying unaudited financial statements should be read in conjunction
with the combined 1999 Annual Report on Form 10-K of Holdings and the Company.
In the opinion of management, all adjustments, normal and recurring in nature,
necessary for a fair presentation of results of operations and financial
position have been included in the accompanying balance sheets and statements of
operations. The results of operations for the three months ended January 31,
2000 are not, however, indicative of the results which may be expected for
fiscal 2000.
Note 2 - Recapitalization Transaction
The Recapitalization was effectuated pursuant to the January 28, 1998
Recapitalization Agreement among MHE Investments, HarnCo and certain of HII's
affiliates. Pursuant to this agreement, HarnCo and other HII affiliates effected
a number of transactions which resulted in Holdings owning, directly or
indirectly, the equity interests of all of the operating entities engaged in the
MHE Business. Holdings, in turn, formed MMH as a wholly owned subsidiary to
directly or indirectly hold the various operating entities engaged in the MHE
Business.
The principal transactions effected as part of the Recapitalization were the
following: (i) MHE Investments acquired (x) 7,907 shares of Holdings' common
stock for $25.1 million and (y) $28.9 million liquidation preference of
Holdings' 12 1/2% Series C Junior Voting Exchangeable Preferred Stock (the
"Series C Junior Voting Preferred Stock") from HarnCo, (ii) Holdings redeemed
certain shares of its common stock and Series C Junior Voting Preferred Stock
<PAGE>
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 Note 6). The New Credit
Facility consisted of a $70 million Revolving Credit Facility (the "Revolving
Credit Facility"), a $30 million acquisition facility (the "Acquisition
Facility") and a $35 million term loan. MMH used a portion of the $200 million
aggregate proceeds from the Note Offering and $55 million aggregate borrowings
under the New Credit Facility to redeem certain of its common shares from
Holdings and pay Holdings a dividend which on a combined basis totaled $233.8
million. Holdings, in turn, used the proceeds from this redemption, together
with the proceeds of the sale of the Series A Units, to finance the cash portion
of the redemption price for HarnCo's shares. The remainder of the proceeds were
used by Holdings and MMH (i) to make loans to senior management to acquire
indirect equity interests in Holdings, (ii) to fund certain transaction fees and
expenses and (iii) for general corporate purposes.
At January 31, 2000, MHE Investments owns approximately 54.5% of the common
stock of Holdings and $34.6 million liquidation preference of the Series C
Junior Voting Preferred Stock and HarnCo owns approximately 15.6% of the common
stock of Holdings and $5.8 million liquidation preference of the Series B Junior
Preferred Stock. Certain indirect equity holders in MHE Investments own, through
Martin Crane L.L.C., approximately 25.0% of the common stock of Holdings. The
remaining equity interests are held by institutional investors and consist of
non-voting stock representing approximately 4.9% of the outstanding common stock
of Holdings and $68.7 million liquidation preference of the Series A Senior
Preferred Stock.
Note 3 - Liquidity and Capital Resources
The Company did not meet certain financial covenants contained in the New Credit
Facility for the quarter ended January 31, 2000 and and anticipates that it will
not meet them in the foreseeable future. The Company entered into an Amendment
and Waiver under the New Credit Facility, dated as of January 31, 2000, whereby,
among other matters, the lenders waived compliance by the Company with such
financial covenants, for the period from January 31, 2000 until 5:00 p.m. March
29, 2000 (the "January Waiver"). The January Waiver permits the Company, subject
to certain conditions, to make additional borrowings under the Revolving Credit
Facility and issue additional letters of credit, above levels in existence on
January 28, 2000, in an aggregate amount of up to $12.0 million, during the
waiver period.
Currently, the Company is not generating sufficient funds from operations to
satisfy working capital and debt service requirements, and as a result must rely
on Revolving Credit Facility borrowings to continue to operate. While the
Company anticipates that cash generated from operations and Revolving Credit
Facility borrowings will be sufficient to enable it to satisfy its cash flow
needs until March 29, 2000, there can be no assurance that it will have
sufficient cash flow and borrowings available to enable it to meet its
obligations until such date.
Until March 29, 2000 and thereafter, the Company may experience severe financial
and operational difficulties resulting from its liquidity situation that may
prevent it from continuing operations.
In addition, at the time of expiration of the January Waiver, the Company will
again be in default under certain financial covenants of the New Credit
Facility. As a result of these defaults, the lenders ("Lenders") under the New
Credit Facility will be able to declare all amounts of principal and accrued
interest outstanding under the New Credit Facility immediately due and payable
(an "Acceleration"). If the Lenders so accelerate, the Company will then also be
in default under the indenture governing the Senior Notes (the "Indenture"). In
such event, the Company would not be able to cure such default and the trustee
under the Indenture will be able to accelerate the Company's outstanding
indebtedness (including accrued interest) evidenced by the Senior Notes. The
Company will not have sufficient funds to repay the outstanding indebtedness
under the New Credit Facility or the Senior Notes if either such indebtedness is
accelerated. As of the end of first quarter 2000, the Company had $298.0 million
of indebtedness outstanding, including $85.8 million under the New Credit
Facility (including accrued interest) and $206.3 million evidenced by the Senior
Notes (including accrued interest).
In the event that the Lenders do not cause an Acceleration to occur on March 29,
2000, the Company will nonetheless be unable to meet certain of its obligations
as they become due after such date, including a $9.5 million interest payment
<PAGE>
obligation under the Senior Notes due on April 1, 2000. As a result, the Lenders
and, after expiration of the applicable grace period, the trustee under the
Indenture will have the right to accelerate the Company's outstanding
indebtedness. In such event, the Company will not have sufficient funds to repay
New Credit Facility borrowings and the Senior Notes.
The Company is currently seeking, and is engaged in discussions regarding, its
strategic alternatives. The Company has engaged in discussions with the Lenders
and representatives of the holders of Senior Notes concerning the possible
restructuring of the Company's capital structure, including a possible sale of
the Company to a third party in connection therewith. There can be no assurance
that the Company will be able to successfully pursue strategic alternatives or
that the results of its discussions with its creditors will be successful. As
discussed above, if the Company fails in the near future to resolve its critical
liquidity issues, the Company may be unable to continue as a going concern.
Note 4 - Acquisitions
During the three months ended January 31, 2000, the Company did not make any
acquisitions. During the three months ended January 31, 1999, the Company
completed one acquisition with an aggregate purchase price of $3.1 million, net
of cash acquired, including approximately $1.0 million financed by the seller.
This acquisition was related to the Company's aftermarket business and was
accounted for as a purchase transaction with the purchase price allocated to the
fair value of specific assets acquired and liabilities assumed. Resultant
goodwill of $1.8 million is being amortized over 40 years. This acquisition was
partially financed by the seller, resulting in a deferred purchase price which
will be paid in 2004 and 2005. During the three months ended January 31, 1999,
the Company made final consideration payments of $1.5 million related to two
1998 acquisitions. In addition, with respect to a 1995 acquisition, the Company
was required to make a contingent consideration payment of $1.3 million in the
three months ended January 31, 1999. Additionally, a payment of $100 was made in
each of the three month periods ended January 31, 2000 and 1999 toward a fiscal
1998 purchase which was partially financed by the seller. On a pro forma basis,
the fiscal 1999 acquisition was not material to results of operations reported
for the three months ended January 31, 1999 and accordingly, such information is
not presented.
Note 5 - Inventories
Inventories consisted of the following:
<TABLE>
<CAPTION>
January 31, October 31,
2000 1999
----------------- -----------------
<S> <C> <C>
Raw material $ 5,864 $ 8,771
Work-in-process 24,054 20,166
Finished parts 17,048 18,116
-------- --------
46,966 47,053
Less excess of current cost over
stated LIFO value (7,059) (7,059)
-------- --------
$ 39,907 $ 39,994
======== ========
</TABLE>
Note 6 - Indebtedness
The New Credit Facility and the 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 Indenture limits the
Company's and its subsidiaries' ability to incur indebtedness. The New Credit
Facility also requires Holdings and its subsidiaries to comply with certain
financial ratios and borrowing condition tests based on quarterly measurements
of the latest twelve months results of operations, under which Holdings and its
subsidiaries are required to achieve and maintain certain financial and
operating results. A breach of any of these covenants would result in a default
under the Indenture or the New Credit Facility, or both. In the event of any
such default, the lenders under the New Credit Facility and/or the holders of
the Senior Notes could elect to declare all amounts borrowed under the New
Credit Facility and/or the Senior Notes, as applicable, together with accrued
interest thereon, to be due and payable which would also result in an event of
default under the surety arrangement which the Company entered into at the
Recapitalization Closing.
The Company did not meet certain of the financial covenants under the New Credit
Facility for the period ended January 31, 1999 and did not meet such financial
<PAGE>
covenants and certain additional financial covenants for the period ended April
30, 1999. On August 2, 1999, the Company obtained an amendment to the New Credit
Facility (the "Amendment") which cured past financial covenant violations and
reset the financial covenants until April 2001. The Amendment increased the cash
availability under the Revolving Credit Facility from $35.7 million under the
previous waiver agreement to $40.7 million. In connection with, and as a
condition to, the Amendment, certain of the current indirect equity holders in
Holdings purchased a $5.0 million participation in the New Credit Facility and
received certain non-voting equity interests in Holdings, consisting of 25% of
the then outstanding common stock of Holdings.
As discussed in Note 3, the Company was in violation of its amended financial
covenants under the New Credit Facility as of January 31, 2000, and anticipates
being in violation of those covenants at subsequent quarterly measurement dates
during fiscal 2000. Accordingly, amounts outstanding at January 31, 2000 of
$78.5 million under the New Credit Facility and $200 million of Senior Notes
have been classified as current liabilities in the accompanying balance sheets.
Note 7 - 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
January 31, 2000: (i) $4.4 million of outstanding letters of credit and surety
bonds under the New Credit Facility, (ii) $2.7 million under a surety
arrangement for outstanding surety bonds and (iii) $3.9 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 January
31, 2000, approximately $26.7 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 indemnification liabilities relating to
asbestos claims (which amounts have not been material to the MHE Business) but
there can be no assurance such insurers will continue to do so in the future or
that there will be insurance coverage for such claims. In addition, policy
primary aggregate levels were exhausted in certain years, which would require
the participation of excess insurers for future claim activity. Given its
experience to date with such claims, the Company believes that its exposure to
asbestos related claims is not material, but there can be no assurance that such
liability will not in fact be material.
