SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended July 31, 2000
Commission Registrant; State of Incorporation; IRS EMPLOYER
File Number Address; and Telephone Number Identification No.
333-52529 MMH HOLDINGS, INC. 39-1716155
(a Delaware Corporation
315 W. Forest Hill Avenue
Oak Creek, Wisconsin 53154
(414) 764-6200
333-52527 MORRIS MATERIAL HANDLING, INC. 39-1924039
(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 (October 31, 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 3
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 MaterialHandling, 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. 34
Item 3. Quantitative and Qualitative Disclosures about Market Risk 46
Part II - Other Information:
Item 1. Legal Proceedings 47
Item 2. Changes in Securities 47
Item 3. Defaults upon Senior Securities 47
Item 4. Submission of Matters to a Vote of Security Holders 47
Item 5. Other Information 47
Item 6. Exhibits and Reports on Form 8-K 47
2
<PAGE>
Introduction
MMH Holdings, Inc. ("Holdings") is a holding company whose sole direct
subsidiary is Morris Material Handling, Inc. ("MMH"), which, together with its
operating subsidiaries, is 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 Holdings, MMH, its subsidiaries and their
predecessors.
This combined Form 10-Q is separately filed by MMH Holdings, Inc. and by Morris
Material Handling, Inc. The unaudited interim financial statements presented in
this combined report (collectively, the "Financial Statements") include the
financial statements of Holdings, as well as separate financial statements for
MMH. Information contained herein relating only to Holdings or MMH is filed by
Holdings or MMH as the case may be, on its own behalf.
Certain sections of this Form 10-Q, including "Management's Discussion and
Analysis of Financial Condition and Results of Operations," contain various
forward looking statements within the meaning of Section 21E of the Securities
Exchange Act of 1934, which represent management's expectations or beliefs
concerning future events. Holdings and MMH caution that those statements are
further qualified by important factors that could cause actual results to differ
from those in the forward looking statements. Factors that might cause such a
difference include, without limitation, general economic conditions and
competition in the markets in which the Registrants' operations are located and
are detailed herein under "Management's Discussion and Analysis of Financial
Condition and Results of Operations - Cautionary Factors." Consequently, all
forward-looking statements made herein are qualified by these cautionary
statements. There can be no assurance that the actual results, events or
developments referenced herein will occur or be realized.
3
<PAGE>
MMH HOLDINGS, INC.
(Debtors - in Possession as of May 17, 2000)
CONDENSED BALANCE SHEETS
(Dollars in Thousands)
<TABLE>
ASSETS LIABILITIES AND SHAREHOLDERS' EQUITY
<CAPTION>
July 31, October 31, July 31, October 31,
2000 1999 2000 1999
-------- ----------- -------- -----------
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C> <C>
Current Assets Liabilities Not Subject to Compromise
Cash and cash equivalents $ 2,785 $ 3,929 Current Liabilities
Accounts receivable-net 57,196 64,481 Short-term notes payable and current
Inventories 35,901 39,994 portion of long-term obligations (Note 9) $ 116 $ 383
Other current assets 7,566 7,842 Junior DIP Facility (Note 9) 31,252 -
-------- -------- Revolving Credit Facility Borrowings (Note 9) - 27,925
103,448 116,246 Term Loans (Note 9) - 52,225
-------- -------- Acquisition Facility Line Borrowings (Note 9) - 12,430
Senior Notes (Note 9) - 200,000
Property, Plant and Bank overdrafts 998 1,367
Equipment Trade accounts payable 13,110 26,757
Employee compensation and benefits 6,990 8,020
Land and improvements 3,300 3,349 Advance payments and progress billings 11,592 8,336
Buildings 22,572 23,235 Accrued warranties 1,865 1,821
Machinery and equipment 43,427 45,219 Accrued interest 762 1,804
------- ------- Income taxes payable 1,561 2,205
69,299 71,803 Other current liabilities 5,354 9,791
-------- --------
Less accumulated 73,600 353,064
depreciation (33,370) (30,829)
------- ------- Other Long-Term Obligations 624 2,784
35,929 40,974 Other Long-Term Liabilities 239 1,307
------- ------- Liabilities Subject to Compromise (Note 5) 295,483 -
Minority Interest 71 504
Commitments and Contingencies (Note 10)
Other Assets
Goodwill 22,500 42,844 Manditorily Redeemable Preferred Stock 118,642 108,245
Debt financing costs 14,781 16,398 Shareholders' Equity (302,433) (239,068)
Other 9,568 10,374 -------- ---------
------- ------- $186,226 $ 226,836
46,849 69,616 ======== =========
------- -------
$186,226 $ 226,836
======== =========
</TABLE>
The accompanying notes are an integral part of the financial statements.
4
<PAGE>
MMH HOLDINGS, INC.
(Debtors - in - Possesion as of May 17, 2000)
CONDENSED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS
(UNAUDITED)
(Dollars in Thousands)
For the Three Months For the Nine Months
Ended July 31, Ended July 31,
2000 1999 2000 1999
-------- -------- -------- --------
Revenues
Equipment and Part Sales $ 50,420 $ 59,490 $154,020 $166,985
Service Sales 15,045 13,219 44,369 45,493
-------- -------- -------- --------
Net Sales 65,465 72,709 198,389 212,478
Other Income - Net - 453 - 600
-------- -------- -------- --------
65,465 73,162 198,389 213,078
Cost of Sales 54,084 52,210 155,639 157,266
Selling, General and
Administrative Expenses 17,982 18,298 53,943 53,585
Impairment Loss on Long -
Lived Assets 16,009 - 16,009 -
Reorganization Items 3,008 - 5,198 -
-------- -------- -------- --------
Operating Income (Loss) (25,618) 2,654 (32,400) 2,227
Gain on Sale of a Business - - 6,380 -
Loss on Disposal of
Fixed Assets (830) - (830) -
Interest Expense - Net (3,888) (7,521) (19,254) (21,952)
-------- -------- -------- --------
Loss Before Income Taxes and
Minority Interest (30,336) (4,867) (46,104) (19,725)
Provision for Income Taxes (226) (576) (2,261) (1,641)
Minority Interest 215 13 242 40
-------- -------- -------- --------
Net Loss (30,347) (5,430) (48,123) (21,326)
Foreign Currency Translation
Adjustments (1,667) (869) (3,945) (2,246)
-------- -------- -------- --------
Comprehensive Loss $(32,014) $ (6,299) $(52,068) $(23,572)
======== ======== ======== ========
The accompanying notes are an integral part of the financial statements.
5
<PAGE>
<TABLE>
MMH HOLDINGS, INC.
(Debtors - in - Possession as of May 17, 2000)
CONDENSED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(Dollars in Thousands)
<CAPTION>
For the Nine Months
Ended July
31,
------------------------
2000 1999
---------- ---------
<S> <C> <C>
Operating Activities
Net Loss $(48,123) $(21,326)
Add (deduct) - items not affecting
cash provided by operating activities:
DIP financing fees 950 -
Depreciation and amortization 7,004 6,057
Amortization of debt financing costs 1,761 1,603
Deferred income taxes - net - 41
Gain on sale of business (6,380) -
Impairment loss on long-lived assets 16,009 -
Loss on disposal of fixed assets 830 -
Other (242) (40)
Changes in working capital, excluding the
effects of acquisition opening balance sheets
Accounts receivable 5,183 18,212
Inventories 2,122 34
Other current assets 28 (3,762)
Trade accounts payable and bank overdrafts (1,369) (10,512)
Advance payments and progress billings 3,134 366
Accrued interest 11,359 4,243
Other current liabilities 747 (7,103)
Net cash used for operating activities, including -------- --------
reorganization items (6,987) (12,187)
-------- --------
Investment and Other Transactions
Fixed asset additions - net (1,033) (4,012)
Capitalized software (890) (2,196)
Acquisition of businesses - net of cash
acquired - - (5,070)
Net proceeds on divestiture of business 9,115 -
Net Issuance of loans to senior management - (80)
Other - net 30 (570)
Net cash provided by (used for) investment and -------- --------
other transactions 7,222 (11,928)
-------- --------
Financing Activities
Changes in short-term debt and notes payable (9) (22)
Proceeds from DIP and Junior DIP borrowings 31,352 -
Repayment of DIP borrowings (100) -
Net (repayments of)/proceeds from Revolving
Credit Facility borrowings (7,279) 24,058
Repayment of Term Loans (21,079) (1,388)
Proceeds from/(repayments of) Acquisition
Facility Line borrowings (2,867) 1,235
Repayments of long-term debt (117) (120)
Payment of DIP financing fees (950) -
Payment of fees for amendment of Credit
Facility (226) -
-------- --------
Net cash provided by (used for) financing
activities (1,275) 23,763
-------- --------
Effect of Exchange Rate Changes on Cash and
Cash Equivalents (104) (29)
-------- --------
Increase (decrease) in Cash and Cash Equivalents (1,144) (381)
Cash and Cash Equivalents
Beginning of Period 3,929 2,534
-------- --------
End of Period $ 2,785 $ 2,153
======== ========
The accompanying notes are an integral part of the financial statements.
</TABLE>
6
<PAGE>
<TABLE>
MMH HOLDINGS, INC.
(Debtors - in - Possession as of May 17, 2000)
STATEMENTS OF PREFERRED STOCK AND SHAREHOLDERS' EQUITY
FOR THE NINE MONTHS ENDED JULY 31, 2000
(UNAUDITED)
(Dollars in Thousands)
<CAPTION>
Preferred Stock
-----------------------------------------------------------------
Series A Series B Series C Common Stock
-------------------- -------------------- --------------------- -------------------
Shares Carrying Shares Carrying Shares Carrying Shares Par
Outstanding Value Outstanding Value Outstanding Value Total Outstanding Value
----------- -------- ----------- -------- ----------- -------- ----- ----------- -----
<S> <C> <C> <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 12,099 $ -
Net loss
Change in foreign currency
translation
Preferred stock dividends 6,187 6,187 528 528 3,247 3,247 9,962
Issuance of non-voting common 2,420
shares
Amortization of preferred 435 435
stock discount
Other
------- ------- ------ ------ ------ ------- -------- ------ ---
Balance at July 31, 2000 74,928 $74,065 6,278 $6,336 37,880 $38,241 $118,642 14,519 $ -
======= ======= ====== ====== ====== ======= ======== ------ ===
</TABLE>
<TABLE>
<CAPTION>
Parent Accumulated
Investment/ Other Total
Additional Comprehensive Retained Shareholders'
Paid-in-Capital Loss Earnings Equity
--------------- ------------- -------- -------------
<S> <C> <C> <C> <C>
Balance at October 31, 1999 $(121,860) $(3,428) $(113,780) $(239,068)
Net loss (48,123) (48,123)
Change in foreign currency
translation (3,945) (3,945)
Preferred stock dividends (9,962) (9,962)
Issuance of non-voting common
shares
Amortization of preferred
stock discount (435) (435)
Other (900) (900)
--------- ------- --------- ---------
Balance at July 31, 2000 $(122,760) $(7,373) $(172,300) $(302,433)
========= ======= ========= =========
</TABLE>
The accompanying notes are an integral part of the financial statements.
7
<PAGE>
<TABLE>
MORRIS MATERIAL HANDLING, INC.
(Debtors - in - Possession as of May 17, 2000)
CONDENSED BALANCE SHEETS
(Dollars in Thousands)
<CAPTION>
ASSETS LIABILITIES AND SHAREHOLDER'S EQUITY
------ ------------------------------------
July 31, October 31, July 31, October 31,
2000 1999 2000 1999
--------- ----------- --------- -----------
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C> <C>
Current Assets Liabilities Not Subject to Compromise
Cash and cash equivalents $ 2,785 $ 3,929 Current Liabilities
Accounts receivable-net 57,196 64,481 Short-term notes payable and current
Inventories 35,901 39,994 portion of long-term obligations (Note 9) $ 116 $ 383
Other current assets 7,566 7,842 Junior DIP Facility (Note 9) 31,252 -
-------- -------- Revolving Credit Facility Borrowings (Note 9) - 27,925
103,448 116,246 Term Loans (Note 9) - 52,225
-------- -------- Acquisition Facility Line Borrowings (Note 9) 12,430
Senior Notes (Note 9) - 200,000
Property, Plant and Equipment Bank overdrafts 998 1,367
Land and improvements 3,300 3,349 Trade accounts payable 13,110 26,757
Buildings 22,572 23,235 Employee compensation and benefits 6,990 8,020
Machinery and equipment 43,427 45,219 Advance payments and progress billings 11,592 8,336
-------- -------- Accrued warranties 1,865 1,821
69,299 71,803 Accrued interest 762 1,804
-------- -------- Income taxes payable 1,561 2,205
Less accumulated depreciation (33,370) (30,829) Other current liabilities 5,354 9,791
-------- -------- -------- --------
35,929 40,974 73,600 353,064
-------- --------
Other Assets
Goodwill 22,500 42,844 Other Long-Term Obligations 624 2,784
Debt financing costs 14,781 16,398 Other Long-Term Liabilities 239 1,307
Other 9,568 10,374 Liabilities Subject to Compromise (Note 5) 295,483 0
-------- -------- Minority Interest 71 504
46,849 69,616 Commitments and Contingencies (Note 10)
-------- -------- Shareholders' Equity (183,791) (130,823)
-------- --------
$186,226 $226,836 $186,226 $226,836
======== ======== ======== ========
The accompanying notes are an integral part of the financial statements.
</TABLE>
8
<PAGE>
MORRIS MATERIAL HANDLING, INC.
(Debtors - in - Possession as of May 17, 2000)
CONDENSED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS
(UNAUDITED)
(Dollars in Thousands)
<TABLE>
<CAPTION>
For the Three Months For the Nine Months
Ended July 31, Ended July 31,
2000 1999 2000 1999
------- -------- -------- --------
<S> <C> <C> <C> <C>
Revenues
Equipment and Part Sales $ 50,420 $ 59,490 $154,020 $166,985
Service Sales 15,045 13,219 44,369 45,493
-------- -------- -------- --------
Net Sales 65,465 72,709 198,389 212,478
Other Income - Net - 453 - 600
-------- -------- -------- --------
65,465 73,162 198,389 213,078
Cost of Sales 54,084 52,210 155,639 157,266
Selling, General and
Administrative Expenses 17,982 18,298 53,943 53,585
Impairment Loss on Long -
Lived Assets 16,009 - 16,009 -
Reorganization Items 3,008 - 5,198 -
-------- -------- -------- --------
Operating Income (loss) (25,618) 2,654 (32,400) 2,227
Gain on Sale of a Business - - 6,380 -
Loss on Disposal of Fixed Assets (830) - (830) -
Interest Expense - Net (3,888) (7,521) (19,254) (21,952)
-------- -------- -------- --------
Loss Before Income Taxes and
Minority Interest (30,336) (4,867) (46,104) (19,725)
Provision for Income Taxes (226) (576) (2,261) (1,641)
Minority Interest 215 13 242 40
-------- -------- -------- --------
Net Loss (30,347) (5,430) (48,123) (21,326)
Foreign Currency
Translation Adjustments (1,667) (869) (3,945) (2,246)
-------- -------- -------- --------
Comprehensive Loss $(32,014) $ (6,299) $(52,068) $(23,572)
======== ======== ======== ========
</TABLE>
The accompanying notes are an integral part of the financial statements.
9
<PAGE>
<TABLE>
MORRIS MATERIAL HANDLING, INC.
(Debtors - in - Possession as of May 17, 2000)
CONDENSED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(Dollars in Thousands)
<CAPTION>
For the Nine Months
Ended July 31,
-----------------------
2000 1999
-------- --------
<S> <C> <C>
Operating Activities
Net Loss $(48,123) $(21,326)
Add (deduct) - items not affecting
cash provided by
operating activities:
DIP financing fees 950 -
Depreciation and amortization 7,004 6,057
Amortization of debt financing costs 1,761 1,603
Deferred income taxes - net - 41
Gain on sale of business (6,380) -
Impairment loss on long-lived assets 16,009 -
Loss on disposal of fixed assets 830 -
Other (242) (40)
Changes in working capital, excluding the
effects of acquisition opening balance sheets:
Accounts receivable 5,183 18,212
Inventories 2,122 34
Other current assets 28 (3,762)
Trade accounts payable and
bank overdrafts (1,369) (10,512)
Advance payments and progress
billings 3,134 366
Accrued interest 11,359 4,243
Other current liabilities 747 (7,103)
-------- --------
Net cash used for operating activities,
including reorganization items (6,987) (12,187)
-------- --------
Investment and Other Transactions
Fixed asset additions - net (1,033) (4,012)
Capitalized software (890) (2,196)
Acquisition of businesses - net of
cash acquired - (5,070)
Net proceeds on divestiture of business 9,115 -
Net Issuance of loans to senior management - (80)
Other - net 30 (570)
-------- --------
Net cash provided by (used for) investment
and other transactions 7,222 (11,928)
-------- --------
Financing Activities
Changes in short-term debt and notes payable (9) (22)
Proceeds from DIP and Junior DIP borrowings 31,352 -
Repayments of DIP borrowings (100) -
Net (repayments of)/proceeds from
Revolving Credit Facility borrowings (7,279) 24,058
Repayment of Term Loans (21,079) (1,388)
Proceeds from/(repayments of) Acquisition
Facility Line borrowings (2,867) 1,235
Repayments of long-term debt (117) (120)
Payment of DIP financing fees (950) -
Payment of fees for amendment of Credit
Facility (226) -
-------- --------
Net cash provided by (used for) financing
activities (1,275) 23,763
-------- --------
Effect of Exchange Rate Changes on
Cash and Cash Equivalents (104) (29)
-------- --------
Increase (decrease) in Cash and Cash
Equivalents (1,144) (381)
Cash and Cash Equivalents
Beginning of Period 3,929 2,534
-------- --------
End of Period $ 2,785 $ 2,153
======== ========
The accompanying notes are an integral part of the financial statements.
</TABLE>
10
<PAGE>
<TABLE>
MORRIS MATERIAL HANDLING, INC.
(Debtors - in - Possession as of May 17, 2000)
STATEMENTS OF SHAREHOLDER'S EQUITY
FOR THE NINE MONTHS ENDED JULY 31, 2000
(UNAUDITED)
(Dollars in Thousands)
<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 100 $(33,392) $(3,428) $ (94,003) $(130,823)
Net loss (48,123) (48,123)
Change in foreign currency (3,945) (3,945)
translation
Other (900) (900)
--- --- -------- --------- --------- ---------
Balance at July 31, 2000 100 $-- $(34,292) $ (7,373) $(142,126) $(183,791)
=== === ======== ========= ========= =========
</TABLE>
The accompanying notes are an integral part of the financial statements.
11
<PAGE>
MMH HOLDINGS, INC.
------------------
MORRIS MATERIAL HANDLING, INC.
------------------------------
(Debtors- in - Possession as of May 17, 2000)
---------------------------------------------
NOTES TO FINANCIAL STATEMENTS
-----------------------------
UNAUDITED
---------
(DOLLAR AMOUNTS IN THOUSANDS UNLESS INDICATED)
Note 1 - Reorganization under Chapter 11
----------------------------------------
On May 17, 2000, MMH Holdings, Inc. ("Holdings"), Morris Material Handling, Inc.
and their domestic operating subsidiaries (collectively, the "Debtors") filed
voluntary petitions for reorganization under Chapter 11 of the U.S. Bankruptcy
Code (the "Bankruptcy Code") in the United States Bankruptcy Court for the
District of Delaware (the "Bankruptcy Court"). The Debtors' Chapter 11 cases
have been consolidated for the purpose of joint administration under case number
00-2027(SLR). The Debtors are currently operating their businesses as
debtors-in-possession pursuant to the Bankruptcy Code. No trustee has been
appointed. An official committee of unsecured creditors (the "Creditors'
Committee") was appointed by the office of the United States Trustee on May 30,
2000. Pursuant to the Bankruptcy Code, actions to collect certain prepetition
indebtedness of the Debtors and other obligations against the Debtors may not be
enforced. These claims are reflected in the balance sheet as "liabilities
subject to compromise". In addition, under the Bankruptcy Code, the Debtors may
assume or reject executory contracts and unexpired leases. Additional claims may
arise from such rejection, and from the determination by the court (or agreed by
the parties in interest) to allow claims for contingencies and other disputed
amounts. However, the Debtors have not yet completed their review of all their
prepetition executory contracts and leases for assumption or rejection. See also
Note 5, Liabilities Subject to Compromise, and Note 9, Indebtedness.
The Debtors received approval from the Bankruptcy Court to pay or otherwise
honor certain of their prepetition obligations, including the authority to pay
employee wages and maintain their employee benefit programs.
The Debtors have the exclusive right, pursuant to an order of the Bankruptcy
Court, until December 15, 2000, to file a plan or plans of reorganization. Such
period can be extended from time to time during the pendancy of the Debtors'
bankruptcy cases at the discretion of the Bankruptcy Court. Subject to certain
exceptions set forth in the Bankruptcy Code, acceptance of a plan of
reorganization requires approval of the Bankruptcy Court and the affirmative
vote (i.e., more than 50% of the number and at least 66-2/3% of the dollar
amount, both based on claims actually voted) of each class of creditors whose
claims are impaired by the plan. Alternatively, absent the requisite approvals,
a debtor may seek Bankruptcy Court approval of its reorganization plan under
"cramdown" provisions of the Bankruptcy Code, assuming certain tests are met. If
a debtor fails to submit a plan of reorganization within the exclusivity period
prescribed or any extensions thereof, any creditor or equity holder will be free
to file a plan of reorganization with the Bankruptcy Court and solicit
acceptances thereof.
The Bankruptcy Court set September 20, 2000 as the last date creditors could
file proof of claims against the Debtors. There may be differences between the
amounts recorded in the Debtors' schedules and financial statements and the
amounts claimed by their respective creditors. Litigation may be required to
resolve such disputes.
The Debtors will continue to incur significant costs associated with the
reorganization. The amount of these expenses, which are being expensed as
incurred, is expected to significantly affect results while the Debtors operate
under Chapter 11. See Note 4, Reorganization Items.
Currently, it is not possible to predict the length of time the Debtors will
operate under the protection of Chapter 11, the outcome of the Chapter 11
proceedings in general, or the effect of the proceedings on the business of the
Company or on the interests of the various creditors and security holders.
Under the Bankruptcy Code, postpetition liabilities and prepetition liabilities
(i.e., liabilities subject to compromise) of the Debtors must be satisfied
before shareholders of the Debtors can receive any distribution. The ultimate
recovery to the Debtors' shareholders, if any, will not be determined until the
end of the case when the fair value of the Debtors' assets is
12
<PAGE>
compared to the liabilities and claims against the Debtors. The Debtors and
their professional advisors are in the process of analyzing strategic
alternatives and developing a plan of reorganization for the Debtors. Based on
the Debtors' analysis of scheduled and filed claims and the valuation of the
Company, a determination will be made as to the payment of claims and the
distribution of value, if any, to the Debtors' shareholders.
Note 2 - Basis of Presentation
------------------------------
General. These consolidated interim financial statements should be read in
conjunction with the combined 1999 Annual Report on Form 10-K of Holdings and
the Company. In the opinion of management, all adjustments, normal and recurring
in nature, necessary for a fair presentation of results of operations and
financial position have been included in the accompanying balance sheets and
statements of operations. The results of operations for the three and nine
months ended July 31, 2000 are not, however, necessarily indicative of the
results which may be expected for fiscal 2000.
Recapitalization. On January 28, 1998, Harnischfeger Industries, Inc. ("HII")
reached an agreement with MHE Investments, Inc. ("MHE Investments"), an
affiliate of Chartwell Investments Inc. ("Chartwell"), for the sale of an
approximately 80 percent common ownership interest in HII's Material Handling
Equipment Business (the "MHE Business"). As more fully described in Note 3, the
resulting transactions (the "Recapitalization"), which closed on March 30, 1998
(the "Recapitalization Closing"), led to a significant change in the capital
structure and a reorganization of the underlying legal entities of the MHE
Business. As a result of the Recapitalization, Holdings, a pre-existing company
engaged in the MHE Business, became an indirect holding company for the
operating entities engaged in the MHE Business. Specifically, MMH, 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.
Chapter 11 Filing. The accompanying consolidated interim financial statements
have been prepared on a going concern basis, which contemplates continuity of
operations, realization of assets and liquidation of liabilities in the ordinary
course of business and do not reflect any adjustments that might result if the
Debtors are unable to continue as a going concern. As a result of the Debtors'
Chapter 11 filings, however, such matters are subject to significant
uncertainty, although the Debtors intend to file a plan of reorganization with
the Bankruptcy Court. Continuing on a going concern basis is dependent upon,
among other things, the Debtors' formulation of an acceptable plan of
reorganization, the success of future business operations, and the generation of
sufficient cash from operations and financing sources to meet the Debtors'
obligations. The accompanying consolidated interim financial statements do not
reflect: (i) the realizable value of assets on a liquidation basis or their
availability to satisfy liabilities, (ii) aggregate prepetition liability
amounts that may be allowed for claims or contingencies, or their status or
priority, (iii) the effect of any changes to the Debtors' capital structure or
in the Debtors' business operations as the result of an approved plan of
reorganization; or (iv) adjustments to the carrying value of assets or liability
amounts that may be necessary as the result of actions by the Bankruptcy Court.
The Company's consolidated financial statements have been presented in
conformity with the AlCPA's Statement of Position 90-7, "Financial Reporting By
Entities In Reorganization Under the Bankruptcy Code" ("SOP 90-7"). SOP 90-7
requires a segregation of liabilities subject to compromise by the Bankruptcy
Court as of the bankruptcy filing date and identification of all transactions
and events that are directly associated with the reorganization of the Debtors.
Impairment Loss on Long-Lived Assets. The Company assesses the carrying value of
goodwill at each balance sheet date. Consistent with Statement of Financial
Accounting Standards ("SFAS") No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to be Disposed Of," such assessments
include, as appropriate, a comparison of (a) the estimated future nondiscounted
cash flows, excluding interest, anticipated to be generated during the remaining
amortization period of the goodwill to (b) the net carrying value of goodwill.
Based upon the continued negative trends in the operating results of non-North
American businesses and shortfalls in actual third quarter operating results
compared with estimates developed during the second quarter, management
concluded that future operating cash flows, excluding interest, did not support
the recoverability of recorded goodwill over the remaining amortization period.
Accordingly, the Company assessed the fair value of the related businesses and
wrote-off the remaining unamortized goodwill balances related to its non-North
American operations of approximately $16.0 million in the third quarter.
13
<PAGE>
Note 3 - Recapitalization Transaction
-------------------------------------
The Recapitalization was effectuated pursuant to the January 28, 1998
Recapitalization Agreement among MHE Investments, HarnCo and certain of HII's
affiliates. Pursuant to this agreement, HarnCo and other HII affiliates effected
a number of transactions which resulted in Holdings owning, directly or
indirectly, the equity interests of all of the operating entities engaged in the
MHE Business. Holdings, in turn, formed MMH as a wholly owned subsidiary to
directly or indirectly hold the various operating entities engaged in the MHE
Business.
The principal transactions effected as part of the Recapitalization were the
following: (i) MHE Investments acquired (x) 7,907 shares of Holdings' common
stock for $25.1 million and (y) $28.9 million liquidation preference of
Holdings' 12 1/2% Series C Junior Voting Exchangeable Preferred Stock (the
"Series C Junior Voting Preferred Stock") from HarnCo; (ii) Holdings redeemed
certain shares of its common stock and Series C Junior Voting Preferred Stock
held by HarnCo for $287 million in cash (including a $5 million prepayment of a
potential post-closing redemption price adjustment) and approximately $4.8
million liquidation preference of Holdings' 12 1/4% Series B Junior Exchangeable
Preferred Stock (the "Series B Junior Preferred Stock"); and (iii) HarnCo
retained 2,261 shares of Holdings' common stock.
To finance the Recapitalization, Holdings sold $60 million of Series A Units,
consisting of $57.7 million liquidation preference of Holdings' 12% Series A
Senior Exchangeable Preferred Stock (the "Series A Senior Preferred Stock") and
$2.3 million of Holdings' non-voting common stock, to institutional investors.
In addition, MMH issued (the "Note Offering") $200 million of aggregate
principal amount of its 9 1/2% senior notes due 2008 (the "Senior Notes") and
entered into a senior secured credit facility (the "Prepetition Credit
Facility") (see Note 9). The Prepetition Credit Facility consisted of a $70
million Revolving Credit Facility (the "Revolving Credit Facility"), a $30
million acquisition facility (the "Acquisition Facility") and $55 million in
term loans. MMH used a portion of the $200 million aggregate proceeds from the
Note Offering and $55 million aggregate borrowings under the New Credit Facility
to redeem certain of its common shares from Holdings and pay Holdings a dividend
which redemption and dividend totaled $233.8 million. Holdings, in turn, used
the proceeds from this redemption, together with the proceeds of the sale of the
Series A Units, to finance the cash portion of the redemption price for HarnCo's
shares. The remainder of the proceeds was used by Holdings and MMH (i) to make
loans to senior management to acquire indirect equity interests in Holdings,
(ii) to fund certain transaction fees and expenses and (iii) for general
corporate purposes.