All of the Company's agreements and arrangements with HII and its affiliates
(including those referred to above and those relating to the provision of
services and materials by HII and its affiliates to the Company) could be
materially adversely affected by the fact that on June 7, 1999 (the "Petition
Date"), HII and certain of its United States affiliates (including HarnCo) filed
voluntary petitions for relief under Chapter 11 of the United States Bankruptcy
Code (the "Bankruptcy Code") in the United States Bankruptcy Court for the
District of Delaware (the "HII Bankruptcy"). Certain provisions of the
Bankruptcy Code allow a debtor to avoid, delay and/or reduce its contractual and
other obligations to third parties. There can be no assurance that HII and its
affiliates will not attempt to utilize such provisions to cease performance
under their agreements with the Company. The inability of the Company to receive
the benefits of one or more of these agreements or the termination of ongoing
arrangements between the Company and affiliates of HII could materially
adversely affect the Company's operations and financial performance. In the
event that any of the liabilities retained by HII and its affiliates remain
unsatisfied as of the Petition Date, the Company's right to indemnification for
any such amounts it has paid on behalf of HII and its affiliates may also be
avoided, delayed or reduced.
<PAGE>
Each of HII and certain of its affiliates on the one hand, and the Company and
certain of its affiliates, on the other hand, have receivables and payables to
the other which may be affected by the HII Bankruptcy.
On October 28, 1996, a strong windstorm caused significant damage to the Belview
container-handling terminal at the Port of Waterford in Ireland. One
container-handling crane sold by the Company's United Kingdom subsidiary was
destroyed and another was seriously damaged. The two cranes were sold to the
Waterford Harbour Commissioners in 1992 and commissioned for use in 1993. On
October 19, 1998, the Waterford Harbour Commissioners wrote to the Company and
provided a notice of arbitration, asserting breach of contract, negligence and
breach of duty against the Company's United Kingdom subsidiary in connection
with the destroyed and damaged cranes. The Waterford Harbour Commissioners
claimed direct damages of IR(pound)8.5 million ($11.5 million based on exchange
rates at January 31, 2000) and unspecified consequential damages. The port
operator, Bell Lines, Limited, filed a similar claim against the Company's
United Kingdom subsidiary in October 1999, asserting unspecified damages.
Management intends to vigorously defend both matters. One of the Company's
insurance carriers has agreed to provide defense coverage for one of the two
cranes involved in the accident and limited indemnification if the Company is
unsuccessful in defending the claims. The Company is continuing to work with its
insurance broker to determine the availability of additional insurance coverage,
if any. While the Company believes that it will obtain a favorable resolution
(either by successfully defending the claim or by obtaining insurance coverage
thereon), no assurances can be made as to the final outcome of the claims. If
the Company is found liable for the claims and is unable to obtain insurance
coverage therefor, there could be a material adverse effect on the Company's
operations and financial performance. Based upon the current status of this
matter, no related liability has been accrued at January 31, 2000.
The Company is a party to various other litigation matters, including product
liability and other claims, which are normal in the course of its operations.
Also, as a normal part of its operations, the Company undertakes certain
contractual obligations and warranties in connection with the sale of products
or services. Although the outcome of these matters cannot be predicted with
certainty, management believes that the resolution of such matters will not have
a material adverse effect on the consolidated results of operations, financial
position or cash flows of the Company.
Under the terms of the Recapitalization Agreement, HarnCo retained all liability
for the only two open environmental clean-up claims brought against HarnCo in
the Milwaukee, Wisconsin area. The Company and its management are not aware of
any other material environmental clean-up claim which is pending or is
threatened against the Company, but there can be no assurance that any such
claim will not be asserted against the Company in the future. In addition, as
noted above, the Company's right to indemnification against HarnCo for such
liabilities may be avoided, delayed or reduced as a result of HarnCo's filing
for bankruptcy protection.
Note 8 - Segment Information
The Company adopted SFAS No. 131, " Disclosures about Segments of an Enterprise
and Related Information" during the fiscal year ended October 31, 1999. The
prior year's first quarter segment information has been restated to conform to
the current year presentation. Pursuant to SFAS No. 131, the Company has
identified its reportable segments based on the Company's method of internal
reporting which is utilized by its chief operating decision-maker, the Chief
Executive Officer. The reportable operating segments are as follows:
o Equipment and Aftermarket - Americas
o Equipment and Aftermarket - Other
o Distribution and Service - North America
o Engineered Products and Automation - Europe
o Equipment and Aftermarket - Europe
o Equipment and Aftermarket - Asia Pacific
o Equipment and Aftermarket - South Africa
Each segment has a manager who is directly accountable to and maintains regular
contact with the Chief Executive Officer. The Company evaluates performance of
its segments based on operating income, determined on a basis consistent with
amounts reported in the consolidated financial statements.
The Equipment and Aftermarket - Americas segment designs and manufactures a
comprehensive line of engineered and standard overhead cranes, hoists and other
component products and repair parts at the Company's facilities located in Oak
Creek and Windsor, Wisconsin. This segment also modernizes products manufactured
<PAGE>
by both the Company and its competitors. This segment is the main manufacturer
of the replacement parts sold by the Company's Distribution and Service - North
America segment as well as the manufacturer of component products used in that
segment's standard cranes. Repair parts and component products are purchased by
the Distribution and Service - North America segment at list price less standard
intercompany discounts.
The Equipment and Aftermarket - Other segment is the Company's brake
manufacturing operation in Canada. Approximately 35% of this segment's sales are
to other Company segments. The Company sold this operation in December 1999.
The Distribution and Service - North America segment is the network of
Company-owned locations in key industrial markets in North America. The network
is the platform for the Company's sales activities, serving as distribution
centers for its original equipment and replacement parts as well as the focal
point for service activities. Some of the distribution centers also fabricate
and assemble standard cranes using components manufactured by the Equipment and
Aftermarket - Americas and the Equipment and Aftermarket - Europe segments.
The Engineered Products and Automation - Europe segment focuses on the
manufacture of highly engineered ship-to-shore and gantry cranes for use in
container handling and automated warehouse units at the Company's facility
located in Loughborough, England, and provides software support for the
automated warehouse units installed at customer locations.
The Equipment and Aftermarket - Europe segment consists of standard crane and
hoist manufacturing in the Loughborough, England facility as well as the network
of Company-owned distribution centers in key industrial markets in the United
Kingdom. The Equipment and Aftermarket - Europe segment provides services for
the Engineered Products and Automation segment at prices consistent with those
charged to external customers. In addition, this segment distributes hoists
through Distribution and Service - North America and Equipment and Aftermarket -
Asia Pacific and South Africa at prices consistent with those charged to
external customers.
The Equipment and Aftermarket - Asia Pacific and South Africa segments operate
in a manner similar to the Distribution and Service - North America segment. The
Asia Pacific segment includes operations in Australia, Singapore, Thailand and
Saudi Arabia.
Within North America, certain centrally incurred costs such as insurance costs
and computer charges are allocated to operating segments based upon various
methods of allocation. In the United Kingdom, utilities, property taxes and
insurance costs are allocated to the segments based upon varying allocation
methods. Domestically, costs related to centralized accounting, marketing, human
resources, and IT functions are not allocated. Internationally, these costs are
allocated amongst individual segments in First Quarter 2000, however, in First
quarter 1999, no allocation was done.
<PAGE>
<TABLE>
MMH HOLDINGS, INC.
MORRIS MATERIAL HANDLING, INC.
Operating Segments
For the Three Months Ended January 31, 2000
<CAPTION>
--------------------------------------------------------------------------
SALES
--------------------------------------------------------------------------
External Intercompany Total Operating Income (Loss)
----------- -------------- ----------- ------------------
<S> <C> <C> <C> <C>
Equipment & Aftermarket - Americas $11,196 $10,508 $21,704 $1,000
Equipment & Aftermarket - Other 423 111 534 (4)
----------- -------------- ----------- ------------------
Total Equipment & Aftermarket 11,619 10,619 22,238 996
Distribution & Service - North America 40,424 157 40,581 1,883
Eliminations & Other 0 (10,776) (10,776) (117)
----------- -------------- ----------- ------------------
Total Americas 52,043 0 52,043 2,762
----------- -------------- ----------- ------------------
Engineered Products & Automation - Europe 2,070 17 2,087 177
Equipment & Aftermarket - Europe 6,937 1,288 8,225 (787)
Eliminations & Other 0 (206) (206) (197)
----------- -------------- ----------- ------------------
Total Europe 9,007 1,099 10,106 (807)
Equipment & Aftermarket - South Africa 2,243 0 2,243 (91)
Equipment & Aftermarket - Asia Pacific 3,426 0 3,426 (336)
Eliminations & Other 0 (191) (191) (471)
----------- -------------- ----------- ------------------
Total International 14,676 908 15,584 (1,705)
----------- -------------- ----------- ------------------
Corporate and Eliminations 0 (908) (908) (2,070)
=========== ============== =========== ==================
Consolidated $66,719 $ - $66,719 $(1,013)
=========== ============== =========== ==================
</TABLE>
<PAGE>
<TABLE>
MORRIS MATERIAL HANDLING, INC.
Operating Segments
For the Three Months Ended January 31, 1999
<CAPTION>
--------------------------------------------------------------------------
SALES
--------------------------------------------------------------------------
External Intercompany Total Operating Income (Loss)
------------ ---------------- ------------- -------------
<S> <C> <C> <C> <C>
Equipment & Aftermarket - Americas $12,642 $10,570 $23,212 $980
Equipment & Aftermarket - Other 958 245 1,203 393
------------ ---------------- ------------- -------------
Total Equipment & Aftermarket 13,600 10,815 24,415 1,373
Distribution & Service - North America 35,626 1,176 36,802 2,286
Eliminations & Other 0 (11,991) (11,991) 98
------------ ---------------- ------------- -------------
Total Americas 49,226 0 49,226 3,757
------------ ---------------- ------------- -------------
Engineered Products & Automation - Europe 3,965 122 4,087 (4)
Equipment & Aftermarket - Europe 8,261 1,137 9,398 400
Eliminations & Other 0 (207) (207) (640)
------------ ---------------- ------------- -------------
Total Europe 12,226 1,052 13,278 (244)
Equipment & Aftermarket - South Africa 3,408 0 3,408 103
Equipment & Aftermarket - Asia Pacific 3,060 0 3,060 9
Eliminations & Other 0 (285) (285) (115)
------------ ---------------- ------------- -------------
Total International 18,694 767 19,461 (247)
------------ ---------------- ------------- -------------
Corporate and Eliminations 0 (767) (767) (2,042)
============ ================ ============= =============
Consolidated $67,920 $ -- $67,920 $1,468
============ ================ ============= =============
</TABLE>
Note 9 - Divestiture
On December 16, 1999, the Company completed the sale of the Company's brake
manufacturing operation (the "Brake Business") located in Mississauga, Ontario,
Canada, for a net sale price of $6.8 million after deduction of certain
transaction-related items, including taxes. During the first quarter of fiscal
year 2000, the Brake Business contributed $0.5 million in sales and no operating
income to the Company's results.
In accordance with the New Credit Facility, as amended by the Amendment, the
Company was permitted to apply half of the net proceeds of the sale of the Brake
Business (which amounted to $3.4 million) to general corporate purposes, which
the Company would otherwise have been required to use to prepay indebtedness
under the New Credit Facility. After consummation of the sale, the Company
repaid $3.1 million of the outstanding term loans ($2.4 million of which was
applied to the final scheduled principal payment obligation with respect to the
term loans) and repaid $0.3 million on the Acquisition Facility. A pre-tax gain
of $6.4 million was recognized on this transaction.
Note 10 - 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.
<PAGE>
<TABLE>
SUPPLEMENTAL CONDENSED CONSOLIDATING BALANCE SHEET
JANUARY 31, 2000
(Dollars in Thousands)
<CAPTION>
Consolidated
Morris Morris Consolidated
Non Material Material MMH MMH
Guarantor Guarantor Handling Handling Holdings Holdings
Subsidiares Subsidiares Inc. Eliminations Inc. Inc. Eliminations Inc.
---------------------------------------------------------------------------------------------
Current Assets
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Cash and cash equivalents $ (504) $ 741 $ -- $ -- $ 237 $ -- $ -- $ 237
Accounts receivable - net 59,167 3,815 -- -- 62,982 -- -- 62,982
Intercompany accounts receivable 23,763 (27) 17,034 (40,770) -- -- -- --
Inventories 37,825 2,082 -- -- 39,907 -- -- 39,907
Other current assets 7,262 549 800 -- 8,611 -- -- 8,611
--------- --------- --------- --------- --------- --------- --------- ---------
127,513 7,160 17,834 (40,770) 111,737 -- -- 111,737
--------- --------- --------- --------- --------- --------- --------- ---------
Property, Plant and Equipment 37,161 2,600 -- -- 39,761 -- -- 39,761
--------- --------- --------- --------- --------- --------- --------- ---------
Other Assets
Goodwill 38,378 2,812 -- -- 41,190 -- -- 41,190
Debt financing costs -- -- 15,859 -- 15,859 -- -- 15,859
Noncurrent intercompany receivable 5,394 -- 83,281 (88,675) -- -- -- --
Investment in affiliates (1,698) -- 61,408 (59,710) -- (134,735) 130,735 --
Deferred income taxes -- -- -- -- -- -- -- --
Other 9,759 -- 693 -- 10,452 -- -- 10,452
--------- --------- --------- --------- --------- --------- --------- ---------
51,833 2,812 161,241 (148,385) 67,501 (134,735) 130,735 67,501
--------- --------- --------- --------- --------- --------- --------- ---------
$ 216,507 $ 12,572 $ 179,075 $(189,155) $ 218,999 $(134,735) $ 130,735 $ 218,999
========= ========= ========= ========= ========= ========= ========= =========
LIABILITIES AND SHAREHOLDERS'EQUITY
Current Liabilities
Current portion of long-term
obligations $ 402 $ 41 $ -- $ -- $ 443 $ -- $ -- $ 443
New Credit Facility borrowings 2,345 -- 21,300 -- 23,645 -- -- 23,645
Term loans -- -- 49,107 -- 49,107 -- -- 49,107
Acquisition Facility -- -- 12,094 -- 12,094 -- -- 12,094
Senior Notes -- -- 200,000 -- 200,000 -- -- 200,000
Bank overdrafts 1,142 1,617 -- -- 2,759 -- -- 2,759
Trade accounts payable 17,136 1,256 -- -- 18,392 -- -- 18,392
Intercompany accounts payable 17,007 4,036 19,727 (40,770) -- -- -- --
Advance payments and progress
billings 10,717 -- -- -- 10,717 -- -- 10,717
Accrued Warranteies 163 -- -- -- 1,637 -- -- 1,637
Accrued interest 17 -- 7,328 -- 7,345 -- -- 7,345
Other current liabilities 18,393 1,049 3,976 -- 23,418 -- -- 23,418
--------- --------- --------- --------- --------- --------- --------- ---------
68,796 7,999 313,532 (40,770) 349,557 -- -- 349,557
--------- --------- --------- --------- --------- --------- --------- ---------
Other Term Debt 2,079 576 -- -- 2,655 -- -- 2,655
Noncurrent Intercompany Payable 83,281 5,394 -- (88,675) -- -- -- --
Deferred Income Taxes -- -- -- -- -- -- -- --
Other Long Term Liabilities 943 -- 278 -- 1,221 -- -- 1,221
--------- --------- --------- --------- --------- --------- --------- ---------
155,099 13,969 313,810 (129,445) 353,433 -- -- 353,433
Minority Interest (197) -- -- 498 301 -- -- 301
Mandatorily Redeemable referred Stock -- -- -- -- -- 111,710 -- 111,710
Stockholders' Equity 61,605 (1,397) (134,735) (60,208) (134,735) (246,445) 134,735 (246,445)
--------- --------- --------- --------- --------- --------- --------- ---------
$ 216,507 $ 12,572 $ 179,075 $(189,155) $ 218,999 $(134,735) $ 134,735 $ 218,999
========= ========= ========= ========= ========= ========= ========= =========
</TABLE>
<PAGE>
<TABLE>
SUPPLEMENTAL CONDENSED CONSOLIDATING BALANCE SHEET
OCTOBER 31, 1999
(Dollars in Thousands)
<CAPTION>
Consolidated
Morris Morris Consolidated
Non Material Material MMH MMH
Guarantor Guarantor Handling Handling Holdings Holdings
Subsidiares Subsidiares Inc. Eliminations Inc. Inc. Eliminations Inc.
---------------------------------------------------------------------------------------------
Current Assets
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Cash and cash equivalents $ 2,325 $ 104 $ 1,500 $ -- $ 3,929 $ -- $ -- $ 3,929
Accounts receivable - net 60,163 4,318 -- -- 64,481 -- -- 64,481
Intercompany accounts receivable 20,057 -- 13,204 (33,261) -- -- -- --
Inventories 37,892 2,102 -- -- 39,994 -- -- 39,994
Other current assets 6,509 533 800 -- 7,842 -- -- 7,842
--------- --------- --------- --------- --------- --------- --------- ---------
126,946 7,057 15,504 (33,261) 116,246 -- -- 116,246
--------- --------- --------- --------- --------- --------- --------- ---------
Property, Plant and Equipment 38,294 2,680 -- -- 40,974 -- -- 40,974
--------- --------- --------- --------- --------- --------- --------- ---------
Other Assets
Goodwill 40,010 2,834 -- -- 42,844 -- -- 42,844
Debt financing costs -- -- 16,398 -- 16,398 -- -- 16,398
Noncurrent intercompany receivable 5,161 -- 83,891 (89,052) -- -- -- --
Investment in affiliates (1,527) -- 64,899 (63,372) -- (130,823) 130,823 --
Deferred income taxes -- -- -- -- -- -- -- --
Other 9,758 -- 616 -- 10,374 -- -- 10,374
--------- --------- --------- --------- --------- --------- --------- ---------
53,402 2,834 165,804 (152,424) 69,616 (130,823) 130,823 69,616
--------- --------- --------- --------- --------- --------- --------- ---------
$ 218,642 $ 12,571 $ 181,308 $(185,685) $ 226,836 $(130,823) $ 130,823 $ 226,836
========= ========= ========= ========= ========= ========= ========= =========
LIABILITIES AND SHAREHOLDERS'EQUITY
Current Liabilities
Current portion of long-term
obligations $ 342 $ 41 $ -- $ -- $ 383 $ -- $ -- $ 383
New Credit Facility borrowings 425 -- 27,500 -- 27,925 -- -- 27,925
Term loans -- -- 52,225 -- 52,225 -- -- 52,225
Acquisition Facility Line
borrowings -- -- 12,430 -- 12,430 -- -- 12,430
Senior notes -- -- 200,000 -- 200,000 -- -- 200,000
Bank overdrafts 139 1,228 -- -- 1,367 -- -- 1,367
Trade accounts payable 25,562 1,195 -- -- 26,757 -- -- 26,757
Intercompany accounts payable 13,204 4,153 15,904 (33,261) -- -- -- --
Advance payments and progress
billings 8,336 -- -- -- 8,336 -- -- 8,336
Accrued warranties 1,748 73 -- -- 1,821 -- -- 1,821
Accrued interest 18 -- 1,786 -- 1,804 -- -- 1,804
Other current liabilities 16,854 1,148 2,014 -- 20,016 -- -- 20,016
--------- --------- --------- --------- --------- --------- --------- ---------
66,628 7,838 311,859 (33,261) 353,064 -- -- 353,064
--------- --------- --------- --------- --------- --------- --------- ---------
Other Long-Term Debt 2,189 595 -- -- 2,784 -- -- 2,784
Noncurrent intercompany payable 83,891 5,161 -- (89,052) -- -- -- --
Other Long-Term Liabilities 1,035 -- 272 -- 1,307 -- -- 1,307
Minority Interest -- -- -- 504 504 -- -- 504
Mandatorily Redeemable
Preferred Stock -- -- -- -- -- 108,245 -- 108,245
Stockholders' Equity 64,899 (1,023) (130,823) (63,876) (130,823) (239,068) 130,823 (239,068)
--------- --------- --------- --------- --------- --------- --------- ---------
$ 218,642 $ 12,571 $ 181,308 $(185,685) $ 226,836 $(130,823) $ 130,823 $ 226,836
========= ========= ========= ========= ========= ========= ========= =========
</TABLE>
<PAGE>
<TABLE>
SUPPLEMENTAL CONDENSED COMBINING STATEMENT OF OPERATIONS
FOR THE THREE MONTHS ENDED JANUARY 31, 2000
(UNAUDITED)
(Dollars in Thousands)
<CAPTION>
Consolidated
Morris Morris Consolidated
Non Material Material MMH MMH
Guarantor Guarantor Handling Handling Holdings Holdings
Subsidiares Subsidiares Inc. Eliminations Inc. Inc. Eliminations Inc.