At July 31, 2000, MHE Investments owned approximately 54.5% of the common stock
of Holdings and $37.9 million liquidation preference of the Series C Junior
Voting Preferred Stock and HarnCo owned approximately 15.6% of the common stock
of Holdings and $6.3 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 $74.9 million liquidation preference of the Series A Senior
Preferred Stock.
Note 4 - Reorganization Items
-----------------------------
Reorganization expenses are comprised of items of income, expense, gain or loss
that were realized or incurred by the Debtors as a result of their decision to
reorganize under Chapter 11 of the Bankruptcy Code. During the three and nine
months ended July 31, 2000, reorganization expenses, including certain costs
incurred by the Company prior to May 17, 2000 related to its restructuring
efforts, were as follows:
Three months Nine Months
ended ended
July 31, 2000 July 31, 2000
------------- -------------
Professional fees $1,858 $4,048
DIP financing costs 950 950
Accrued retention plan costs 200 200
------ ------
$3,008 $5,198
====== ======
14
<PAGE>
Note 5 - Liabilities Subject to Compromise
------------------------------------------
The principal categories of claims classified as liabilities subject to
compromise under reorganization proceedings are identified below. All amounts
below may be subject to future adjustment depending on Bankruptcy Court action,
further developments with respect to disputed claims, or other events.
Additional prepetition claims may arise from rejection of additional executory
contracts or unexpired leases by the Debtors. Under a confirmed plan of
reorganization, prepetition claims may be paid and discharged at amounts
substantially less than their allowed amounts. Unless the Debtors are
substantively consolidated under a confirmed plan or plans of reorganization,
payment of prepetition claims of each Debtor may substantially differ from
payment of prepetition claims of other Debtors.
On a consolidated basis, recorded liabilities subject to compromise under
Chapter 11 proceedings consisted of the following:
July 31, 2000
-------------
Trade accounts payable $ 11,572
Accrued interest expense, as of May 16, 2000 12,419
Senior notes, at 9.5% due April 1, 2008 200,000
Bank term loan (Term Loan A) at LIBOR plus 3.5% (10.22% at
July 31, 2000) due in quarterly installments through March 2003 10,154
Bank term loan (Term Loan B) at LIBOR plus 3.5% (10.22% at
July 31, 2000) due in quarterly installments through March 2005 20,973
Bank acquisition loan (in combined draws), at LIBOR plus
3.5% (10.22% at July 31, 2000) due in eight quarterly installments
beginning June 2003 through March 2005 4,563
Acquistions term loan (Sponsor Loan), at Eurodollar
plus 6.0% (12.72% at July 31, 2000) due in eight quarterly
installments beginning June 2003 through March 2005 5,000
Bank revolving credit loan, at LIBOR plus 3.5% (10.22% at
July 31, 2000) due March 2003 20,647
Deferred payments for purchases of companies, due in annual
installments through 2006 1,910
Long-term capital leases with various expiration dates 20
Industrial revenue bonds, at 6.2% due in annual installments
through June 2007 319
Income taxes payable 2,035
Royalty fee and credit support fee payable to HII 3,246
Other 2,625
--------
$295,483
========
Pursuant to SOP 90-7, certain of the amounts included above represent secured
claims about which there is uncertainty as to whether the liability is
undersecured, or will be impaired under a reorganization plan or plans.
As a result of the bankruptcy filings, principal and interest payments may not
be made on prepetition debt without Bankruptcy Court approval or until a
reorganization plan or plans defining the repayment terms have been confirmed.
Interest due under the Prepetition Credit Facility is being paid by the Debtors
as "adequate protection" pursuant to an order of the Bankruptcy Court. The total
interest on unsecured prepetition debt that was not paid or charged to earnings
for the period from May 17, 2000 to July 31, 2000 was $4.1 million. Such
interest is not being accrued since it is not probable that it will be treated
as an allowed claim. The Bankruptcy Code generally disallows the payment of
interest that accrues postpetition with respect to unsecured claims.
Note 6 - Liquidity and Capital Resources
----------------------------------------
On May 17, 2000, Holdings, MMH and their domestic operating subsidiaries filed
voluntary petitions for reorganization under Chapter 11 of the U.S. Bankruptcy
Code. See Note 1, Reorganization under Chapter 11. On May 18, 2000, the
Bankruptcy Court entered an order approving $10.0 million in interim
debtor-in-possession financing to the Debtors and authorizing the Debtors to
utilize their collections in the operation of their business. This $10 million
amount represented the initial portion under a commitment by the lenders to
provide $35 million in financing (including a letter of credit facility) in
connection with the Debtors' Chapter 11 cases. The complete $35 million facility
(which was subsequently reduced by agreement of the
15
<PAGE>
parties to $25 million) was approved by the Bankruptcy Court on June 15, 2000
(see Note 9). This facility has an initial maturity date of December 1, 2000,
which date, absent a default, shall be automatically extendable to June 1, 2001
if a sale of the Debtors shall not have been consummated prior to December 1,
2000.
The Company believes that the filing provides the Debtors with the opportunity
to restructure its indebtedness. The Company plans to continue to implement its
cost savings initiatives to bring costs in line with market requirements.
Although management believes that no material adverse effects have occurred to
date, disruption of operations relating to the Chapter 11 reorganization could
adversely affect the Debtors' relationships with their creditors, customers,
suppliers or employees.
Note 7 - Acquisitions
---------------------
During the nine months ended July 31, 2000, the Company did not make any
acquisitions. During the nine months ended July 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 nine months ended July 31, 1999, the Company made final payments of
$1.5 million related to two 1998 acquisitions. In addition, with respect to a
1995 acquisition, the Company was required to make a contingent consideration
payment of $1.4 million in the nine months ended July 31, 1999. Additionally, a
payment of $100 was made in each of the nine month periods ended July 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 nine months ended July 31, 1999 and
accordingly, such information is not presented.
Note 8 - Inventories
--------------------
Inventories consisted of the following:
July 31, October 31,
2000 1999
--------- -----------
Raw material $ 3,740 $ 8,771
Work-in-process 13,846 20,166
Finished parts 24,374 18,116
--------- ---------
41,960 47,053
Less excess of current cost over
stated LIFO value (6,059) (7,059)
--------- ---------
$ 35,901 $ 39,994
========= =========
Note 9 - Indebtedness
---------------------
On June 15, 2000, the Bankruptcy Court approved a $35 million
Debtor-in-Possession Facility ("DIP Facility") (which was subsequently reduced
by agreement of the parties to $25 million) and authorized the Debtors to use
their collections in the operations of their business. The DIP and Junior DIP
Facilities contain a number of covenants that, among other things, limit the
Debtors' ability to create or assume liens, consolidate or merge with other
entities, create, incur, or assume additional indebtedness, dispose of certain
assets and make capital expenditures. The DIP and Junior DIP Facilities also
require the Debtors to comply with certain financial ratios and borrowing
condition tests based on monthly measurements of the latest twelve months
results of operations. The first measurement date is December 31, 2000. Cash
collected by the Company is used to repay the Term Loans, the Revolving Credit
Facility Borrowings and the Acquisition Facility Line Borrowings on a pro-rata
basis and these amounts are re-loaned to the Company under a Junior DIP Facility
up to $38 million. The Junior DIP Facility is junior to the DIP Facility. At
July 31, 2000, $31.3 million in borrowings are outstanding under the Junior DIP
Facility and are classified as current obligations in the July 31, 2000 balance
sheet.
16
<PAGE>
The DIP and Junior DIP Facilities benefit from superpriority administrative
claim status and senior and junior liens as provided for under the Bankruptcy
Code. Under the Bankruptcy Code, a superpriority claim is senior to unsecured
prepetition claims and all other administrative expenses incurred in the Chapter
11 case. Borrowings under the DIP Facility are priced at the Alternate Base Rate
of the Post-Petition Agent under the DIP Facility plus 1.5% or, at the Debtors'
option, LIBOR plus 3 1/2%. This DIP Facility has an initial maturity date of
December 1, 2000, which date, absent a default, shall be automatically
extendable to June 1, 2001 if a sale of the Debtors shall not have been
consummated prior to December 1, 2000. Borrowings under the Junior DIP Facility
are priced at the Alternate Base Rate of the Post-Petition Agent under the DIP
Facility plus 2.0% or, at the Debtors' option, LIBOR plus 3 1/2%. This Junior
DIP Facility matures on the earlier of the initial maturity date of December 1,
2000, which date, absent a default, shall be automatically extendable to June 1,
2001 if a sale of the Debtors shall not have been consummated prior to December
1, 2000, or upon confirmation of a plan of reorganization.
The principal sources of liquidity for the Company's operating requirements have
been cash flows from operations and borrowings under the DIP Facility and Junior
DIP Facility. While the Company expects that such sources will provide
sufficient working capital to operate its businesses, there can be no assurances
that such sources will prove to be sufficient.
Immediately prior to the bankruptcy filings, the Company's UK subsidiary had a
short-term bank credit line with an outstanding balance of $1.9 million. This
credit line was converted to the Revolving Credit Facility borrowing in
conjunction with the bankruptcy.
Note 10 - Commitments and Contingencies
---------------------------------------
To secure the performance of sales contracts related to MMH operations, MMH was
contingently liable to financial institutions and others for the following at
July 31, 2000: (i) $8.1 million of outstanding letters of credit and surety
bonds under the Prepetition Credit Facility, (ii) $3.3 million under a surety
arrangement for outstanding surety bonds and (iii) $4.1 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 July 31,
2000, approximately $11.2 million of HII Group letters of credit and surety
bonds remained outstanding.
As of the Recapitalization Closing, HarnCo retained certain income and other tax
liabilities relating to the MHE Business, all environmental liabilities relating
to previously shared facilities, any liabilities for which HarnCo or its
affiliates have been named as potentially responsible parties with respect to
Superfund sites, and any liabilities arising in connection with claims alleging
exposure to asbestos (to the extent there is insurance coverage therefor) in
connection with the MHE Business prior to the Recapitalization Closing.
Additionally, HarnCo retained all liability for medical and disability benefit
claims for then current United States employees made prior to the
Recapitalization Closing and all claims with respect to any of the HII benefit
plans for former United States employees.
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 "HII
Petition Date"), HII and certain of its United States affiliates (including
HarnCo) filed voluntary petitions for relief under Chapter 11 of the Bankruptcy
Code in the United States Bankruptcy Court for the District of Delaware (the
"HII Bankruptcy"). Certain provisions of the Bankruptcy Code allow a debtor to
avoid, delay and/or reduce its contractual and other obligations to third
parties. There can be no assurance that HII and its affiliates will not
17
<PAGE>
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 HII Petition
Date, the Company's right to indemnification for any such amounts it has paid on
behalf of HII and its affiliates may also be avoided, delayed or reduced.
Each of HII and certain of its affiliates on the one hand, and the Company and
certain of its affiliates, on the other hand, have receivables and payables to
the other which may be affected by the HII Bankruptcy.
On October 28, 1996, a strong windstorm caused significant damage to the Belview
container-handling terminal at the Port of Waterford in Ireland. One
container-handling crane sold by the Company's United Kingdom subsidiary was
destroyed and another was seriously damaged. The two cranes were sold to the
Waterford Harbour Commissioners in 1992 and commissioned for use in 1993. On
October 19, 1998, the Waterford Harbour Commissioners wrote to the Company and
provided a notice of arbitration, asserting breach of contract, negligence and
breach of duty against the Company's United Kingdom subsidiary in connection
with the destroyed and damaged cranes. The Waterford Harbour Commissioners
claimed direct damages of IR(pound)8.5 million ($10.1 million based on exchange
rates at July 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 and its United Kingdom
subsidiary have initiated litigation in the Milwaukee County Circuit Court
against Ace American Insurance Company, AON Risk Services, Inc. of Illinois, and
National Union Fire Insurance Company of Pittsburgh, Pennsylvania, seeking
additional insurance coverage for defense and indemnification obligations. 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's
United Kingdom subsidiary is found liable for the claims and is unable to obtain
insurance coverage therefore, there could be a material adverse effect on the
Company's operations and financial performance. Based upon the current status of
this matter, no related liability has been accrued at July 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.
As a result of the Company's bankruptcy filing described in Note 1,
Reorganization under Chapter 11, litigation against the Company and its
subsidiaries which filed bankruptcy is stayed.
Note 11 - 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 third 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
18
<PAGE>
o Equipment and Aftermarket - Europe
o Equipment and Aftermarket - Asia Pacific
o Equipment and Aftermarket - South Africa
Each segment has a manager who is directly accountable to and maintains regular
contact with the Chief Executive Officer. The Company evaluates performance of
its segments based on operating income, determined on a basis consistent with
amounts reported in the consolidated financial statements.
The Equipment and Aftermarket - Americas segment designs and manufactures a
comprehensive line of engineered and standard overhead cranes, hoists and other
component products and repair parts at the Company's facilities located in Oak
Creek and Windsor, Wisconsin. This segment also modernizes products manufactured
by both the Company and its competitors. This segment is the main manufacturer
of the replacement parts sold by the Company's Distribution and Service - North
America segment as well as the manufacturer of component products used in that
segment's standard cranes. Repair parts and component products are purchased by
the Distribution and Service - North America segment at list price less standard
intercompany discounts.
The Equipment and Aftermarket - Other segment is the Company's brake
manufacturing operation in Canada. Approximately 35% of this segment's sales are
to other Company segments. The Company sold this operation in December 1999.
The Distribution and Service - North America segment is the network of
Company-owned locations in key industrial markets in North America. The network
is the platform for the Company's sales activities, serving as distribution
centers for its original equipment and replacement parts as well as the focal
point for service activities. Some of the distribution centers also fabricate
and assemble standard cranes using components manufactured by the Equipment and
Aftermarket - Americas and the Equipment and Aftermarket - Europe segments.
The Engineered Products and Automation - Europe segment focuses on the
manufacture of highly engineered ship-to-shore and gantry cranes for use in
container handling and automated warehouse units at the Company's facility
located in Loughborough, England, and provides software support for the
automated warehouse units installed at customer locations.
The Equipment and Aftermarket - Europe segment consists of standard crane and
hoist manufacturing in the Loughborough, England facility as well as the network
of Company-owned distribution centers in key industrial markets in the United
Kingdom. The Equipment and Aftermarket - Europe segment provides services for
the Engineered Products and Automation segment at prices consistent with those
charged to external customers. In addition, this segment distributes hoists
through Distribution and Service - North America and Equipment and Aftermarket -
Asia Pacific and South Africa at prices consistent with those charged to
external customers.
The Equipment and Aftermarket - Asia Pacific and South Africa segments operate
in a manner similar to the Distribution and Service North America segment. The
Asia Pacific segment includes operations in Australia, Singapore, Thailand and
Saudi Arabia.