---------------------------------------------------------------------------------------------
Revenues
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net Sales $ 63,854 $ 3,057 $ -- $ (192) $ 66,719 $ -- $ -- $ 66,719
Other Income - net -- -- -- -- -- -- -- --
-------- -------- -------- -------- -------- -------- -------- --------
63,854 3,057 -- (192) 66,719 -- -- 66,719
Cost of Sales 48,840 2,224 -- (192) 50,872 -- -- 50,872
Selling, General and
Administrative Expenses 15,158 905 797 -- 16,860 -- -- 16,860
Operating Income (Loss) (144) (72) (797) -- (1,013) -- -- (1,013)
Gain on Sale of Business -- -- 6,380 -- 6,380 -- -- 6,380
Interest (Expense) Income - net
Affiliates (1,635) (90) 1,725 -- -- -- -- --
Third Party (62) (74) (7,614) -- (7,750) -- -- (7,750)
-------- -------- -------- -------- -------- -------- -------- --------
Loss Before Income Taxes,Equity in Earnings
(Loss)of
Subsidiaries and Minority Interest (1,841) (236) (306) -- (2,383) -- -- (2,383)
Benefit(Provision) for Income Taxes (305) (83) (1,400) -- (1,788) -- -- (1,788)
Equity in Earnings (Loss)
of Subsidiaries (303) -- (2,449) 2,752 -- (4,155) 4,155 --
Minority Interest -- -- -- 16 16 -- -- 16
-------- -------- -------- -------- -------- -------- -------- --------
Net Income (Loss) $ (2,449) $ (319) $ (4,155) $ 2,768 $ (4,155) $ (4,155) $ 4,155 $(4,155)
======== ======== ======== ======== ======== ======== ======== ========
</TABLE>
<PAGE>
<TABLE>
SUPPLEMENTAL CONDENSED COMBINING STATEMENT OF OPERATIONS
FOR THE THREE MONTHS ENDED JANUARY 31, 1999
(UNAUDITED)
(Dollars in Thousands)
<CAPTION>
Consolidated
Morris Morris Consolidated
Non Material Material MMH MMH
Guarantor Guarantor Handling Handling Holdings Holdings
Subsidiares Subsidiares Inc. Eliminations Inc. Inc. Eliminations Inc.
---------------------------------------------------------------------------------------------
Revenues
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net Sales $ 64,139 $ 4,097 $ -- $ (316) $ 67,920 $ -- $ -- $ 67,920
Other Income - net 77 25 -- -- 102 -- -- 102
-------- -------- -------- -------- -------- -------- -------- --------
64,216 4,122 -- (316) 68,022 -- -- 68,022
Cost of Sales 47,832 3,098 -- (316) 50,614 -- -- 50,614
Selling, General and
Administrative Expenses 14,823 887 223 -- 15,933 -- -- 15,933
Operating Income (Loss) 1,561 137 (223) -- 1,475 -- -- 1,475
Interest (Expense) Income - net
Affiliates (1,610) (95) 1,705 -- -- -- -- --
Third Party (131) (138) (6,639) -- (6,908) -- -- (6,908)
-------- -------- -------- -------- -------- -------- -------- --------
Loss Before Income Taxes,
Equity in Earnings (Loss)of
Subsidiaries and
Minority Interest (180) (96) (5,157) -- (5,433) -- -- (5,433)
Benefit for Income Taxes 206 -- 2,247 -- 2,453 -- -- 2,453
Equity in Earnings (Loss)
of Subsidiaries (90) -- (64) 154 -- (2,974) 2,974 --
Minority Interest -- -- 6 6 -- -- 6
-------- -------- -------- -------- -------- -------- -------- --------
Net Income (Loss) $ (64) $ (96) $ (2,974) $ 160 $ (2,974) $ (2,974) $ 2,974 $(2,974)
======== ======== ======== ======== ======== ======== ======== ========
</TABLE>
<PAGE>
<TABLE>
SUPPLEMENTAL CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
FOR THE THREE MONTHS ENDED JANUARY 31, 2000
(UNAUDITED)
(Dollars in Thousands)
<CAPTION>
Consolidated
Morris Morris Consolidated
Non Material Material MMH MMH
Guarantor Guarantor Handling Handling Holdings Holdings
Subsidiares Subsidiares Inc. Eliminations Inc. Inc. Eliminations Inc.
------------------------------------------------------------------------------------------
Operating Activities
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net income (Loss) $ (2,449) $ (319) $ (4,155) $ 2,768 $ (4,155) $ (4,155) $ 4,155 $ (4,155)
Add (deduct) - items not affecting
cash provided by operating activities:
Depreciation and amortization 2,361 74 10 -- 2,445 -- -- 2,445
Amortization of debt financing costs -- -- 585 -- 585 -- -- 585
Equity in loss of subsidiaries 303 -- 2,449 (2,752) -- 4,155 (4,155) --
Gain on sale of business -- -- (6,380) -- (6,380) -- -- (6,380)
Deferred income taxes - net -- -- -- -- -- -- -- --
Other -- -- -- (6) (6) -- -- (6)
Changes in working capital, excluding
the effects of acquisition opening
balance sheets:
Accounts receivable 380 425 -- -- 805 -- -- 805
Inventories (1,219) (10) -- -- (1,229) -- -- (1,229)
Other current assets (551) (23) -- -- (574) -- -- (574)
Trade accounts payable and bank
overdrafts (7,083) 496 -- -- (6,587) -- -- (6,587)
Accrued interest -- -- 5,524 -- 5,524 -- -- 5,524
Other current liabilities 3,768 (148) 1,962 -- 5,582 -- -- 5,582
-------- -------- -------- -------- -------- -------- -------- --------
Net cash provided by (used for)
operating activities (10,870) 495 6,375 10 (3,990) -- -- (3,990)
-------- -------- -------- -------- -------- -------- -------- --------
Investment and Other Transactions
Fixed asset additions - net (318) (16) -- -- (334) -- -- (334)
Capitalized software - net (624) -- -- -- (624) -- -- (624)
Net proceeds on divestiture of business 9,115 -- -- -- 9,115 -- -- 9,115
Other - net 82 (9) 6 -- 79 -- -- 79
-------- -------- -------- -------- -------- -------- -------- --------
Net cash used for investment
and other transactions 8,255 (25) 6 -- 8,236 -- -- 8,236
-------- -------- -------- -------- -------- -------- -------- --------
Financing Activities
Changes in short-term debt
and notes payable 1,936 (16) -- -- 1,920 -- -- 1,920
Net repayments of Revolving Credit
Facility borrowings -- -- (6,200) -- (6,200) -- -- (6,200)
Repayments of Term Loans -- -- (3,100) -- (3,100) -- -- (3,100)
Repayments of Acquisition Facility
Line borrowings -- -- (336) -- (336) -- -- (336)
Distribution to parent (8,211) 186 8,025 -- -- -- -- --
Repayments of long-term debt (87) -- -- -- (87) -- -- (87)
Payment of fees for amendment
of New Credit Facility -- -- (133) -- (133) -- -- (133)
-------- -------- -------- -------- -------- -------- -------- --------
Net cash provided by (used for)
financing activities (6,362) 170 (1,744) -- (7,936) -- -- (7,936)
-------- -------- -------- -------- -------- -------- -------- --------
Effect of Exchange Rate Changes on
Cash and Cash Equivalents 3 (5) -- -- (2) -- -- (2)
Increase (Decrease) in Cash and
Cash Equivalents (2,594) 635 (1,743) 10 (3,692) -- -- (3,692)
Cash and Cash Equivalents
Beginning of Period 2,325 104 1,500 -- 3,929 -- -- 3,929
-------- -------- -------- -------- -------- -------- -------- --------
End of Period $ (269) $ 739 $ (243) $ 10 $ 237 $ -- $ -- $ 237
======== ======== ======== ======== ======== ======== ======== ========
</TABLE>
<PAGE>
<TABLE>
SUPPLEMENTAL CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
FOR THE THREE MONTHS ENDED JANUARY 31, 1999
(UNAUDITED)
(Dollars in Thousands)
<CAPTION>
Consolidated
Morris Morris Consolidated
Non Material Material MMH MMH
Guarantor Guarantor Handling Handling Holdings Holdings
Subsidiares Subsidiares Inc. Eliminations Inc. Inc. Eliminations Inc.
------------------------------------------------------------------------------------------
Operating Activities
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net income (Loss) $ (64) $ (96) $ (2,974) $ 160 $ (2,974) $ (2,974) $ 2,974 $ (2,974)
Add (deduct) - items not affecting
cash provided by operating activities:
Depreciation and amortization 1,744 62 -- -- 1,806 -- -- 1,806
Amortization of debt financing costs -- -- 493 -- 493 -- -- 493
Equity in loss of subsidiaries 90 -- 64 (154) -- 2,974 (2,974) --
Deferred income taxes - net (709) -- (2,248) -- (2,957) -- -- (2,957)
Other -- -- -- (6) (6) -- -- (6)
Changes in working capital, excluding
the effects of acquisition opening
balance sheets:
Accounts receivable 11,031 881 -- -- 11,912 -- -- 11,912
Inventories 936 (126) -- -- 810 -- -- 810
Other current assets 7,434 (1,391) (9,621) -- (3,578) -- -- (3,578)
Trade accounts payable and bank
overdrafts (8,434) 117 -- -- (8,317) -- -- (8,317)
Accrued interest 110 -- 4,726 -- 4,836 -- -- 4,826
Other current liabilities (14,714) 383 9,904 -- (4,427) -- -- (4,427
-------- -------- -------- -------- -------- -------- -------- --------
Net cash provided by (used for)
operating activities (2,576) (170) 344 -- (2,402) -- -- (2,402)
-------- -------- -------- -------- -------- -------- -------- --------
Investment and Other Transactions
Fixed asset additions - net (1,586) (48) -- -- (1,634) -- -- (1,634)
Capitalized software - net (276) -- -- -- (276) -- -- (276)
Net proceeds on divestiture of business (4,989) -- -- -- (4,989) -- -- (4,989
Other - net 162 (36) -- -- 126 -- -- 126
-------- -------- -------- -------- -------- -------- -------- --------
Net cash used for investment
and other transactions (6,689) (84) -- -- (6,773) -- -- (6,773)
-------- -------- -------- -------- -------- -------- -------- --------
Financing Activities
Changes in short-term debt
and notes payable 10,268 86 -- -- 10,354 -- -- 10,354
Net repayments of Revolving Credit
Facility borrowings -- -- (1,200) -- (1,200) -- -- (1,200)
Repayments of Acquisition Facility
Line borrowings -- -- 1,235 -- 1,235 -- -- 1,235
Distribution to parent (158) -- 158 -- -- -- -- --
Repayments of long-term debt -- -- (337) -- (337) -- -- (337)
-------- -------- -------- -------- -------- -------- -------- --------
Net cash provided by (used for)
financing activities 10,110 86 (144) -- 10,052 -- -- 10,052
-------- -------- -------- -------- -------- -------- -------- --------
Effect of Exchange Rate Changes on
Cash and Cash Equivalents (42) (9) -- -- (51) -- -- (51)
Increase (Decrease) in Cash and
Cash Equivalents 803 (177) 200 -- 826 -- -- 826
Cash and Cash Equivalents
Beginning of Period 2,214 320 -- -- 2,534 -- -- 2,534
-------- -------- -------- -------- -------- -------- -------- --------
End of Period $ 3,017 $ 143 $ 200 $ -- $ 3,360 $ -- $ -- $ 3,360
======== ======== ======== ======== ======== ======== ======== ========
</TABLE>
<PAGE>
MMH HOLDINGS, INC.
MORRIS MATERIAL HANDLING, INC.
MANAGEMENT DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the Financial
Statements and the related notes thereto included previously in this document.
The Company's fiscal year ends October 31. Consequently, any reference to any
particular fiscal year means the fiscal year ended October 31 of such year.
General
The Company is an international provider of "through-the-air" material handling
products and services used in most manufacturing industries. The Company's
original equipment operations design and manufacture a comprehensive line of
industrial cranes, hoists and component products. Through its aftermarket
operations, the Company provides a variety of related products and services,
including replacement parts, repair and maintenance services and product
modernizations. In recent years, the Company has shifted its orientation from an
original equipment-focused United States manufacturer to an international full
service provider with a significant emphasis on the high margin aftermarket
business. The Company's revenues are derived principally from the sale of
industrial overhead cranes, component products and aftermarket products and
services.
Recapitalization. Historically, the Company conducted its business as one of
several operating units of Harnischfeger Industries, Inc. ("HII"). Prior to
March 30, 1998, the core United States operations of the Company were conducted
directly by HarnCo, while the remainder of the Company's operations throughout
the world were conducted through a number of entities owned, directly or
indirectly, by HII and its affiliates.
On January 28, 1998, HII reached an agreement with MHE Investments, Inc. ("MHE
Investments"), a newly formed affiliate of Chartwell Investments Inc., for the
sale of an approximately 80 percent common ownership interest in the MHE
Business. Pursuant to this agreement, HarnCo and other HII affiliates effected a
number of transactions (the "Transactions" or the "Recapitalization") that
resulted in Holdings, a preexisting company engaged in the MHE Business,
acquiring, through MMH, its newly formed wholly-owned subsidiary, the equity
interests of all of the operating entities engaged in the MHE Business. As a
result of the reorganization of the MHE Business' legal entities, Holdings and
the Company became the successor companies to the MHE Business. The Transactions
are accounted for as a recapitalization for financial reporting purposes.
Accordingly, the historical basis of the Company's assets and liabilities was
not impacted by the Transactions.
In conjunction with the Recapitalization, which closed on March 30, 1998 (the
"Recapitalization Closing"), Holdings sold $60.0 million of Series A Units,
consisting of $57.7 million liquidation preference of Holdings' 12% Series A
Senior Exchangeable Preferred Stock (the "Holdings Series A Senior Preferred
Stock") and 720 shares of non-voting common stock, to institutional investors.
In addition, MMH sold $200.0 million aggregate principal amount of its 9 1/2%
Senior Notes due 2008 (the "Senior Notes") and entered into a senior secured
credit facility ("the New Credit Facility"). The New Credit Facility includes
$55.0 million of term loans (the "Term Loans"), a revolving credit facility (the
"Revolving Credit Facility") and an acquisition facility (the "Acquisition
Facility"). The Revolving Credit Facility initially provided the Company with up
to $70.0 million of available borrowings for working capital, acquisitions and
other corporate purposes, subject to compliance with certain conditions. The
Acquisition Facility initially permitted the Company to borrow up to $30.0
million until the third anniversary of the Recapitalization Closing to finance
acquisitions, subject to compliance with certain conditions. The New Credit
Facility was amended on August 2, 1999. See "Liquidity and Capital Resources."
As amended, the Revolving Credit Facility provided $50.7 million of available
borrowings ($10.0 million of which was required to be reserved for issuance of
letters of credit), and the Acquisition Facility provided for $12.4 million of
borrowings ($7.4 million of which was previously funded by the lenders under the
New Credit Facility and $5.0 million of which was funded by indirect equity
holders in Holdings) for acquisitions and general corporate purposes. No
additional borrowings under the Acquisition Facility are available from lenders
under the New Credit Facility.
<PAGE>
The Company did not meet certain financial covenants contained in the New Credit
Facility for the quarter ended January 31, 2000 and does not anticipate meeting
them for the foreseeable future thereafter. The Company entered into an
Amendment and Waiver under the New Credit Facility, dated as of January 31,
2000, whereby, among other matters, the lenders waived compliance by the Company
with such financial covenants, for the period from January 31, 2000 until 5:00
p.m. March 29, 2000 (the "January Waiver"). The January Waiver permits the
Company, subject to certain conditions, to make additional borrowings under the
Revolving Credit Facility and issue additional letters of credit, above levels
in existence on January 31, 2000, in an aggregate amount of up to $12.0 million,
during the waiver period.
Currently, the Company is not generating sufficient funds from operations to
satisfy working capital and debt service requirements, and as a result must rely
on Revolving Credit Facility borrowings to continue to operate. While the
Company anticipates that cash generated from operations and Revolving Credit
Facility borrowings will be sufficient to enable it to satisfy its cash flow
needs until March 29, 2000, there can be no assurance that it will have
sufficient cash flow and borrowings available to enable it to meet its
obligations until such date. Upon the expiration of the January Waiver on March
29, 2000, the Company will not have sufficient cash to continue operations,
unless arrangements can be entered into to provide liquidity for the Company.
See "Liquidity and Capital Resources."
At the Recapitalization Closing, (i) MHE Investments paid HarnCo $54.0 million
for 72.6% of Holdings' common stock (the "Holdings Common Stock") (after giving
effect to the Transactions) and approximately $28.9 million liquidation
preference of Holdings' 12 1/2% Series C Junior Voting Exchangeable Preferred
Stock (the "Holdings Series C Junior Voting Preferred Stock"), (ii) Holdings
redeemed certain shares of Holdings Common Stock and Holdings Series C Junior
Voting Preferred Stock from HarnCo for $282.0 million in cash (subject to
potential post-Recapitalization adjustments as to which an additional $5.0
million was provided to HarnCo) and approximately $4.8 million liquidation
preference of Holdings' 12 1/4% Series B Junior Exchangeable Preferred Stock
(the "Holdings Series B Junior Preferred Stock"), and (iii) HarnCo retained
approximately 20.8% of the Holdings Common Stock (after giving effect to the
Transactions).
In connection with, and as a condition to, the lenders under the New Credit
Facility entering into the August 2, 1999 Amendment to the New Credit Facility,
certain of the current indirect equity holders in Holdings purchased, through
Martin Crane L.L.C. ("Martin Crane"), a newly formed limited liability company,
a $5.0 million participation in the New Credit Facility and received shares of
non-voting common stock of Holdings, in consideration therefor. As a result, at
January 31, 2000, MHE Investments owns approximately 54.5% of the Holdings
Common Stock, HarnCo owns approximately 15.6% of the Holdings Common Stock,
institutional investors own approximately 4.9% of the Holdings Common Stock and
Martin Crane owns approximately 25.0% of the Holdings Common Stock.
At the Recapitalization Closing, MMH entered into a number of agreements
pursuant to which HII and its affiliates continued to provide to MMH and to its
subsidiaries located in the United States, on an interim basis and under
substantially the same terms and conditions as before the closing, certain
products and services. In addition, HII and MMH entered into a credit
indemnification agreement (the "Credit Indemnification Agreement") pursuant to
which HII will maintain in place the credit support obligations in existence at
the Recapitalization Closing but have no further duty to extend, renew or enter
into any new credit support obligations (except as to the MHE Business
obligations existing at the Recapitalization Closing). Under the Credit
Indemnification Agreement, MMH is required to pay HII, in advance, an annual fee
equal to 1% of the amounts outstanding under each letter of credit and bond
provided by HII and its affiliates (approximately $26.7 million as of January
31, 2000). MMH accrued a fee of $55,800 for the first quarter of 2000. HII is
required to refund the Company on a quarterly basis a pro-rata portion of the
annual fee for any reductions in the outstanding amount of credit that occurred
during such quarter. In addition, the Company will reimburse HII for certain
future fees and expenses. The Company also entered into a surety arrangement
(the "Surety Arrangement") to provide credit support for its
post-Recapitalization Closing operations.
In connection with the Recapitalization, the Company also entered into a
trademark license agreement (the "Trademark License Agreement") with an
<PAGE>
affiliate of HarnCo, pursuant to which the Company has the right to use the P&H
trademark with respect to all MHE Business products on a worldwide exclusive
basis from the date of the Recapitalization Closing until 15 years after the
earlier to occur of a sale of Holdings to a third party or a public offering of
the common stock of Holdings, the Company or their parents or successors (and
for an additional seven years thereafter for aftermarket products and services).
The royalty fee for use of the trademark is 0.75% of the aggregate net sales of
the MHE Business for the ten year period commencing March 30, 1999. The Company
accrued $1,839,000 of expenses for royalty fees in the period from March 30,
1999 to January 31, 2000, including $486,000 for the quarter ended January 31,
2000. The Company elected to defer the payment of the royalty fee for the period
ended October 31, 1999 ($1,353,000), which was payable January 30, 2000,
pursuant to the terms of the Trademark License Agreement. The Trademark License
Agreement provides that the annual royalty fee may be deferred for up to two
years if the Company does not meet certain financial criteria. The Company can
only defer up to two payments during the term of the agreement. In addition,
interest accrues at 12% per year on the deferred fee payments.
As discussed below, the Company could be materially adversely affected by the
fact that HII and certain of its United States affiliates filed for bankruptcy
protection.
For income tax purposes, Holdings and MMH were deemed to acquire the assets of
the MHE Business pursuant to Code Section 338(h)(10) in connection with the
Transactions. Accordingly, the Recapitalization increased the tax basis of
certain assets and created tax-deductible goodwill.
On June 7, 1999, (the "Petition Date") HII and certain of its United States
affiliates (including HarnCo) filed voluntary petitions for relief under Chapter
11 of the Bankruptcy Code in the United States Bankruptcy Court for the District
of Delaware. Certain provisions of the Bankruptcy Code allow a debtor to avoid,
delay and/or reduce its contractual and other obligations to third parties.