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, as
well as amortization of goodwill, are allocated amongst individual segments in
the nine months ended July 31, 2000, however, in the same period in fiscal year
1999, no allocation was done.
As discussed above, the Company assessed the fair value of its non-North
American businesses and, as a result, wrote-off the remaining unamortized
goodwill balances related to these operations in the third quarter. The total
write-off of approximately $16.0 million was allocated to the applicable
segments as follows: $10.0 million to Eliminations and Other - Europe, $0.8
million to Equipment & Aftermarket - South Africa and $5.2 million to Equipment
& Aftermarket - Asia Pacific.
19
<PAGE>
MMH HOLDINGS, INC.
MORRIS MATERIAL HANDLING, INC.
(Debtors - in - Possession as of May 17, 2000)
Operating Segments
For the Nine Months Ended July 31, 2000
<TABLE>
<CAPTION>
SALES
-----------------------------------------------
Operating Income
External Intercompany Total (Loss)
-------- ------------ ----- -----------------
<S> <C> <C> <C> <C>
Equipment & Aftermarket - Americas $ 22,512 $37,817 $ 60,329 $ (132)
Equipment & Aftermarket - Other 423 111 534 (4)
-------- ------- -------- --------
Total Equipment & Aftermarket 22,935 37,928 60,863 (136)
Distribution & Service - North America 130,363 645 131,008 6,050
Eliminations & Other - (38,573) (38,573) 161
-------- ------- -------- --------
Total Americas 153,298 - 153,298 6,075
-------- ------- -------- --------
Engineered Products & Automation - Europe 6,005 32 6,037 (1,697)
Equipment & Aftermarket - Europe 23,021 4,119 27,140 (1,638)
Eliminations & Other - (652) (652) (13,569)
-------- ------- -------- --------
Total Europe 29,026 3,499 32,525 (16,904)
Equipment & Aftermarket - South Africa 6,801 - 6,801 (1,334)
Equipment & Aftermarket - Asia Pacific 9,264 - 9,264 (6,024)
Eliminations & Other - (961) (961) -
-------- ------- -------- --------
Total International 45,091 2,538 47,629 (24,262)
-------- ------- -------- --------
Corporate and Eliminations - (2,538) (2,538) (14,213)
-------- ------- -------- --------
Consolidated $198,389 $ - $198,389 $(32,400)
======== ======= ======== ========
</TABLE>
20
<PAGE>
<TABLE>
MMH HOLDINGS, INC.
MORRIS MATERIAL HANDLING, INC.
(Debtors - in - Possession as of May 17, 2000)
Operating Segments
For the Three Months Ended July 31, 2000
<CAPTION>
SALES
-----------------------------------------------
Operating Income
External Intercompany Total (Loss)
-------- ------------ ----- -----------------
<S> <C> <C> <C> <C>
Equipment & Aftermarket - Americas $ 5,195 $13,493 $18,688 $ (625)
Equipment & Aftermarket - Other - - - -
------- ------- ------- --------
Total Equipment & Aftermarket 5,195 13,493 18,688 (625)
Distribution & Service - North America 45,478 312 45,790 1,251
Eliminations & Other 0 (13,805) (13,805) 56
------- ------- ------- --------
Total Americas 50,673 0 50,673 682
------- ------- ------- --------
Engineered Products & Automation - Europe 1,938 27 1,965 (209)
Equipment & Aftermarket - Europe 8,107 1,294 9,401 (1,213)
Eliminations & Other - (213) (213) (11,576)
------- ------- ------- --------
Total Europe 10,045 1,108 11,153 (12,998)
Equipment & Aftermarket - South Africa 2,149 0 2,149 (1,000)
Equipment & Aftermarket - Asia Pacific 2,598 0 2,598 (5,572)
Eliminations & Other 0 (434) (434) -
------- ------- ------- --------
Total International 14,792 674 15,466 (19,570)
------- ------- ------- --------
Corporate and Eliminations 0 (674) (674) (6,730)
------- ------- ------- --------
Consolidated $65,465 $ - $65,465 $(25,618)
======= ======= ======= ========
</TABLE>
21
<PAGE>
<TABLE>
MMH HOLDINGS, INC.
MORRIS MATERIAL HANDLING, INC.
(Debtors - in - Possession as of May 17, 2000)
Operating Segments
For the Nine Months Ended July 31, 1999
<CAPTION>
SALES
-----------------------------------------------
Operating Income
External Intercompany Total (Loss)
-------- ------------ ----- -----------------
<S> <C> <C> <C> <C>
Equipment & Aftermarket - Americas $ 38,402 $39,057 $ 77,459 $ 4,733
Equipment & Aftermarket - Other 2,759 1,510 4,269 1,045
-------- ------- -------- -------
Total Equipment & Aftermarket 41,161 40,567 81,728 5,778
Distribution & Service - North America 118,219 3,558 121,777 7,620
Eliminations & Other 0 (44,125) (44,125) (176)
-------- ------- -------- -------
Total Americas 159,380 0 159,380 13,222
-------- ------- -------- -------
Engineered Products & Automation - Europe 8,323 97 8,420 1,262
Equipment & Aftermarket - Europe 24,420 5,202 29,622 994
Eliminations & Other - (1,153) (1,153) (2,923)
-------- ------- -------- -------
Total Europe 32,743 4,146 36,889 (3,191)
Equipment & Aftermarket - South Africa 10,510 0 10,510 231
Equipment & Aftermarket - Asia Pacific 9,845 0 9,845 (212)
Eliminations & Other 0 (1,088) (1,088) (351)
-------- ------- -------- -------
Total International 53,098 3,058 56,156 (3,523)
-------- ------- -------- -------
Corporate and Eliminations 0 (3,058) (3,058) (7,472)
-------- ------- -------- -------
Consolidated $212,478 $ - $212,478 $ 2,227
======== ======= ======== =======
</TABLE>
22
<PAGE>
<TABLE>
MMH HOLDINGS, INC.
MORRIS MATERIAL HANDLING, INC.
(Debtors - in - Possession as of May 17, 2000)
Operating Segments
For the Three Months Ended July 31, 1999
<CAPTION>
SALES
-----------------------------------------------
Operating Income
External Intercompany Total (Loss)
-------- ------------ ----- -----------------
<S> <C> <C> <C> <C>
Equipment & Aftermarket - Americas $12,747 $13,992 $26,739 $2,703
Equipment & Aftermarket - Other 642 801 1,443 267
------- ------- ------- ------
Total Equipment & Aftermarket 13,389 14,793 28,182 2,970
Distribution & Service - North America 42,061 1,268 43,329 3,363
Eliminations & Other 0 (16,061) (16,061) (293)
------- ------- ------- ------
Total Americas 55,450 0 55,450 6,040
------- ------- ------- ------
Engineered Products & Automation - Europe 3,337 (310) 3,027 (7)
Equipment & Aftermarket - Europe 7,085 2,044 9,129 633
Eliminations & Other - (214) (214) (1,308)
------- ------- ------- ------
Total Europe 10,422 1,520 11,942 (682)
Equipment & Aftermarket - South Africa 3,332 0 3,332 7
Equipment & Aftermarket - Asia Pacific 3,505 0 3,505 9
Eliminations & Other 0 (375) (375) (115)
------- ------- ------- ------
Total International 17,259 1,145 18,404 (781)
------- ------- ------- ------
Corporate and Eliminations 0 (1,145) (1,145) (2,605)
------- ------- ------- ------
Consolidated $72,709 $ - $72,709 $2,654
======= ======= ======= ======
</TABLE>
23
<PAGE>
Note 12 - 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 Prepetition Credit Facility, 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 Prepetition
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 13 - Workforce Reductions
------------------------------
During the third quarter ended July 31, 2000, the Company announced a workforce
reduction program of approximately 84 hourly and salary positions at its United
States and United Kingdom operations. The program was primarily aimed at
streamlining its production base, improving efficiency and enhancing its
competitiveness. Termination benefits accrued and charged to expense in the
third quarter totaled $1.5 million. Termination benefits paid and charged
against the liability as of July 31, 2000, were $0.6 million. The remaining
severance benefits are anticipated to be paid primarily during the fourth
quarter of 2000 and the first quarter of 2001.
The Company also recorded $0.4 million and $0.9 million of expense during the
third and fourth quarters of 1999 as a result of restructuring of the Company's
operations.
Note 14 - 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. The Guarantor
Subsidiaries include the domestic operating subsidiaries which filed voluntary
petitions for reorganization under Chapter 11 of the U.S. Bankruptcy Code in the
United States Bankruptcy Court for the District of Delaware (See Note 1).
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.
24
<PAGE>
<TABLE>
MMH HOLDINGS, INC.
(Debtors - in - Possession as of May 17, 2000)
SUPPLEMENTAL CONDENSED
CONSOLIDATING BALANCE SHEET
JULY 31, 2000
(UNAUDITED)
(Dollars in Thousands)
<CAPTION>
Non- Consolidated
Guarantor Guarantor Morris Material Morris Material
Subsidiaries Subsidiaries Handling, Inc. Eliminations Handling, Inc.
------------ ------------ --------------- ------------ ---------------
<S> <C> <C> <C> <C> <C>
ASSETS
Current Assets
Cash and cash equivalents $ 586 $ 274 $ 1,925 $ - $ 2,785
Accounts receivable - net 54,190 3,006 - - 57,196
Intercompany accounts receivable 21,180 119 20,234 (41,533) -
Inventories 34,222 1,679 - - 35,901
Other current assets 7,081 185 300 - 7,566
----------- ----------- ---------- ----------- -----------
117,259 5,263 22,459 (41,533) 103,448
----------- ----------- ---------- ----------- -----------
Property, Plant and Equipment - net 33,583 2,346 - - 35,929
----------- ----------- ---------- ----------- -----------
Other Assets
Goodwill 22,500 - - - 22,500
Debt financing costs - - 14,781 - 14,781
Noncurrent intercompany receivable 5,064 - 77,281 (82,345) -
Investment in affiliates (5,049) - 29,205 (24,156) -
Other 8,890 - 678 - 9,568
----------- ----------- ---------- ----------- -----------
31,405 - 121,945 (106,501) 46,849
----------- ----------- ---------- ----------- -----------
$ 182,247 $ 7,609 $ 144,404 $ (148,034) $ 186,226
=========== =========== ========== =========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities Not Subject to Compromise
Current Liabilities
Current portion of long-term
obligations 78 38 - - $ 116
Junior DIP Facility - - 31,252 - 31,252
New Credit Facility borrowings - - - - -
Term loans - - - - -
Acquisition Facility borrowings - - - -
Senior Notes - - - - -
Bank overdrafts 177 821 - - 998
Trade accounts payable 12,139 971 - - 13,110
Intercompany accounts payable 20,353 4,082 17,098 (41,533) -
Advance payments and progress
billings 11,592 - - - 11,592
Accrued interest 9 - 753 - 762
Other current liabilities 12,797 1,069 1,904 - 15,770
----------- ----------- ---------- ----------- -----------
57,145 6,981 51,007 (41,533) 73,600
----------- ----------- ---------- ----------- -----------
Other Long-Term Debt 82 542 - - 624
Noncurrent Intercompany Payable 77,281 5,064 - (82,345) -
Other Long Term Liabilities 36 - 203 - 239
----------- ----------- ---------- ----------- -----------
134,544 12,587 51,210 (123,878) 74,463
Liabilities Subject to Compromise 18,498 - 276,985 - 295,463
Minority Interest - - - 71 71
Manditorily Redeemable Preferred Stock - - - - -
Shareholders' Equity 29,205 (4,978) (183,791) (24,227) (183,791)
----------- ----------- ---------- ----------- -----------
$ 182,247 $ 7,609 $ 144,404 $ (148,034) $ 186,226
=========== =========== ========== =========== ===========
Consolidated
MMH Holdings, MMH Holdings,
Inc. Eliminations Inc.
------------- ------------ -------------
<S> <C> <C> <C>
ASSETS
Current Assets
Cash and cash equivalents $ - $ - $ 2,785
Accounts receivable - net - - 57,196
Intercompany accounts receivable - - -
Inventories - - 35,901
Other current assets - - 7,566
----------- ----------- ----------
- - 103,448
----------- ----------- ----------
Property, Plant and Equipment - net - - 35,929
----------- ----------- ----------
Other Assets
Goodwill - - 22,500
Debt financing costs - - 14,781
Noncurrent intercompany receivable - - -
Investment in affiliates (183,791) 183,791 -
Other - - 9,568
----------- ----------- ----------
(183,791) 183,791 46,849
----------- ----------- ----------
$ (183,791) $ 183,791 $ 186,226
=========== =========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities Not Subject to Compromise
Current Liabilities
Current portion of long-term
obligations $ - $ - $ 116
Junior DIP Facility - - 31,252
New Credit Facility borrowings - - -
Term loans - - -
Acquisition Facility borrowings - - -
Senior Notes - - -
Bank overdrafts - - 998
Trade accounts payable - - 13,110
Intercompany accounts payable - - -
Advance payments and progress
billings - - 11,592
Accrued interest - - 762
Other current liabilities - - 15,770
---------- ----------- ----------
- - 73,600
---------- ----------- ----------
Other Long-Term Debt 624
Noncurrent Intercompany Payable -
Other Long Term Liabilities 239
---------- ----------- ----------
- - 74,463
Liabilities Subject to Compromise - - 295,483
Minority Interest - - 71
Manditorily Redeemable Preferred Stock 118,642 - 118,642
Shareholders' Equity (302,433) 183,791 (302,433)
---------- ----------- ----------
$ (183,791) $ 183,791 $ 186,226
========== =========== ==========
</TABLE>
25
<PAGE>
MMH HOLDINGS, INC.
(Debtors - in - Possession as of May
17, 2000) SUPPLEMENTAL CONDENSED
CONSOLIDATING BALANCE SHEET
OCTOBER 31, 1999
(Dollars in Thousands)
<TABLE>
<CAPTION>
Non Consolidated
Guarantor Guarantor Morris Material Morris Material
Subsidiaries Subsidiaries Handling, Inc. Eliminations Handling, Inc.