There can be no assurance that HII and its affiliates will not attempt to
utilize such provisions to cease performance under their agreements and
arrangements with the Company. The inability of the Company to receive the
benefits of one or more of these agreements or the termination of ongoing
arrangements between the Company and affiliates of HII (including those relating
to the provision of services and materials by HII and its affiliates to the
Company) could materially adversely affect the Company's operations and
financial performance. In the event that any of the liabilities retained by HII
and its affiliates in connection with the Recapitalization remain unsatisfied as
of the Petition Date, the Company's right to indemnification for any such
amounts it has paid on behalf of HII and its affiliates may also be avoided,
delayed or reduced.
Each of HII and certain of its affiliates on the one hand, and the Company and
certain of its affiliates, on the other hand, have receivables and payables to
the other that may be affected by the HII Bankruptcy.
Acquisitions and Divestitures
Acquisitions - During the three months ended January 31, 2000, the Company did
not make any acquisitions. During the three months ended January 31, 1999, the
Company completed one acquisition with an aggregate purchase price of $3.1
million, net of cash acquired, including approximately $1.0 million financed by
the seller. This acquisition was related to the Company's aftermarket business
and was accounted for as a purchase transaction with the purchase price
allocated to the fair value of specific assets acquired and liabilities assumed.
Resultant goodwill of $1.8 million is being amortized over 40 years. This
acquisition was partially financed by the seller, resulting in a deferred
purchase price which will be paid in 2004 and 2005. During the three months
ended January 31, 1999, the Company made final consideration payments of $1.5
million related to two 1998 acquisitions. In addition, with respect to a 1995
acquisition, the Company was required to make a contingent consideration payment
of $1.3 million in the three months ended January 31, 1999. Additionally, a
payment of $100 was made in each of the three month periods ended January 31,
2000 and 1999 toward a fiscal 1998 purchase which was partially financed by the
seller. On a pro forma basis, the fiscal 1999 acquisition was not material to
results of operations reported for the three months ended January 31, 2000 and
accordingly, such information is not presented.
Divestitures-On December 16, 1999, the Company completed the sale of the Brake
Business located in Mississauga, Ontario, Canada, for a net sale price of $6.8
million after deduction of certain transaction-related items, including taxes.
During the first quarter of fiscal year 2000, the Brake Business contributed
$0.5 million in sales and no operating income to the Company's results. A
pre-tax gain of $6.4 million was recognized on this transaction.
<PAGE>
Results of Operations
The following table sets forth certain financial data for the periods indicated.
<TABLE>
Supplemental Data
(Dollars in Millions)
<CAPTION>
Three months ended Three months ended
January 31, 2000 January 31, 1999
------------------------ -----------------
Percent of Percent of
$ net sales $ net sales
--------- ---------- -------- ----------
<S> <C> <C> <C> <C>
Net Sales $ 66.7 100.0% $ 67.9 100.0%
Other income - net -- -- 0.1 0.1%
Cost of sales 50.9 76.2% 50.6 74.5%
Selling, general and
Administrative expenses 16.8 25.1% 15.9 23.4%
Operating income (loss) (1.0) -1.3% 1.5 2.2%
Gain on sale of business 6.4 9.5% -- --
Interest expense (7.8) -11.6% (6.9) -10.2%
Tax benefit (expense) (1.8) -2.7% 2.4 3.5%
Net loss (4.2) -6.2% (3.0) -4.5%
</TABLE>
<PAGE>
Three Months Ended January 31, 2000 as Compared to Three Months Ended January
31, 1999
Net sales for the three months ended January 31, 2000 ("First Quarter 2000")
decreased $1.2 million or 1.8% to $66.7 million from $67.9 million for the three
months ended January 31, 1999 ("First Quarter 1999"). The decrease in net sales
was primarily caused by the following: (i) a decrease of $2.6 million in hoists
and components in Europe and South Africa reflecting softness in their home
markets as well as in Southeast Asia; and (ii) a decrease in standard cranes of
$1.7 million in the United Kingdom due to reduced bookings in the end of Fiscal
1999. These decreases were partially offset by: (i) an increase of $1.5 million
in engineered cranes in the United States caused by better backlog entering
First Quarter 2000 than there was at the beginning of First Quarter 1999; and
(ii) an increase in overall parts sales of $0.6 million resulting from shipment
of a large spare parts order for a steel mill.
Cost of sales increased $0.3 million or 0.6% to $50.9 million in First Quarter
2000 from $50.6 million in First Quarter 1999. Cost of sales increased as a
percentage of net sales from 74.5% in First Quarter 1999 to 76.2% in First
Quarter 2000 due to lower selling prices as a result of competitive pressure in
tight markets for all of the Company's products and services.
Selling, general and administrative expenses increased $0.9 million or 5.8% to
$16.8 million in First Quarter 2000 from $15.9 million in First Quarter 1999.
The primary causes were: (i) the accrued royalty to HII for use of the P&H
trademark; (ii) increased goodwill amortization due to changing the amortization
period for the goodwill related to the Company's international operations; and
(iii) increases due to a fiscal 1999 acquisition subsequent to First Quarter
1999. These increases were partially offset by savings realized due to fiscal
1999 restructuring of the United Kingdom and United States administrative
functions.
Approximately $7.8 million in interest expense, including $0.6 million in
amortization of related financing costs, was recorded in First Quarter 2000
compared to $6.9 million, including $0.5 million in amortization of related
financing costs, in First Quarter 1999. The Company paid $1.5 million of
interest and commitment fees during both the First Quarter 2000 and First
Quarter 1999.
The income tax expense in First Quarter 2000 related primarily to the estimated
tax recorded on the sale of the Brake Business in December 1999.
The Company's backlog of orders at January 31, 2000 was approximately $88.0
million compared to $92.5 million at January 31, 1999. Bookings in First Quarter
2000 were $77.3 million compared to $63.1 million in First Quarter 1999. The
overall backlog is lower primarily due to the completion of several large orders
that were in backlog a year ago and the normal variability in booking patterns
for highly engineered cranes.
<PAGE>
Liquidity and Capital Resources
The majority of the Company's sales of products and services are recorded as
products are shipped or services are rendered. Revenue on certain long-term
contracts is recorded using the percentage-of-completion method. Net cash flow
from operations is affected by the volume of, and timing of the payments under,
percentage-of-completion long-term contracts.
Net cash flow used for operating activities for First Quarter 2000 and First
Quarter 1999 was $4.0 million and $2.4 million, respectively.
Net cash provided by investment and other transactions for the First Quarter
2000 was $8.2 million compared to net cash used for investment and other
transactions of $6.8 million for the First Quarter 1999. During the First
Quarter 2000, $9.1 million of cash, net of transaction costs, was provided by
the sale of the Company's Brake Business. Also during the First Quarter 2000,
$0.1 million of cas hwas used for deferred payments on previous acquisitions.
During the First Quarter 1999, $5.0 million was used for an acquisition related
to the Company's distribution and service center network and payments made with
respect to three earlier acquisitions. Additionally, capital expenditures
decreased to $0.3 million in First Quarter 2000 from $1.6 million in First
Quarter 1999. The First Quarter 2000 expenditures included computers and
manufacturing equipment. The First Quarter 1999 expenditures included computers
and upgrades, new operating system software, office and warehouse consolidations
and manufacturing equipment.
Net cash used for financing activities was $7.9 million in First Quarter 2000
compared to net cash provided by financing activities of $10.1 million in First
Quarter 1999 (after giving effect to the repayment subsequent to January 31,
1999 of $25.4 million that was borrowed on January 29,1999). Net repayments of
$4.3 million in the First Quarter 2000 included $6.2 million of repayments under
the Revolving Credit Facility in the United States. The Company also paid $3.4
million of principal on the Term Loan A, Term Loan B, and Acquisition Facility
from the net proceeds from the sale of the Canadian brake business.
The Company did not meet certain of the financial covenants under the New Credit
Facility for the period ended January 31, 1999 and did not meet such financial
covenants and certain additional financial covenants for the period ended April
30, 1999. The Company obtained waivers of such financial covenants through
August 2, 1999. The waivers permitted the Company to borrow certain amounts
under the Revolving Credit Facility to meet its working capital requirements;
however the Company could not, without prior lender consent, (i) borrow any
amounts under the Acquisition Facility, (ii) borrow any amounts under the
Revolving Credit Facility in excess of the aggregate amount of the Revolving
Credit Facility borrowings that the Company had repaid subsequent to March 2,
1999, or (iii) request the issuance of letters of credit, bid bonds or
performance bonds in an aggregate amount after March 2, 1999 in excess of $5.0
million.
On August 2, 1999, the Company obtained an amendment to the New Credit Facility
(the "Amendment") which cured past financial covenant violations and reset
financial covenants under the New Credit Facility until April 2001. The
Amendment increased the cash availability under the Revolving Credit Facility
from $35.7 million under the previous waiver agreement to $40.7 million. At the
end of First Quarter 2000, the Company had $23.6 million of outstanding
Revolving Credit Facility borrowings. In addition, the Amendment permitted the
Company to obtain letters of credit, bid bonds and performance bonds in an
amount not to exceed $10.0 million in the aggregate of which $5.2 million have
been issued.
In connection with, and as a condition to the New Credit Facility lenders
entering into, the Amendment, certain of the current indirect equity holders in
Holdings, through Martin Crane, purchased a $5.0 million participation in the
New Credit Facility and received certain non-voting equity interests in
Holdings, consisting of 25% of the then outstanding Holdings Common Stock.
<PAGE>
The Company did not meet certain financial covenants contained in the New Credit
Facility for the quarter ended January 31, 2000 and anticipates that it will not
meet them in the foreseeable future thereafter. The Company entered into an
Amendment and Waiver under the New Credit Facility, dated as of January 31,
2000, whereby, among other matters, the lenders waived compliance by the Company
with such financial covenants, for the period from January 31, 2000 until 5:00
p.m. March 29, 2000. The January Waiver permits the Company, subject to certain
conditions, to make additional borrowings under the Revolving Credit Facility
and issue additional letters of credit, above levels in existence on January 31,
2000, in an aggregate amount of up to $12.0 million, during the waiver period.
Currently, the Company is not generating sufficient funds from operations to
satisfy working capital and debt service requirements, and as a result must rely
on Revolving Credit Facility borrowings to continue to operate. While the
Company anticipates that cash generated from operations and Revolving Credit
Facility borrowings will be sufficient to enable it to satisfy its cash flow
needs until March 29, 2000, there can be no assurance that it will have
sufficient cash flow and borrowings available to enable it to meet its
obligations until such date.
Until March 29, 2000 and thereafter, the Company may experience severe financial
and operational difficulties resulting from its liquidity situation that may
prevent it from continuing operations.
In addition, at the time of expiration of the January Waiver, the Company will
again be in default under certain financial covenants of the New Credit
Facility. As a result of these defaults, the lenders ("Lenders") under the New
Credit Facility will be able to declare all amounts of principal and accrued
interest outstanding under the New Credit Facility immediately due and payable
(an "Acceleration"). If such Lenders so accelerate, the Company will then also
be in default under the indenture governing the Senior Notes (the "Indenture").
In such event, the Company would not be able to cure such default and the
trustee under the Indenture will be able to accelerate the Company's outstanding
indebtedness (including accrued interest) evidenced by the Senior Notes. The
Company will not have sufficient funds to repay the outstanding indebtedness
under the New Credit Facility or the Senior Notes if either such indebtedness is
accelerated. As of the end of the first quarter of 2000, the Company had $298.0
million of indebtedness outstanding, including $85.8 million under the New
Credit Facility (including accrued interest) and $206.3 million evidenced by the
Senior Notes (including accrued interest).
In the event that the Lenders do not cause an Acceleration to occur on March 29,
2000, the Company will nonetheless be unable to meet certain of its obligations
as they become due after such date, including a $9.5 million interest payment
obligation under the Senior Notes due on April 1, 2000. As a result, the Lenders
and, after the expiration of the applicable grace period, the trustee under the
Indenture will have the right to accelerate the Company's outstanding
indebtedness. In such event, the Company will not have sufficient funds to repay
New Credit Facility borrowings and the Senior Notes.
The Company is currently seeking, and is engaged in discussions regarding, its
strategic alternatives. The Company has engaged in discussions with the Lenders
and representatives of the holders of Senior Notes concerning the possible
restructuring of the Company's capital structure, including a possible sale of
the Company to a third party in connection therewith. There can be no assurance
that the Company will be able to successfully pursue strategic alternatives or
that the results of its discussions with its creditors will be successful. As
discussed above, if the Company fails in the near future to resolve its critical
liquidity issues, the Company may be unable to continue as a going concern.
Holdings' current primary cash needs are for administrative expenses and for the
payment of income taxes of Holdings and its affiliates related to the MHE
Business. Holdings is a holding company that conducts all of its operations
through its subsidiaries. Consequently, Holdings' ability to meet its cash needs
depends entirely upon receiving dividends, loans, advances or other payments
from its subsidiaries. If for the reasons outlined above or otherwise, the
Company is unable to continue as a going concern, Holdings also will not be able
to continue to operate as a going concern. The New Credit Facility and the
Indenture generally restrict the ability of Holdings' subsidiaries to transfer
funds to Holdings, other than for administrative fees and expenses (subject to a
general limit) and other than for the payment of income taxes. Under the terms
of the Indenture, the Company is generally restricted from paying dividends or
making other restricted payments to Holdings unless, among other things, the
ratio of the Company's EBITDA to Consolidated Interest Expense (as defined in
the Indenture) for the four most recent consecutive fiscal quarters is at least
2 to 1. Moreover, the terms of the Holdings Series A 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
<PAGE>
restrictions on the ability of the Company's subsidiaries to pay dividends or
otherwise make payments to the Company. In addition, the Company anticipates
that there will not be any material economic restrictions or adverse tax effects
with respect to the Company's ability to repatriate foreign assets. There can be
no assurance, however, that such limitations will not exist in the future. As a
result of these restrictions and the Company's current financial condition
outlined above, it is unlikely that Holdings will have available to it
sufficient cash resources to pay cash dividends on the Holdings Series A Senior
Preferred Stock (or on the Holdings Series B Junior Preferred Stock and the
Holdings Series C Junior Voting Preferred Stock) commencing October 1, 2003. In
addition, all issues of Holdings' preferred stock are mandatorily redeemable.
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:
Liquidity Status - The Company did not meet certain of the financial
covenants under the New Credit Facility for the period ended January
31, 1999 and did not meet such financial covenants and certain
additional financial covenants for the period ended April 30, 1999.
The Company obtained a waiver of such financial covenants through
August 2, 1999. On August 2, 1999, the Company entered into the
Amendment which cured past financial covenant violations and reset
financial covenants until April 2001. The Amendment increased the cash
availability under the Revolving Credit Facility from $35.7 million
under the previous waiver agreement to $40.7 million. In addition, the
Amendment permitted the Company to obtain letters of credit, bid bonds
and performance bonds in an amount not to exceed $10.0 million in the
aggregate of which $5.2 million have been issued.
The Company did not meet certain financial covenants contained in the
New Credit Facility for the quarter ended January 31, 2000 and
anticipates that it will not meet them in the foreseeable future
thereafter. The Company entered into an Amendment and Waiver under the
New Credit Facility, dated as of January 31, 2000, whereby, among
other matters, the lenders waived compliance by the Company with such
financial covenants, for the period from January 31, 2000 until 5:00
p.m. March 29, 2000. The January Waiver permits the Company, subject
to certain conditions, to make additional borrowings under the
Revolving Credit Facility and issue additional letters of credit,
above levels in existence on January 31, 2000, in an aggregate amount
of up to $12.0 million, during the waiver period.
Currently, the Company is not generating sufficient funds from
operations to satisfy working capital and debt service requirements,
and as a result must rely on Revolving Credit Facility borrowings to
continue to operate. While the Company anticipates that cash generated
from operations and Revolving Credit Facility borrowings will be
sufficient to enable it to satisfy its cash flow needs until March 29,
2000, there can be no assurance that it will have sufficient cash flow
and borrowings available to enable it to meet its obligations until
such date.
<PAGE>
Until March 29, 2000 and thereafter, the Company may experience severe
financial and operational difficulties resulting from its liquidity
situation that may prevent it from continuing operations. In addition,
at the time of expiration of the January Waiver, the Company will
again be in default under certain financial covenants of the New
Credit Facility. As a result of these defaults, the Lenders will be
able to declare all amounts of principal and accrued interest
outstanding under the New Credit Facility immediately due and payable.
If the Lenders so accelerate, the Company will then also be in default
under the Indenture. In such event, the Company would not be able to
cure such default and the trustee under the Indenture will be able to
accelerate the Company's outstanding indebtedness (including accrued
interest) evidenced by the Senior Notes. The Company will not have
sufficient funds to repay the outstanding indebtedness under the New
Credit Facility or the Senior Notes if either such indebtedness is
accelerated. As of the end of the first quarter of 2000, the Company
had $298.0 million of indebtedness outstanding, including $85.8
million under the New Credit Facility (including accrued interest) and
$206.3 million evidenced by the Senior Notes (including accrued
interest).
In the event that the Lenders do not cause an Acceleration to occur on
March 29, 2000, the Company will nonetheless be unable to meet certain
of its obligations as they become due after such date, including a
$9.5 million interest payment obligation under the Senior Notes due on
April 1, 2000. As a result, the Lenders and, after expiration of the
applicable grace period, the trustee under the Indenture will have the
right to accelerate the Company's outstanding indebtedness. In such
event, the Company will not have sufficient funds to repay New Credit
Facility borrowings and the Senior Notes.
The Company is currently seeking, and is engaged in discussions
regarding, its strategic alternatives. The Company has engaged in
discussions with the Lenders and representatives of the holders of
Senior Notes concerning the possible restructuring of the Company's
capital structure, including a possible sale of the Company to a third
party in connection therewith. There can be no assurance that the
Company will be able to successfully pursue strategic alternatives or
that the results of its discussions with its creditors will be
successful. As discussed above, if the Company fails in the near
future to resolve its critical liquidity issues, both the Company and
Holdings may be unable to continue as going concerns.
Potential Material Adverse Effect of HII Bankruptcy - On June 7, 1999,
HII and certain of its United States affiliates (including HarnCo)
filed voluntary petitions for relief under Chapter 11 of the
Bankruptcy Code in the United States Bankruptcy Court for the District
of Delaware. Certain provisions of the Bankruptcy Code allow a debtor
to avoid, delay and/or reduce its contractual and other obligations to
third parties. There can be no assurance that HII and its affiliates
will not attempt to utilize such provisions to cease performance under
their agreements and arrangements with the Company. The inability of
the Company to receive the benefits of one or more of these agreements
or the termination of ongoing arrangements between the Company and
affiliates of HII (including those relating to the provision of
services and materials by HII and its affiliates to the Company) could
materially adversely affect the Company's operations and financial
performance. In the event that any of the liabilities retained by HII
and its affiliates in connection with the Recapitalization remain
unsatisfied as of the Petition Date, the Company's right to
indemnification for any such amounts it has paid on behalf of HII and
its affiliates may also be avoided, delayed or reduced. Each of HII
and certain of its affiliates on one hand, and the Company and certain
affiliates on the other hand, have receivables and payables to the
other which may be affected by the HII Bankruptcy.
Risks Associated with Large Crane Projects - The Company's principal
business includes designing, manufacturing, marketing and servicing
large cranes for the capital goods industries. Long periods of time
are often necessary to plan, design and build these machines. With
respect to these machines, there are risks of customer acceptance and
start-up or performance problems. Large amounts of capital are
required to be devoted by some of the Company's customers to purchase
these machines and to finance the steel mills, paper mills and other
facilities that use these machines. The Company's success in obtaining
and managing sales opportunities can affect the Company's financial
performance. In addition, some projects are located in undeveloped or
developing economies where business conditions are less predictable.
Finally, the market for large cranes is down substantially and the
outlook is not expected to improve for the foreseeable future.
Risks Associated with International Operations - The Company has
operations and assets located in Canada, Mexico, Chile, the United
<PAGE>
Kingdom, South Africa, Thailand, Australia and Singapore and is
establishing joint ventures in Malaysia and Saudi Arabia. The Company
also sells its products through distributors and agents in over 50
countries, some of which are merely ad hoc arrangements and may be
terminated at any time. The Company's international operations
(including Canada, Mexico, Chile, South Africa, Singapore, Thailand,
Australia and the United Kingdom) accounted for 36.8% and 42.0% of the
Company's aggregate net sales for the three months ended January 31,
2000 and 1999, respectively. Although historically, exchange rate
fluctuations and other international factors have not had a material
impact on the Company's business, financial condition or results of
operations, international operations expose the Company to a number of
risks, including currency exchange rate fluctuations, trade barriers,
exchange controls, risk of governmental expropriation, political and
legal risks and restrictions, foreign ownership restrictions and risks
of increases in taxes. The inability of the Company, or limitations on
its ability, to conduct its foreign operations or distribute its
products internationally could adversely affect the Company's
operations and financial performance.