------------ ------------ --------------- ------------ ---------------
<S> <C> <C> <C> <C> <C>
ASSETS
Current Assets
Cash and cash equivalents $ 2,325 104 $ 1,500 $ - $ 3,929
Accounts receivable - net 60,163 4,318 - - 64,481
Intercompany accounts receivable 20,057 - 13,204 (33,261) -
Inventories 37,892 2,102 - - 39,994
Other current assets 6,509 533 800 - 7,842
----------- ----------- ----------- ----------- -----------
126,946 7,057 15,504 (33,261) 116,246
----------- ----------- ----------- ----------- -----------
Property, Plant and Equipment 38,294 2,680 - - 40,974
----------- ----------- ----------- ----------- -----------
Other Assets
Goodwill 40,010 2,834 - - 42,844
Debt financing costs - - 16,398 - 16,398
Noncurrent intercompany receivable 5,161 - 83,891 (89,052) -
Investment in affiliates (1,527) - 64,899 (63,372) -
Other 9,758 - 616 - 10,374
----------- ----------- ----------- ----------- -----------
53,402 2,834 165,804 (152,424) 69,616
----------- ----------- ----------- ----------- -----------
$ 218,642 $ 12,571 $ 181,308 $ (185,685) $ 226,836
=========== =========== =========== =========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities
Current portion of long-term $ 342 $ 41 $ - $ - $ 383
obligations
New Credit Facility borrowings 425 - 27,500 - 27,925
Term loans - - 52,225 - 52,225
Acquisition Facility borrowings - - 12,430 - 12,430
Senior Notes - - 200,000 - 200,000
Bank overdrafts 139 1,228 - - 1,367
Trade accounts payable 25,562 1,195 - - 26,757
Intercompany accounts payable 13,204 4,153 15,904 (33,261) -
Advance payments and progress 8,336 - - - 8,336
Accrued interest 18 - 1,786 - 1,804
Other current liabilities 18,602 1,221 2,014 - 21,837
----------- ----------- ----------- ----------- -----------
66,628 7,838 311,859 (33,261) 353,064
----------- ----------- ----------- ----------- -----------
Other Long-Term Debt 2,189 595 - - 2,784
Noncurrent Intercompany Payable 83,891 5,161 - (89,052) -
Other Long-Term Liabilities 1,035 - 272 - 1,307
Minority Interest - - - 504 504
Manditorily Redeemable Preferred Stock - - - - -
Shareholders' Equity 64,899 (1,023) (130,823) (63,876) (130,823)
----------- ----------- ----------- ----------- -----------
$ 218,642 $ 12,571 $ 181,308 $ (185,685) $ 226,836
=========== =========== =========== =========== ===========
Consolidated
MMH Holdings, MMH Holdings,
Inc. Eliminations Inc.
------------- ------------ -------------
<S> <C> <C> <C>
ASSETS
Current Assets
Cash and cash equivalents $ - $ - $ 3,929
Accounts receivable - net - - 64,481
Intercompany accounts receivable - - -
Inventories - - 39,994
Other current assets - - 7,842
----------- ----------- -----------
- - 116,246
----------- ----------- -----------
Property, Plant and Equipment - - 40,974
----------- ----------- -----------
Other Assets
Goodwill - - 42,844
Debt financing costs - - 16,398
Noncurrent intercompany receivable - - -
Investment in affiliates (130,823) 130,823 -
Other - - 10,374
----------- ----------- -----------
(130,823) 130,823 69,616
----------- ----------- -----------
$ (130,823) $ 130,823 $ 226,836
=========== =========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities
Current portion of long-term
obligations $ - - $ 383
New Credit Facility borrowings - - 27,925
Term loans - - 52,225
Acquisition Facility borrowings - - 12,430
Senior Notes - - 200,000
Bank overdrafts - - 1,367
Trade accounts payable - - 26,757
Intercompany accounts payable - - -
Advance payments and progress - - 8,336
Accrued interest - - 1,804
Other current liabilities - - 21,837
----------- ----------- -----------
- - 353,064
----------- ----------- -----------
Other Long-Term Debt - - 2,784
Noncurrent Intercompany Payable - - -
Other Long-Term Liabilities - - 1,307
Minority Interest - - 504
Manditorily Redeemable Preferred Stock 108,245 - 108,245
Shareholders' Equity (239,068) 130,823 (239,068)
----------- ----------- -----------
$ (130,823) $ 130,823 $ 226,836
=========== =========== ===========
</TABLE>
26
<PAGE>
MMH HOLDINGS, INC.
(Debtors - in - Possession as of May 17, 2000)
SUPPLEMENTAL CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
(UNAUDITED)
(Dollars in Thousands)
<TABLE>
<CAPTION>
FOR THE NINE MONTHS ENDED JULY 31, 2000
---------------------------------------------------------------------------------------
Non- Consolidated
Guarantor Guarantor Morris Material Morris Material
Subsidiaries Subsidiaries Handling, Inc. Eliminations Handling, Inc.
------------ ------------ --------------- ------------ --------------
<S> <C> <C> <C> <C> <C>
Revenues
Equipment and Parts $ 148,515 $ 6,210 $ - $ (705) $ 154,020
Service 41,038 3,331 - 44,369
----------- ----------- ----------- ----------- -----------
Net Sales 189,553 9,541 - (705) 198,389
Other Income - net - - - - -
----------- ----------- ----------- ----------- -----------
189,553 9,541 - (705) 198,389
Cost of Sales 148,948 7,396 - (705) 155,639
Selling, General
and Administrative expenses 48,591 3,028 2,324 - 53,943
Imparirment Loss on Long-Lived Assets 13,392 2,617 - - 16,009
Reorganization Items 4,248 - 950 - 5,198
----------- ----------- ----------- ----------- -----------
Operating Income (Loss) (25,626) (3,500) (3,274) - (32,400)
Gain on sale of business - - 6,380 - 6,380
Loss on disposal of fixed assets (830) - - - (830)
Interest Expense - Net
Affiliates (4,230) (258) 4,488 - -
Third party (347) (183) (18,724) - (19,254)
----------- ----------- ----------- ----------- -----------
Income (Loss) Before Income Taxes,
Equity in Earnings
(Loss) of Subsidiaries and Minority
Interest (31,033) (3,941) (11,130) - (46,104)
Benefit (Provision) for Income Taxes (778) (83) (1,400) - (2,261)
Equity in Earnings (Loss) of Subsidiaries (3,782) - (35,593) 39,375 -
Minority Interest - - - 242 242
----------- ----------- ----------- ----------- -----------
Net Income (Loss) $ (35,593) $ (4,024) $ (48,123) $ 39,617 $ (48,123)
=========== =========== =========== =========== ===========
Consolidated
MMH Holdings, MMH Holdings,
Inc. Eliminations Inc.
------------- ------------ -------------
<S> <C> <C> <C>
Revenues
Equipment and Parts $ 154,020
Service 44,369
----------- ----------- -----------
Net Sales - - 198,389
Other Income - net - - -
----------- ----------- -----------
- - 198,389
Cost of Sales - - 155,639
Selling, General
and Administrative expenses - - 53,943
Imparirment Loss on Long-Lived Assets - - 16,009
Reorganization Items - - 5,198
----------- ----------- -----------
Operating Income (Loss) - - (32,400)
Gain on sale of business - - 6,380
Loss on disposal of fixed assets - - (830)
Interest Expense - Net
Affiliates - - -
Third party - - (19,254)
----------- ----------- -----------
Income (Loss) Before Income Taxes,
Equity in Earnings
(Loss) of Subsidiaries and Minority
Interest - - (46,104)
Benefit (Provision) for Income Taxes - - (2,261)
Equity in Earnings (Loss) of Subsidiaries (48,123) 48,123 -
Minority Interest - - 242
----------- ----------- -----------
Net Income (Loss) $ (48,123) $ 48,123 $ (48,123)
=========== =========== ===========
</TABLE>
<TABLE>
FOR THE THREE MONTHS ENDED JULY 31, 2000
---------------------------------------------------------------------------------------
Non- Consolidated
Guarantor Guarantor Morris Material Morris Material
Subsidiaries Subsidiaries Handling, Inc. Eliminations Handling, Inc.
------------ ------------ --------------- ------------ ---------------
<S> <C> <C> <C> <C> <C>
Revenues
Equipment and Parts $ 48,232 $ 2,368 $ (180) $ 50,420
Service 14,169 876 15,045
----------- ----------- ----------- ----------- -----------
Net Sales 62,401 3,244 - (180) 65,465
Other Income - net - - - - -
----------- ----------- ----------- ----------- -----------
62,401 3,244 - (180) 65,465
Cost of Sales 51,687 2,577 - (180) 54,084
Selling, General
and Administrative expenses 16,020 1,211 751 - 17,982
Imparirment Loss on Long-Lived Assets 13,392 2,617 - - 16,009
Reorganization Items 2,058 - 950 - 3,008
----------- ----------- ----------- ----------- -----------
Operating Income (Loss) (20,756) (3,161) (1,701) - (25,618)
Gain on sale of business - - - - -
Loss on disposal of fixed assets (830) - - - (830)
Interest Expense - Net
Affiliates (1,252) (81) 1,333 - -
Third party (77) (48) (3,763) - (3,888)
----------- ----------- ----------- ----------- -----------
Income (Loss) Before Income Taxes,
Equity in Earnings
(Loss) of Subsidiaries and Minority
Interest (22,915) (3,290) (4,131) - (30,336)
Benefit (Provision) for Income Taxes (226) - - - (226)
Equity in Earnings (Loss) of Subsidiaries (3,075) - (26,216) 29,291 -
Minority Interest - - - 215 215
----------- ----------- ----------- ----------- -----------
Net Income (Loss) $ (26,216) $ (3,290) $ (30,347) $ 29,506 $ (30,347)
=========== =========== =========== =========== ===========
Consolidated
MMH Holdings, MMH Holdings,
Inc. Eliminations Inc.
------------- ------------ -------------
<S> <C> <C> <C>
Revenues
Equipment and Parts $ 50,420
Service 15,045
----------- ----------- -----------
Net Sales - - 65,465
Other Income - net - - -
----------- ----------- -----------
- - 65,465
Cost of Sales - - 54,084
Selling, General
and Administrative expenses - - 17,982
Imparirment Loss on Long-Lived Assets - - 16,009
Reorganization Items - - 3,008
----------- ----------- -----------
Operating Income (Loss) - - (25,618)
Gain on sale of business - - -
Loss on disposal of fixed assets - - (830)
Interest Expense - Net
Affiliates - - -
Third party - - (3,888)
----------- ----------- -----------
Income (Loss) Before Income Taxes,
Equity in Earnings
(Loss) of Subsidiaries and Minority
Interest - - (30,336)
Benefit (Provision) for Income Taxes - - (226)
Equity in Earnings (Loss) of Subsidiaries (30,347) 30,347 -
Minority Interest - - 215
----------- ----------- -----------
Net Income (Loss) $ (30,347) $ 30,347 $ (30,347)
=========== =========== ===========
</TABLE>
27
<PAGE>
MMH HOLDINGS, INC.
(Debtors - in - Possession as of May 17, 2000)
SUPPLEMENTAL CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
(UNAUDITED)
(Dollars in Thousands)
<TABLE>
<CAPTION>
FOR THE NINE MONTHS ENDED JULY 31, 1999
---------------------------------------------------------------------------------------
Non- Consolidated
Guarantor Guarantor Morris Material Morris Material
Subsidiaries Subsidiaries Handling, Inc. Eliminations Handling, Inc.
------------ ------------ --------------- ------------ ---------------
<S> <C> <C> <C> <C> <C>
Revenues
Net Sales $ 200,730 $ 12,347 $ - $ (599) $ 212,478
Other Income - net 600 - - - 600
----------- ----------- ----------- ----------- -----------
201,330 12,347 - (599) 213,078
Cost of Sales 148,388 9,477 - (599) 157,266
Selling, General
and Administrative expenses 49,340 2,743 1,502 - 53,585
----------- ----------- ----------- ----------- -----------
Operating Income (Loss) 3,602 127 (1,502) - 2,227
Interest (Expense) Income - net
Affiliates (4,719) (281) 5,000 - -
Third party (542) (342) (21,068) - (21,952)
----------- ----------- ----------- ----------- -----------
Loss Before Income Taxes,
Equity in Earnings
(Loss) of Subsidiaries and Minority
Interest (1,659) (496) (17,570) - (19,725)
Provision for Income Taxes (1,641) - - - (1,641)
Equity in Earnings (Loss) of Subsidiaries (456) - (3,756) 4,212 -
Minority Interest - - - 40 40
----------- ----------- ----------- ----------- -----------
Net Income (Loss) $ (3,756) $ (496) $ (21,326) $ 4,252 $ (21,326)
=========== =========== =========== =========== ===========
Consolidated
MMH Holdings, MMH Holdings,
Inc. Eliminations Inc.
------------- ------------ -------------
<S> <C> <C> <C>
Revenues
Net Sales $ - $ - $ 212,478
Other Income - net - - 600
----------- ----------- -----------
- - 213,078
Cost of Sales - - 157,266
Selling, General
and Administrative expenses - - 53,585
----------- ----------- -----------
Operating Income (Loss) - - 2,227
Interest (Expense) Income - net
Affiliates - - -
Third party - - (21,952)
----------- ----------- -----------
Loss Before Income Taxes,
Equity in Earnings
(Loss) of Subsidiaries and Minority
Interest - - (19,725)
Provision for Income Taxes - - (1,641)
Equity in Earnings (Loss) of Subsidiaries (21,326) 21,326 -
Minority Interest - - 40
----------- ----------- -----------
Net Income (Loss) $ (21,326) $ 21,326 $ (21,326)
=========== =========== ===========
</TABLE>
<TABLE>
FOR THE THREE MONTHS ENDED JULY 31, 1999
---------------------------------------------------------------------------------------
Non- Consolidated
Guarantor Guarantor Morris Material Morris Material
Subsidiaries Subsidiaries Handling, Inc. Eliminations Handling, Inc.
------------ ------------ --------------- ------------ ---------------
<S> <C> <C> <C> <C> <C>
Revenues
Net Sales $ 69,016 $ 3,940 $ - $ (247) $ 72,709
Other Income - net 453 - - - 453
----------- ----------- ---------- ----------- -----------
69,469 3,940 - (247) 73,162
Cost of Sales 49,386 3,071 - (247) 52,210
Selling, General
and Administrative expenses 16,554 917 827 - 18,298
----------- ----------- ---------- ----------- -----------
Operating Income (Loss) 3,529 (48) (827) - 2,654
Interest (Expense) Income - net
Affiliates (1,545) (89) 1,634 - -
Third party (237) (102) (7,182) - (7,521)
----------- ----------- ---------- ----------- -----------
Loss Before Income Taxes,
Equity in Earnings
(Loss) of Subsidiaries and Minority
Interest 1,747 (239) (6,375) - (4,867)
Provision for Income Taxes (576) - - - (576)
Equity in Earnings (Loss) of Subsidiaries (226) - 945 (719) -
Minority Interest - - - 13 13
----------- ----------- ---------- ----------- -----------
Net Income (Loss) $ 945 $ (239) $ (5,430) $ (706) $ (5,430)
=========== =========== ========== =========== ===========
FOR THE THREE MONTHS ENDED JULY 31, 1999
---------------------------------------------------------------------------------------
Consolidated
MMH Holdings, MMH Holdings,
Inc. Eliminations Inc.