Competition - The markets in which the Company operates are highly
competitive. Both domestically and internationally, the Company faces
competition from a number of different manufacturers in each of its
product lines, some of which have greater financial and other
resources than the Company. The principal competitive factors
affecting the Company include performance, functionality, price, brand
recognition, customer service and support, financial strength and
stability, and product availability. The current depressed level of
new equipment orders has increased the intensity of competition and
has reduced selling prices and margins on new equipment bookings.
There can be no assurance that the Company will be able to compete
successfully with its existing competitors or with new competitors.
Failure to compete successfully could have a material adverse effect
on the Company's financial condition, liquidity and results of
operations. In addition, the Company's ability to compete successfully
will likely be adversely affected by the Company's liquidity crisis.
Market Risks - The Company's business is affected by the state of the
United States and global economy in general, and by the varying
economic cycles of the industries in which its products are used.
There can be no assurance that any future condition of the United
States economy or the economies of the other countries in which the
Company does business will not have an adverse effect on the Company's
business, operations or financial performance.
Year 2000 Compliance
The Company has not experienced any significant disruption in operations as a
result of the Year 2000 issue; however, there remains a potential for Year 2000
problems to occur after January 1, 2000. Management believes that any potential
problems would not have a significant impact on operations of the Company.
The potential Year 2000 problems exist as a result of computer programs written
and systems designed using two digits rather than four to define the applicable
year. Consequently, such software has the potential to recognize a date using
"00" as the year 1900 rather than the year 2000. This could result in a system
failure or miscalculations causing disruptions of operations, including, among
other things, a temporary inability to process transactions, send invoices, or
engage in similar normal business activities.
Since 1996, the Company has been engaged in resolving its Year 2000 issues,
first as a subsidiary of HII, and now on its own as an independent entity. After
the Recapitalization, the Company established its own Year 2000 teams. These
teams performed site audits at each of the Company's operations in order to
identify and address all Year 2000 issues related to both information technology
("IT") systems and internally used manufacturing and administrative equipment.
Hardware and software technology guidelines were implemented worldwide in order
to ensure that all systems were Year 2000 compliant before January 1, 2000.
With respect to non-IT systems, such as heating and ventilation systems,
security systems and machine tools, the Company sought representations from the
relevant vendors that the systems were Year 2000 compliant. The Company received
such assurances from a number of non-IT system vendors and did not encounter any
significant unresolved Year 2000 issues with respect to such systems. In
addition, in the event that there were any unresolved Year 2000 issues with
respect to its non-IT systems, the Company believes it could have obtained
replacement services either internally or from third parties without significant
disruptions to its operations.
<PAGE>
During the third fiscal quarter of 1999, the Company's operations in Oak Creek,
Wisconsin replaced their existing business system, formerly shared with HarnCo.
The decision to replace the system was based solely on the need to move off of
the shared system. The vendor of the replacement system represented to the
Company that the new system is Year 2000 compliant (which representation was
confirmed by an outside consultant). The Company sought and received
representations from the applicable vendors that the business systems used in
the United Kingdom, South Africa, Australia, Singapore, Canada, and Mexico were
Year 2000 compliant. The operating system used in the North American
distribution and service business was made compliant during the second fiscal
quarter of 1999 by applying the vendor supplied upgrade.
The Company also assessed and addressed Year 2000 issues with significant
vendors. The Company sought assurances from all of its vendors with respect to
Year 2000 issues. The Company does not, however, control the systems of other
companies, and cannot assure that these systems were timely converted and, if
not converted, would not have an adverse effect on the Company's business
operations. In the event that the Company's significant vendors or suppliers did
not complete their Year 2000 compliance efforts, the Company could have
experienced disruptions in its operations. Disruptions in the economy generally
resulting from Year 2000 issues also could have affected the Company. With
respect to products sold by the Company, management continues to believe that
any liability for Year 2000 compliance will not be material.
The Company used and will continue to use all necessary internal resources to
resolve any Year 2000 issues. The Company completed its Year 2000 remediation
before December 31, 1999. Total expenses on the project through December 31,
1999 were approximately $1.6 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. The
Company did not encounter any significant expenditures subsequent to January 1,
2000 and management does not anticipate any additional significant expenditures
in the future.
Future Accounting Changes
In June 1998, the Financial Accounting Standards Board (FASB) has issued
Statement of Accounting Standards ("SFAS") No. 133 "Accounting for Derivative
Instruments and Hedging Activities." It requires all derivative instruments to
be recorded in the statements of financial position at fair value. In June 1999,
the statement's effective date was delayed by one year, and it will be effective
for the year ending October 31, 2001. Interim reporting for this standard will
be required. Due to the Company's current limited use of derivative instruments,
the adoption of this statement is not expected to have a material effect on the
Company's financial condition or results of operations.
<PAGE>
Item 3. Quantitative and Qualitative Disclosures about Market Risk
The Company is potentially exposed to market risk asssociated with changes in
foreign exchange and interest rates. From time to time the Company will enter
into derivative financial instruments to hedge these exposures. An instrument
will be treated as a hedge if it is effective in offsetting the impact of
volatility in the Company's underlying interest rate and foreign exchange rate
exposures. The Company does not enter into derivatives for speculative purposes.
There have been no material changes in the Company's market risk exposures as
compared to those discussed in the Company's 1999 Annual Report on Form 10-K
<PAGE>
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
On October 28, 1996, a strong windstorm caused significant damage to the
Belview container-handling terminal at the Port of Waterford in Ireland. One
container-handling crane sold by the Company's United Kingdom subsidiary was
destroyed and another was seriously damaged. The two cranes were sold to the
Waterford Harbour Commissioners in 1992 and commissioned for use in 1993. On
October 19, 1998, the Waterford Harbour Commissioners wrote to the Company and
provided a notice of arbitration, asserting breach of contract, negligence and
breach of duty against the Company's United Kingdom subsidiary in connection
with the destroyed and damaged cranes. The Waterford Harbour Commissioners
claimed direct damages of IR(pound)8.5 million ($11.5 million based on exchange
rates at January 31, 2000) and unspecified consequential damages. The port
operator, Bell Lines, Limited, filed a similar claim against the Company's
United Kingdom subsidiary in October 1999, asserting unspecified damages.
Management intends to vigorously defend both matters. One of the Company's
insurance carriers has agreed to provide defense coverage for one of the two
cranes involved in the accident and limited indemnification if the Company is
unsuccessful in defending the claims. The Company is continuing to work with its
insurance broker to determine the availability of additional insurance coverage,
if any. While the Company believes that it will obtain a favorable resolution
(either by successfully defending the claim or by obtaining insurance coverage
thereon), no assurances can be made as to the final outcome of the claims. If
the Company is found liable for the claims and is unable to obtain insurance
coverage therefor, there could be a material adverse effect on the Company's
operations and financial performance. Based upon the current status of this
matter, no related liability has been accrued at January 31, 2000.
The Company is also involved from time to time in various other routine
litigation incident to its operations. Although the outcome of those matters
cannot be predicted with certainty, management believes that any such pending or
threatened litigation will not have a material adverse effect on its
consolidated results of operations and financial condition.
Item 2. Changes in Securities
Not applicable.
Item 3. Defaults upon Senior Securities
Not applicable.
Item 4. Submission of Matters to a Vote of Security Holders
Not applicable.
Item 5. Other Information
Not applicable.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
Exhibit 27 Financial Data Schedule
(b) Reports on Form 8-K
The Registrants filed no reports on Form 8-K during the quarter
ended January 31, 2000.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrants have duly caused this report to be signed on their behalf by the
undersigned thereunto duly authorized.
MMH HOLDINGS, INC.
Date: March __, 2000 /s/ David D. Smith
-------------------
David D. Smith
Vice President - Finance
(Principal Financial Officer)
MORRIS MATERIAL HANDLING, INC.
Date: March ___, 2000 /s/ David D. Smith
-------------------
David D. Smith
Vice President - Finance
(Principal Financial Officer)
<PAGE>
Exhibit
Number Exhibit Description
27.1 Financial Data Schedule
27.2 Financial Data Schedule
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from
financial information for MMH Holdings, Inc. and is qualifified in
its entirety by reference to such financial statements.
</LEGEND>
<CIK> 0001060948
<NAME> MMH Holdings, Inc.
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> OCT-31-2000
<PERIOD-START> NOV-01-1999
<PERIOD-END> JAN-31-2000
<CASH> 237
<SECURITIES> 0
<RECEIVABLES> 64,493
<ALLOWANCES> (1,511)
<INVENTORY> 39,907
<CURRENT-ASSETS> 111,737
<PP&E> 71,446
<DEPRECIATION> (31,685)
<TOTAL-ASSETS> 218,999
<CURRENT-LIABILITIES> 349,557
<BONDS> 0
111,710
0
<COMMON> 0
<OTHER-SE> (246,445)
<TOTAL-LIABILITY-AND-EQUITY> 218,999
<SALES> 66,719
<TOTAL-REVENUES> 66,719
<CGS> (50,872)
<TOTAL-COSTS> (50,872)
<OTHER-EXPENSES> (16,860)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (7,750)
<INCOME-PRETAX> (2,383)
<INCOME-TAX> (1,788)
<INCOME-CONTINUING> (4,155)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (4,155)
<EPS-BASIC> 0
<EPS-DILUTED> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from
financial information for Morris Material Handling, Inc. and is qualifified in
its entirety by reference to such financial statements.
</LEGEND>
<CIK> 0001060951
<NAME> Morris Material Handling, Inc.
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> OCT-31-2000
<PERIOD-START> NOV-01-1999
<PERIOD-END> JAN-31-2000
<CASH> 237
<SECURITIES> 0
<RECEIVABLES> 64,493
<ALLOWANCES> (1,511)
<INVENTORY> 39,907
<CURRENT-ASSETS> 111,737
<PP&E> 71,446
<DEPRECIATION> (31,685)
<TOTAL-ASSETS> 218,999
<CURRENT-LIABILITIES> 349,557
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> (134,735)
<TOTAL-LIABILITY-AND-EQUITY> 218,999
<SALES> 66,719
<TOTAL-REVENUES> 66,719
<CGS> (50,872)
<TOTAL-COSTS> (50,872)
<OTHER-EXPENSES> (16,860)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (7,750)
<INCOME-PRETAX> (2,383)
<INCOME-TAX> (1,788)
<INCOME-CONTINUING> (4,155)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (4,155)
<EPS-BASIC> 0
<EPS-DILUTED> 0
</TABLE>