------------- ------------ -------------
<S> <C> <C> <C>
Revenues
Net Sales $ - $ - $ 72,709
Other Income - net - - 453
----------- ----------- -----------
- - 73,162
Cost of Sales - - 52,210
Selling, General
and Administrative expenses - - 18,298
----------- ----------- -----------
Operating Income (Loss) - - 2,654
Interest (Expense) Income - net
Affiliates - - -
Third party - - (7,521)
----------- ----------- -----------
Loss Before Income Taxes,
Equity in Earnings
(Loss) of Subsidiaries and Minority
Interest - - (4,867)
Provision for Income Taxes - - (576)
Equity in Earnings (Loss) of Subsidiaries (5,430) 5,430 -
Minority Interest - - 13
----------- ----------- -----------
Net Income (Loss) $ (5,430) $ 5,430 $ (5,430)
=========== =========== ===========
</TABLE>
28
<PAGE>
MMH HOLDINGS, INC.
(Debtors - in - Possession as of May 17, 2000)
SUPPLEMENTAL CONDENSED COMBINING STATEMENT OF CASH FLOWS
FOR THE NINE MONTHS ENDED JULY 31, 2000
(UNAUDITED)
(Dollars in Thousands)
<TABLE>
<CAPTION>
Non- Consolidated
Guarantor Guarantor Morris Material Morris Material
Subsidiaries Subsidiaries Handling, Inc. Eliminations Handling, Inc.
------------ ------------ --------------- ------------ ---------------
<S> <C> <C> <C> <C> <C>
Operating Activities
Net income (Loss) $ (35,593) $ (4,024) $ (48,123) $ 39,617 $ (48,123)
Add (deduct)-items not affecting cash
provided by operating acitvities:
DIP financing fees - - 950 - 950
Depreciation and amortization 6,757 226 21 - 7,004
Amortization of debt finacing costs - - 1,761 - 1,761
Equity in loss of subsidiaries 3,782 - 35,593 (39,375) -
Gain on sale of business - - (6,380) - (6,380)
Impairment loss on long-lived assets 13,392 2,617 - - 16,009
Loss on disposal of fixed assets 830 - - - 830
Other - - - (242) (242)
Changes in working capital, excluding
effects of acquisition opening
balance sheets:
Accounts receivable 4,205 978 - - 5,183
Inventories 1,850 272 - - 2,122
Other current assets (831) 359 500 - 28
Trade accounts payable and bank
overdrafts (1,000) (369) - - (1,369)
Accrued interest 8 - 11,351 - 11,359
Other current liabilities 1,670 (25) 2,236 - 3,881
----------- ----------- ---------- ----------- -----------
Net cash provided by (used for)
operating activities (4,930) 34 (2,091) - (6,987)
----------- ----------- ---------- ----------- -----------
Investment and Other Transactions
Fixed asset additions - net (1,021) (12) - - (1,033)
Capitalized software (890) - - - (890)
Net proceeds on divestiture of business 9,115 - - - 9,115
Other - net 328 (191) (107) - 30
----------- ----------- ---------- ----------- -----------
Net cash used for investment and other
transactions 7,532 (203) (107) - 7,222
----------- ----------- ---------- ----------- -----------
Financing Activites
Changes in short-term debt and
notes payable 34 (43) - - (9)
Proceeds from DIP and Junior DIP
borrowings - - 31,352 - 31,352
Repayment of DIP borrowings - - (100) - (100)
Proceeds from/(Repayments of)
Revolving Credit Facility borrowings (425) - (6,854) - (7,279)
Repayments of Term Loans - - (21,079) - (21,079)
Repayments of Acquisition Facility
Line borrowings - - (2,867) - (2,867)
Distribution to parent (3,752) 405 3,347 - -
Repayments of long-term debt (117) - - - (117)
Payment of DIP financing fees - (950) - (950)
Payment of fees for amendment of
Credit Facility - - (226) - (226)
----------- ----------- ---------- ----------- -----------
Net cash provided by (used for)
financing activities (4,260) 362 2,623 - (1,275)
----------- ----------- ---------- ----------- -----------
Effect of Exchange Rate Changes on Cash
and Cash Equivalents (81) (23) - - (104)
----------- ----------- ---------- ----------- -----------
Increase(Decrease) in Cash and Cash
Equivalents (1,739) 170 425 - (1,144)
Cash and Cash Equivalents
Beginning of Period 2,325 104 1,500 - 3,929
----------- ----------- ---------- ----------- -----------
End of Period $ 586 $ 274 $ 1,925 $ - $ 2,785
=========== =========== ========== =========== ===========
<PAGE>
<CAPTION>
Consolidated
MMH Holdings, MMH Holdings,
Inc. Eliminations Inc.
------------- ------------ -------------
<S> <C> <C> <C>
Operating Activities
Net Income (Loss) $ (48,123) $ 48,123 $ (48,123)
Add (deduct)-items not affecting cash
provided by operating activities:
DIP financing fees 950
Depreciation and amortization - - 7,004
Amortization of debt financing costs - - 1,761
Equity in loss of subsidiaries 48,123 (48,123) -
Gain on sale of business - - (6,380)
Impairment loss on long-lived assets - - 16,009
Loss on disposal of fixed assets - - 830
Other - - (242)
Changes in working capital, excluding
effects of acquisition opening
balance sheets:
Accounts receivable - - 5,183
Inventories - - 2,122
Other current assets - - 28
Trade accounts payable and bank overdrafts - - (1,369)
Accrued interest - - 11,359
Other current liabilities - - 3,881
----------- ----------- -----------
Net cash provided by (used for)
operating activities - - (6,987)
----------- ----------- -----------
Investment and Other Transactions
Fixed asset additions - net - - (1,033)
Capitalized software - - (890)
Net proceeds on divestiture of busines - - 9,115
Other - net - - 30
----------- ----------- -----------
Net cash used for investment and other
transactions - - 7,222
----------- ----------- -----------
Financing Activites
Changes in short-term debt and
notes payable - - (9)
Proceeds from DIP and Junior DIP
borrowings - - 31,352
Repayment of DIP borrowings - - (100)
Proceeds from/(Repayments of)
Revolving Credit Facility borrowings - - (7,279)
Repayments of Term Loans - - (21,079)
Repayments of Acquisition Facility
Line borrowings - - (2,867)
Distribution to parent - - -
Repayments of long-term debt - - (117)
Payment of DIP financing fees - - (950)
Payment of fees for amendment of
Credit Facility - - (226)
----------- ----------- -----------
Net cash provided by (used for)
financing activities - - (1,275)
----------- ----------- -----------
Effect of Exchange Rate Changes on Cash
and Cash Equivalents - - (104)
----------- ----------- -----------
Increase(Decrease) in Cash and Cash
Equivalents - - (1,144)
Cash and Cash Equivalents
Beginning of Period - - 3,929
----------- ----------- -----------
End of Period - - 2,785
=========== =========== ===========
</TABLE>
29
<PAGE>
MMH HOLDINGS, INC.
(Debtors - in - Possession as of May 17, 2000)
SUPPLEMENTAL CONDENSED COMBINING STATEMENT OF CASH FLOWS
FOR THE NINE MONTHS ENDED JULY 31, 1999
(UNAUDITED)
(Dollars in Thousands)
<TABLE>
<CAPTION>
Non- Consolidated
Guarantor Guarantor Morris Material Morris Material
Subsidiaries Subsidiaries Handling, Inc. Eliminations Handling, Inc.
------------ ------------ --------------- ------------ ---------------
<S> <C> <C> <C> <C> <C>
Operating Activities
Net income (Loss) $ (3,756) $ (496) $ (21,326) $ 4,252 $ (21,326)
Add (deduct)-items not affecting cash
used for operating acitvities:
Depreciation and amortization 5,837 220 - - 6,057
Amortization of debt financing costs - - 1,603 - 1,603
Equity in loss of subsidiaries 456 - 3,756 (4,212) -
Deferred income taxes - net - - 41 - 41
Other - - - (40) (40)
Changes in working capital, excluding
the effects of acquisition opening
balance sheets:
Accounts receivable 17,410 802 - - 18,212
Inventories 404 (370) - - 34
Other current assets (5,528) (367) 2,133 - (3,762)
Trade accounts payable and bank
overdrafts (10,075) (437) - - (10,512)
Accrued interest - - 4,243 - 4,243
Other current liabilities (10,358) 302 3,319 - (6,737)
----------- ----------- ---------- ----------- -----------
Net cash provided by (used for)
operating activities (5,610) (346) (6,231) - (12,187)
----------- ----------- ---------- ----------- -----------
Investment and Other Transactions
Fixed asset additions - net (3,921) (91) - - (4,012)
Capitalized software (2,196) - - - (2,196)
Acquisition of businesses - net of
cash acquired (5,070) - (5,070)
Repayment of loans by senior management - - (80) - (80)
Other - net (841) 271 - - (570)
----------- ----------- ---------- ----------- -----------
Net cash (used for) provided by
investment and other transactions (12,028) 180 (80) - (11,928)
----------- ----------- ---------- ----------- -----------
Financing Activites
Changes in short-term debt and
notes payable (22) - - - (22)
(Repayments of)/Proceeds for Revolving
Credit Facility borrowings 7,171 - 16,887 - 24,058
Repayments of Term Loans - - (1,388) (1,388)
Proceeds from Acquisition Facility
Line borrowings - - 1,235 - 1,235
Distribution to parent 10,334 - (10,334) - -
Repayments of long-term debt - (31) (89) - (120)
----------- ----------- ---------- ----------- -----------
Net cash provided by (used for)
financing activities 17,483 (31) 6,311 - 23,763
----------- ----------- ---------- ----------- -----------
Effect of Exchange Rate Changes on Cash
and Cash Equivalents (13) (16) - - (29)
----------- ----------- ---------- ----------- -----------
Increase(Decrease) in Cash and Cash
Equivalents (168) (213) - - (381)
Cash and Cash Equivalents
Beginning of Period 2,214 320 - - 2,534
----------- ----------- ---------- ----------- -----------
End of Period $ 2,046 $ 107 $ - $ - $ 2,153
=========== =========== ========== =========== ===========
<CAPTION>
Consolidated
MMH Holdings, MMH Holdings,
Inc. Eliminations Inc.
------------- ------------ -------------
<S> <C> <C> <C>
Operating Activities
Net Income (Loss) $ (21,326) $ 21,326 $ (21,326)
Add (deduct)-items not affecting cash
used for operating activities:
Depreciation and amortization - - 6,057
Amortization of debt financing costs - - 1,603
Equity in loss of subsidiaries 21,326 (21,326) -
Deferred income taxes - net - - 41
Other - - (40)
Changes in working capital, excluding
the effects of acquisition opening
balance sheets:
Accounts receivable - - 18,212
Inventories - - 34
Other current assets - - (3,762)
Trade accounts payable and bank overdrafts - - (10,512)
Accrued interest - - 4,243
Other current liabilities - - (6,737)
----------- ----------- -----------
Net cash provided by (used for)
operating activities - - (12,187)
----------- ----------- -----------
Investment and Other Transactions
Fixed asset additions - net - - (4,012)
Capitalized software - - (2,196)
Acquisition of businesses - net of
cash acquired - - (5,070)
Repayment of loans by senior management - - (80)
Other - net - - (570)
----------- ----------- -----------
Net cash used for investment and other
transactions - - (11,928)
----------- ----------- -----------
Financing Activites
Changes in short-term debt and
notes payable - - (22)
(Repayments of)/Proceeds for Revolving
Credit Facility borrowings 24,058
Repayments of Term Loans - - (1,388)
Proceeds from Acquisition Facility
Line borrowings - - 1,235
Distribution to parent -
Repayments of long-term debt - - (120)
----------- ----------- -----------
Net cash provided by (used for)
financing activities - - 23,763
----------- ----------- -----------
Effect of Exchange Rate Changes on Cash
and Cash Equivalents - - (29)
----------- ----------- -----------
Increase(Decrease) in Cash and Cash
Equivalents - - (381)
Cash and Cash Equivalents
Beginning of Period - - 2,534
----------- ----------- -----------
End of Period $ - - 2,153
=========== =========== ===========
</TABLE>
30
<PAGE>
Note 15 - Condensed Combined Financial Statements
-------------------------------------------------
The following condensed combined/consolidating financial statements are
presented in accordance with SOP 90-7:
MMH HOLDINGS, INC.
(Debtors - in - Possession as of May 17, 2000)
CONDENSED COMBINED/CONSOLIDATING STATEMENTS OF OPERATIONS
FOR THE NINE MONTHS ENDED JULY 31, 2000
<TABLE>
<CAPTION>
Combined Combined
Entities in Entities not in
Reorganization Reorganization
Proceedings Proceedings Eliminations Consolidated
-------------- --------------- ------------ ------------
<S> <C> <C> <C> <C>
Revenues
Equipment and Part Sales $ 103,201 $ 56,218 $ (5,399) $ 154,020
Service Sales 27,634 16,751 (16) 44,369
--------- --------- --------- ----------
Net sales 130,835 72,969 (5,415) 198,389
Other income - net - - - -
--------- --------- --------- ----------
130,835 72,969 (5,415) 198,389
Cost of Sales 101,339 59,715 (5,415) 155,639
Selling, General and Administrative Expenses 32,620 21,323 - 53,943
Impairment Loss on Long-Lived Assets - 16,009 - 16,009
Reorganization Items 5,198 - - 5,198
--------- --------- --------- ----------
Operating Income (Loss) (8,322) (24,078) - (32,400)
Gain on sale of business 6,380 - - 6,380
Loss on disposal of fixed assets (830) - - (830)
Interest Expense - net (14,347) (4,907) - (19,254)
--------- --------- --------- ----------
Loss before Income Taxes and Minority Interest (17,119) (28,985) - (46,104)
Benefit (Provision) for Income Taxes (66) (2,195) - (2,261)
Minority Interest - - 242 242
Equity in Income (Loss) of Subsidiaries (31,180) - 31,180 -
--------- --------- --------- ----------
Net loss (48,365) (31,180) 31,422 (48,123)
========= ========= ========= ==========
</TABLE>
31
<PAGE>
MMH HOLDINGS, INC.
(Debtors - in - Possession as of May 17, 2000)
CONDENSED COMBINED/CONSOLIDATING BALANCE SHEET
AS OF JULY 31, 2000
<TABLE>
<CAPTION>
Combined Combined
Entities in Entities not in
Reorganization Reorganization
Proceedings Proceedings Eliminations Consolidated
-------------- --------------- ------------ ------------
<S> <C> <C> <C> <C>
ASSETS
Current Assets
Cash and cash equivalents $ 636 $ 2,149 $ - $ 2,785
Accounts receivable - net 37,292 19,904 - 57,196
Inventories 23,192 12,709 - 35,901
Other current assets 3,761 2,071 1,734 7,566
--------- --------- --------- ----------
64,881 36,833 1,734 103,448
--------- --------- --------- ----------
Intercompany accounts receivable, net 109,934 - (109,934) -
--------- --------- --------- ----------
Property, Plant and Equipment - net 18,800 17,129 - 35,929
--------- --------- --------- ----------
Other Assets
Goodwill 16,753 5,747 - 22,500
Debt financing costs 14,781 - - 14,781
Investment in subsidiaries 83,535 13,877 (97,412) -
Other 5,905 3,663 - 9,568
--------- --------- --------- ----------
120,974 23,287 (97,412) 46,849
--------- --------- --------- ----------
$ 314,589 $ 77,249 $(205,612) $ 186,226
========= ========= ========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities Not Subject to Compromise
Current Liabilities
Current portion of long-term obligations $ - $ 116 $ - $ 116
Junior DIP Facility 31,252 - - 31,252
Bank overdrafts - 998 - 998
Trade accounts payable 5,124 7,986 - 13,110
Advance payments and progress billings 9,048 2,544 - 11,592
Accrued warranties 1,212 653 - 1,865
Accrued interest 753 9 - 762
Income taxes payable - 1,561 - 1,561
Other current liabilities 6,619 5,725 - 12,344
--------- --------- --------- ----------
54,008 19,592 - 73,600
--------- --------- --------- ----------
Intercompany accounts payable, net - 108,200 (108,200) -
Other Long-Term Debt - 624 - 624
Other Long Term Liabilities - 239 - 239
--------- --------- --------- ----------
54,008 128,655 (108,200) 74,463
Liabilities Subject to Compromise 295,483 - - 295,483
Minority Interest - - 71 71
Manditorily Redeemable Preferred Stock 118,642 - - 118,642
Shareholders' Equity (153,544) (51,406) (97,483) (302,433)
--------- --------- --------- ----------
$ 314,589 $ 77,249 $(205,612) $ 186,226
========= ========= ========= ==========
</TABLE>
32
<PAGE>
MMH HOLDINGS, INC.
(Debtors - in - Possession as of May 17, 2000)
CONDENSED COMBINED/CONSOLIDATING STAEMENTS OF CASH FLOW
AS OF JULY 31, 2000
<TABLE>
<CAPTION>
Combined Combined
Entities in Entities not in
Reorganization Reorganization
Proceedings Proceedings Eliminations Consolidated
----------- ----------- ------------ ------------
<S> <C> <C> <C> <C>
Operating Activities
Net Loss $ (17,185) $ (31,180) $ 242 $ (48,123)
Add (deduct) - items not affecting cash
provided by operating activities:
DIP financing fees 950 - - 950
Depreciation and amortization 3,749 3,255 - 7,004
Amortization of debt financing costs 1,761 - - -
Deferred income taxes - net - - - -
Gain on sale of business (6,380) - - (6,380)
Impairment loss on long-lived assets - 16,009 - 16,009
Loss on disposal of fixed assets 830 - - 830
Other - - (242) (242)
Changes in working capital, excluding the
effects of acquisition opening balance sheets:
Accounts receivable (250) 5,433 - 5,183
Inventories 187 1,935 - 2,122
Trade accounts payable and bank overdrafts 2,010 (3,379) - (1,369)
Advance payments and progress billings 4,379 (1,245) - 3,134
Accrued interest 11,350 9 - 11,359
Other, net including intercompany balances (8,722) 9,497 - 775
--------- --------- --------- ----------
Net cash used for operating activities,
including reorganization items (7,321) 334 - (6,987)
--------- --------- --------- ----------
Investment and Other Transactions
Fixed asset additions - net (722) (311) - (1,033)
Capitalized software (890) - - (890)
Acquisition of businesses - net of cash acquired - - - -
Net proceeds on divestiture of business 9,115 - - 9,115
Net Issuance of loans to senior management - - - -
Other - net 5 25 - 30
--------- --------- --------- ----------
Net cash provided by (used for) investment and
other transactions 7,508 (286) - 7,222
--------- --------- --------- ----------
Financing Activities
Changes in short-term debt and notes payable 34 (43) - (9)
Proceeds from DIP and Junior DIP borrowings 31,352 - - 31,352
Repayments of DIP borrowings (100) - - (100)
Net (repayments of)/proceeds from Revolving
Credit Facility borrowings (7,279) - - (7,279)
Repayment of Term Loans (21,079) - - (21,079)
Proceeds from/(repayments of) Acquisition
Facility Line borrowings (2,867) - - (2,867)
Repayments of long-term debt (117) - - (117)
Payment of DIP financing fees (950) - - (950)
Payment of fees for amendment of Credit Facility (226) - - (226)
--------- --------- --------- ----------
Net cash provided by (used for)financing activities (1,232) (43) - (1,275)
--------- --------- --------- ----------
Effect of Exchange Rate Changes on Cash and
Cash Equivalents - (104) - (104)
--------- --------- --------- ----------
Increase (decrease) in Cash and Cash Equivalents (1,045) (99) - (1,144)
Cash and Cash Equivalents
Beginning of Period 1,681 2,248 - 3,929
--------- --------- --------- ----------
End of Period $ 636 $ 2,149 $ - $ 2,785
========= ========= ========= ==========
</TABLE>
33
<PAGE>
MMH HOLDINGS, INC.
MORRIS MATERIAL HANDLING, INC.
(Debtors - in - Possession as of May 17, 2000
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
THE FOLLOWING DISCUSSION SHOULD BE READ IN CONJUNCTION WITH THE FINANCIAL
STATEMENTS AND THE RELATED NOTES THERETO INCLUDED PREVIOUSLY IN THIS DOCUMENT.
THE COMPANY'S FISCAL YEAR ENDS OCTOBER 31. CONSEQUENTLY, ANY REFERENCE TO ANY
PARTICULAR FISCAL YEAR MEANS THE FISCAL YEAR ENDED OCTOBER 31 OF SUCH YEAR. AS
USED HEREIN, UNLESS THE CONTEXT OTHERWISE REQUIRES, THE TERM "COMPANY" REFERS TO
HOLDINGS, MMH AND ITS SUBSIDIARIES.
GENERAL
On May 17, 2000, MMH Holdings, Inc. ("Holdings"), Morris Material Handling, Inc.
and their domestic operating subsidiaries (collectively, the "Debtors") filed
voluntary petitions for reorganization under Chapter 11 of the U.S. Bankruptcy
Code (the "Bankruptcy Code") in the United States Bankruptcy Court for the
District of Delaware (the "Bankruptcy Court"). The Debtors' Chapter 11 cases
have been consolidated for the purpose of joint administration under case number
00-2027(SLR). The Debtors are currently operating their businesses as
debtors-in-possession pursuant to the Bankruptcy Code. No trustee has been
appointed. An official committee of unsecured creditors (the "Creditors'
Committee") was appointed by the office of the United States Trustee on May 30,
2000. Pursuant to the Bankruptcy Code, actions to collect certain prepetition
indebtedness of the Debtors and other obligations against the Debtors may not be
enforced. These claims are reflected in the balance sheet as "liabilities
subject to compromise". In addition, under the Bankruptcy Code, the Debtors may
assume or reject executory contracts and unexpired leases. Additional claims may
arise from such rejection, and from the determination by the court (or agreed by
the parties in interest) to allow claims for contingencies and other disputed
amounts. However, the Debtors have not yet completed their review of all their
prepetition executory contracts and leases for assumption or rejection. See also
Note 5, Liabilities Subject to Compromise, and Note 9, Indebtedness.
The Debtors received approval from the Bankruptcy Court to pay or otherwise
honor certain of their prepetition obligations, including the authority to pay
employee wages and maintain their employee benefit programs.
The Debtors have the exclusive right, pursuant to an order of the Bankruptcy
Court, until December 15, 2000, to file a plan or plans of reorganization. Such
period can be extended from time to time during the pendancy of the Debtors'
bankruptcy cases at the discretion of the Bankruptcy Court. Subject to certain
exceptions set forth in the Bankruptcy Code, acceptance of a plan of
reorganization requires approval of the Bankruptcy Court and the affirmative
vote (i.e., more than 50% of the number and at least 66-2/3% of the dollar
amount, both based on claims actually voted) of each class of creditors whose
claims are impaired by the plan. Alternatively, absent the requisite approvals,
a debtor may seek Bankruptcy Court approval of its reorganization plan under
"cramdown" provisions of the Bankruptcy Code, assuming certain tests are met. If
a debtor fails to submit a plan of reorganization within the exclusivity period
prescribed or any extensions thereof, any creditor or equity holder will be free
to file a plan of reorganization with the Bankruptcy Court and solicit
acceptances thereof.
The Bankruptcy Court set September 20, 2000 as the last date creditors could
file proof of claims against the Debtors. There may be differences between the
amounts recorded in the Debtors' schedules and financial statements and the
amounts claimed by their respective creditors. Litigation may be required to
resolve such disputes.
The Debtors will continue to incur significant costs associated with the
reorganization. The amount of these expenses, which are being expensed as
incurred, is expected to significantly affect results while the Debtors operate
under Chapter 11. See Note 4, Reorganization Items.
Currently, it is not possible to predict the length of time the Debtors will
operate under the protection of Chapter 11, the outcome of the Chapter 11
proceedings in general, or the effect of the proceedings on the business of the
Company or on the interests of the various creditors and security holders.
34
<PAGE>
Under the Bankruptcy Code, postpetition liabilities and prepetition liabilities
(i.e., liabilities subject to compromise) of the Debtors must be satisfied
before shareholders of the Debtors can receive any distribution. The ultimate
recovery to the Debtors' shareholders, if any, will not be determined until the
end of the case when the fair value of the Debtors' assets is compared to the
liabilities and claims against the Debtors. The Debtors and their professional
advisors are in the process of analyzing strategic alternatives and developing a
plan of reorganization for the Debtors. Based on the Debtors' analysis of
scheduled and filed claims and the valuation of the Company, a determination
will be made as to the payment of claims and the distribution of value, if any,
to the Debtors' shareholders.
The accompanying consolidated interim financial statements have been prepared on
a going concern basis, which contemplates continuity of operations, realization
of assets and liquidation of liabilities in the ordinary course of business and
do not reflect any adjustments that might result if the Debtors are unable to
continue as a going concern. As a result of the Debtors' Chapter 11 filings,
however, such matters are subject to significant uncertainty, although the
Debtors intend to file a plan of reorganization with the Bankruptcy Court.
Continuing on a going concern basis is dependent upon, among other things, the
Debtors' formulation of an acceptable plan of reorganization, the success of
future business operations, and the generation of sufficient cash from
operations and financing sources to meet the Debtors' obligations. The
accompanying consolidated interim financial statements do not reflect: (i) the
realizable value of assets on a liquidation basis or their availability to
satisfy liabilities, (ii) aggregate prepetition liability amounts that may be
allowed for claims or contingencies, or their status or priority, (iii) the
effect of any changes to the Debtors' capital structure or in the Debtors'
business operations as the result of an approved plan of reorganization; or (iv)
adjustments to the carrying value of assets or liability amounts that may be
necessary as the result of actions by the Bankruptcy Court.
The Company's consolidated financial statements have been presented in
conformity with the AlCPA's Statement of Position 90-7, "Financial Reporting By
Entities In Reorganization Under the Bankruptcy Code", issued November 19, 1990
("SOP 90-7"). SOP 90-7 requires a segregation of liabilities subject to
compromise by the Bankruptcy Court as of the bankruptcy filing date and
identification of all transactions and events that are directly associated with
the reorganization of the Debtors.
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 higher 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 "Prepetition Credit Facility"). The
35
<PAGE>
Prepetition 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 Prepetition Credit Facility was amended on August 2,
1999. 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 Prepetition 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 Prepetition Credit Facility. In connection
with, and as a condition to, the lenders under the Prepetition Credit Facility
entering into the August 2, 1999 Amendment to the Prepetition 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 Prepetition Credit Facility and received
shares of non-voting common stock of Holdings, in consideration therefor. As a
result, at July 31 2000, MHE Investments owned approximately 54.5% of the
Holdings Common Stock, HarnCo owned approximately 15.6% of the Holdings Common
Stock, institutional investors own approximately 4.9% of the Holdings Common
Stock and Martin Crane owns approximately 25.0% of the Holdings Common Stock.
At the Recapitalization Closing, (i) MHE Investments paid HarnCo $54.0 million
for 72.6% of Holdings' common stock (the "Holdings Common Stock") (after giving
effect to the Transactions) and approximately $28.9 million liquidation
preference of Holdings' 12 1/2% Series C Junior Voting Exchangeable Preferred
Stock (the "Holdings Series C Junior Voting Preferred Stock"), (ii) Holdings
redeemed certain shares of Holdings Common Stock and Holdings Series C Junior
Voting Preferred Stock from HarnCo for $282.0 million in cash (subject to
potential post-Recapitalization adjustments as to which an additional $5.0
million was provided to HarnCo) and approximately $4.8 million liquidation
preference of Holdings' 12 1/4% Series B Junior Exchangeable Preferred Stock
(the "Holdings Series B Junior Preferred Stock"), and (iii) HarnCo retained
approximately 20.8% of the Holdings Common Stock (after giving effect to the
Transactions).
At the Recapitalization Closing, MMH entered into a number of agreements
pursuant to which HII and its affiliates continued to provide to MMH and to its
subsidiaries located in the United States, on an interim basis and under
substantially the same terms and conditions as before the closing, certain
products and services. In addition, HII and MMH entered into a credit
indemnification agreement (the "Credit Indemnification Agreement") pursuant to
which HII will maintain in place the credit support obligations in existence at
the Recapitalization Closing but have no further duty to extend, renew or enter
into any new credit support obligations (except as to the MHE Business
obligations existing at the Recapitalization Closing). Under the Credit
Indemnification Agreement, MMH is required to pay HII, in advance, an annual fee
equal to 1% of the amounts outstanding under each letter of credit and bond
provided by HII and its affiliates (approximately $11.2 million as of July 31,
2000). MMH accrued a fee of $167,260 for the first three quarters of 2000. HII
is required to refund the Company on a quarterly basis a pro-rata portion of the
annual fee for any reductions in the outstanding amount of credit that occurred
during such quarter. In addition, the Company will reimburse HII for certain
future fees and expenses. The Company also entered into a surety arrangement
(the "Surety Arrangement") to provide credit support for its
post-Recapitalization Closing operations.
In connection with the Recapitalization, the Company also entered into a
trademark license agreement (the "Trademark License Agreement") with an
affiliate of HarnCo, pursuant to which the Company has the right to use the P&H
trademark with respect to all MHE Business products on a worldwide exclusive
basis from the date of the Recapitalization Closing until 15 years after the
earlier to occur of a sale of Holdings to a third party or a public offering of
the common stock of Holdings, the Company or their parents or successors (and
for an additional seven years thereafter for aftermarket products and services).
The royalty fee for use of the trademark is 0.75% of the aggregate net sales of
the MHE Business for the ten year period commencing March 30, 1999. The Company
accrued $2,856,000 of expenses for royalty fees in the period from March 30,
1999 to July 31, 2000, including $1,503,000 for the nine months ended July 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.
36
<PAGE>
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.
CHAPTER 11 FILING. As discussed above, on May 17, 2000, Holdings, MMH and their
domestic operating subsidiaries filed voluntary petitions for reorganization
under Chapter 11 of the U.S. Bankruptcy Code. On June 15, 2000, the Bankruptcy
Court approved a $35 million Debtor-in-Possession Facility (which was
subsequently reduced by agreement of the parties to $25 million) ("DIP
Facility") and authorized the Debtors to use their collections in the operations
of their business. The DIP and Junior DIP Facilities contain a number of
covenants that, among other things, limit the Debtors' ability to create or
assume liens, consolidate or merge with other entities, create, incur, or assume
additional indebtedness, dispose of certain assets and make capital
expenditures. The DIP and Junior DIP Facilities also require the Debtors to
comply with certain financial ratios and borrowing condition tests based on
monthly measurements of the latest twelve months results of operations. The
first measurement date is December 31, 2000. Cash collected by the Company is
used to repay the Term Loans, the Revolving Credit Facility Borrowings and the
Acquisition Facility Line Borrowings on a pro-rata basis and these amounts are
re-loaned to the Company under a Junior DIP Facility up to $38 million. The
Junior DIP Facility is junior to the DIP Facility. At July 31, 2000, $31.3
million in borrowings are outstanding under the Junior DIP Facility and are
classified as current obligations in the balance sheet.
The DIP and Junior DIP Facilities benefit from superpriority administrative
claim status and senior and senior liens as provided for under the Bankruptcy
Code. Under the Bankruptcy Code, a superpriority claim is senior to unsecured
prepetition claims and all other administrative expenses incurred in the Chapter
11 case. Borrowings under the DIP Facility are priced at the Alternate Base Rate
of the Post-Petition Agent under the DIP Facility plus 1.5% or, at the Debtors'
option, LIBOR plus 3 1/2%. The DIP Facility has an initial maturity date of
December 1, 2000, which date, absent a default, shall be automatically
extendable to June 1, 2001 if a sale of the Debtors shall not have been
consummated prior to December 1, 2000.
The principal sources of liquidity for the Company's operating requirements have
been cash flows from operations and borrowings under the DIP Facility and the
Junior DIP Facility. While the Company expects that such sources will provide
sufficient working capital to operate its businesses, there can be no assurances
that such sources will prove to be sufficient.
Immediately prior to the bankruptcy filings, the Company's UK subsidiary had a
short-term bank credit line with an outstanding balance of $1.9 million. This
credit line was converted to the Revolving Credit Facility borrowing in
conjunction with the bankruptcy.
The Company believes that the filing provides the Debtors with the opportunity
to restructure its indebtedness. The Company plans to continue with
implementation of its cost savings initiatives to bring costs in line with
market requirements. Although no material adverse effects have occurred to date,
disruption of operations relating to the Chapter 11 reorganization could
adversely affect the Debtors' relationships with their creditors, customers,
suppliers or employees.
HII BANKRUPTCY PETITION. On June 7, 1999, (the "HII 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 HII 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.
37
<PAGE>
ACQUISITIONS AND DIVESTITURES
ACQUISITIONS - During the nine months ended July 31, 2000, the Company did not
make any acquisitions. During the nine months ended July 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 nine months ended July 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 $1.4 million in the nine
months ended July 31, 1999. Additionally, a payment of $100 was made in each of
the nine month periods ended July 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 nine months ended July 31, 1999 and accordingly, such information is not
presented.
DIVESTITURES-On December 16, 1999, the Company completed the sale of the Brake
Business located in Mississauga, Ontario, Canada, for a net sale price of $6.8
million after deduction of certain transaction-related items, including taxes.
During the first quarter of fiscal year 2000, the Brake Business contributed
$0.5 million in sales and no operating income to the Company's results. A
pre-tax gain of $6.4 million was recognized on this transaction.
RESULTS OF OPERATIONS
The following table sets forth certain financial data for the periods indicated.
<TABLE>
<CAPTION>
Supplemental Data
(Dollars in Millions)
Three months ended Three months ended Nine months ended Nine months ended
--------------------- -------------------- ---------------------- ----------------------
July 31, 2000 July 31, 1999 July 31, 2000 July 31, 1999
--------------------- -------------------- ---------------------- ----------------------
Percent of Percent of Percent of Percent of
$ net sales $ net sales $ net sales $ net sales
------- ---------- ------ ---------- ------- ---------- ------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net Sales $ 65.5 100.0% $ 72.7 100.0% $198.4 100.0% $ 212.5 100.0%
Other income - net - - .5 .7% - - .6 .3%
Cost of sales 54.1 82.6% 52.2 71.8% 155.6 78.4% 157.3 74.0%
Selling, general and
Administrative expenses 18.0 27.5% 18.3 25.2% 54.0 27.2% 53.6 25.2%
Impairment loss on
Long-lived assets 16.0 24.4% - - 16.0 8.1% - -
Reorganization items 3.0 4.6% - - 5.2 2.6% - -
Operating income (loss) (25.6) -39.1% 2.7 3.7% (32.4) -16.3% 2.2 1.1%
Gain on sale of business - - - - 6.4 3.2% - -
Loss on Disposal of
fixed assets (.8) -1.2% - - (.8) -0.4% -
Interest expense (3.9) -5.9% (7.5) -10.3% (19.2) -9.7% (21.9) -10.3%
Minority interest .2 .3% - - .2 .1% - -
Tax benefit (expense) (.2) -0.3% (.6) -0.8% (2.3) -1.2% (1.6) -.8%
Net loss (30.3) -46.2% (5.4) -7.4% (48.1) -24.3% (21.3) -10.0%
</TABLE>
NINE MONTHS ENDED JULY 31, 2000 COMPARED TO NINE MONTHS ENDED JULY 31, 1999
Net sales for the nine months ended July 31, 2000 decreased $14.1 million or
6.6% to $198.4 million from $212.5 million for the nine months ended July 31,
1999. The decrease in net sales was primarily caused by the following: (i) $4.5
million decrease in U.S. engineered crane sales due to a slowdown in new orders
during the first three quarters of 2000; (ii) $1.2 million lower service sales
in Australia; (iii) $4.9 million decrease in hoist sales in the United States
and the United Kingdom and (iv) $2.4 million decrease in South African
engineered crane sales where a large project was being performed during the same
period in the prior year. In general, sales in the U.S. reflect the lower level
of orders in recent months due to customers' apprehension regarding the
financial stability of the Company. These decreases were partially offset by a
$1.7 million increase in hoists for southeast Asia as that market begins to show
renewed activity.
38
<PAGE>
Cost of sales decreased to $155.6 million for the nine months ended July 31,
2000 compared to $157.3 million for the same period in fiscal 1999. Cost of
sales increased as a percentage of net sales from 74.0% for the first three
quarters of 1999 to 78.4% for the first three quarters of 2000 primarily due to
lower selling prices in the engineered crane, hoist and service markets as a
result of competitive pressures, as well as lower production volumes.
Selling, general and administrative expenses remained relatively stable from
1999 to 2000, increasing by $0.4 million or 0.1% to $54.0 million for the nine
months ended July 31, 2000 from $53.6 million for the nine months ended July 31,
1999. The selling, general and adminstrative expenses for the nine months ended
July 31, 2000 included (i) increased goodwill amortization due to the fiscal
1999 fourth quarter change in the amortization period for the goodwill related
to the Company's international operations; (ii) additional expenses due to a
fiscal 1999 acquisition in the second quarter of 1999; (iii) additional contract
related costs associated with the port crane business in the United Kingdom; and
(iv) the write-off of accounts receivable due from a Malaysian joint venture.
The nine month period ending July 31, 1999 also included $3.3 million of charges
related to provisions for certain delinquent accounts receivable and changes in
management (severance and recruiting costs).
Professional fees related to the restructuring of the Company's operations and
capital structure for the nine months ended July 31, 2000 are included as a
separate line item in the Condensed Statements of Operations and Comprehensive
Loss entitled "Reorganization Items". It also includes fees paid relative to the
DIP Facility financing and accrued retention plan costs. There are no similar
expenses in the nine months ended July 31, 1999.
Operating results for the nine months ended July 31, 2000 also included an
impairment loss on long-lived assets. Consistent with prior periods, the Company
assessed the carrying value of goodwill at July 31, 2000. Such assessment
included, as appropriate, a comparison of (a) the estimated future nondiscounted
cash flows, excluding interest, anticipated to be generated during the remaining
amortization period of the goodwill to (b) the net carrying value of goodwill.
Based upon the continued negative trends in the operating results of non-North
American businesses and shortfalls in actual third quarter operating results
compared with estimates developed during the second quarter, management
concluded that future operating cash flows, excluding interest, did not support
the recoverability of recorded goodwill over the remaining amortization period.
Accordingly, the Company assessed the fair value of the related businesses and
wrote-off the remaining unamortized goodwill balances related to its non-North
American operations of approximately $16.0 million in the third quarter.
During the third quarter of 2000, the Company also recorded a loss of $0.8
million on the disposal of fixed assets. This loss relates to fixed assets of a
distribution and service business that were written-off during the quarter.
Approximately $19.2 million in interest expense, including $1.8 million in
amortization of related financing costs, was recorded in the first three
quarters of 2000 compared to $21.9 million, including $1.6 million in
amortization of related financing costs, in the first three quarters of 1999. As
a result of the bankruptcy filings, principal and interest payments may not be
made on prepetition debt without Bankruptcy Court approval or until a
reorganization plan or plans defining the repayment terms have been confirmed.
Interest due under the Prepetition Credit Facility is being paid by the Debtors
as "adequate protection" pursuant to an order of the Bankruptcy Court. The total
interest on prepetition debt that was not paid or charged to earnings for the
period from May 17, 2000 to July 31, 2000 was $4.1 million. Such interest is not
being accrued since it is not probable that it will be treated as an allowed
claim. The Bankruptcy Code generally disallows the payment of interest that
accrues postpetition with respect to unsecured claims. The Company paid $6.9
million and $16.0 million of interest and commitment fees during the nine months
ended July 31, 2000 and 1999, respectively.
Tax expense of $2.3 million recorded during the first nine months ended July 31,
2000 related primarily to the estimated tax recorded on the sale of the Brake
Business in December 1999 and profitable operations in Canada.
The Company's backlog of orders at July 31, 2000 was approximately $78.5 million
compared to $94.2 million at July 31, 1999. Bookings for the nine months ended
July 31, 2000 were $199.5 million compared to $209.3 million during the nine
months ended July 31, 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. Bookings
have also been negatively impacted by the Company's filing voluntary petitions
for reorganization under Chapter 11 of the U.S. Bankruptcy Code.
39
<PAGE>
THREE MONTHS ENDED JULY 31, 2000 COMPARED TO THREE MONTHS ENDED JULY 31, 1999
Net sales for the three months ended July 31, 2000 ("Third Quarter 2000")
decreased $7.2 million or 9.9% to $65.5 million from $72.7 million for the three
months ended July 31, 1999 ("Third Quarter 1999"). The decrease in net sales was
primarily caused by the following: (i) a decrease of $4.0 million in the sale of
standard cranes in the U.S. reflecting the lower level of orders in recent
months due to customers' apprehension regarding the financial stability of the
Company; (ii) a decrease in service sales of $2.2 million in North America due
to competitive pressures and turnover in service technicians; and (iii) a $1.4
million decrease in the sale of engineered cranes in the Company's international
market. These decreases were partially offset by a $1.6 million increase in
service sales in the U.S.
Cost of sales increased to $54.1 million in Third Quarter 2000 compared to $52.2
million for the Third Quarter 1999. Cost of sales increased as a percentage of
net sales from 71.8% in Third Quarter 1999 to 82.6% in Third Quarter 2000
primarily due to lower selling prices in the engineered crane, hoist and service
markets as a result of competitive pressures, lower production volumes,
inventory adjustments related to the Company's Mexican operation, and increases
in certain cost estimates related to orders in process at the Company's
operation in the United Kingdom.
Selling, general and administrative expenses decreased $0.3 million or 1.6% to
$18.0 million in Third Quarter 2000 from $18.3 million in Third Quarter 1999.
The decrease is due mainly to savings that are being realized as a result of
workforce reductions in the United States and the United Kingdom and other cost
savings iniatives that have been implemented thoughout the Company. These
savings were in part offset by $1.0 million in severance costs related to the
workforce reductions and additional provisions for certain delinquent accounts
receivable. The third quarter of 1999 included $0.4 million of special severance
charges related to Company restructuring.
Professional fees related to the restructuring of the Company's operations and
capital structure for the three months ended July 31, 2000 are included as a
separate line item in the Condensed Statements of Operations and Comprehensive
Loss entitled "Reorganization Items". It also includes fees paid relative to the
DIP Facility financing and accrued retention plan costs. There are no similar
expenses in the three months ended July 31, 1999.
Operating results for the three months ended July 31, 2000 also include the
impairment loss on long-lived assets and the loss on disposal of fixed assets as
previously discussed.
Approximately $3.9 million in interest expense, including $0.6 million in
amortization of related financing costs, was recorded in Third Quarter 2000
compared to $7.5 million, including $0.6 million in amortization of related
financing costs, in the Third Quarter 1999. As a result of the bankruptcy
filings, as previously discussed, principal and interest payments may not be
made on prepetition debt without Bankruptcy Court approval or until a
reorganization plan or plans defining the repayment terms have been confirmed.
Interest due under the Prepetition Credit Facility is being paid by the Debtors
as "adequate protection" pursuant to an order of the Bankruptcy Court. The total
interest on prepetition debt that was not paid or charged to earnings for the
period from May 17, 2000 to July 31, 2000 was $4.1 million. Such interest is not
being accrued since it is not probable that it will be treated as an allowed
claim. The Bankruptcy Code generally disallows the payment of interest that
accrues postpetition with respect to unsecured claims. The Company paid $2.5
million and $2.2 million of interest and commitment fees during the Third
Quarter 2000 and Third Quarter 1999, respectively.
Tax expense of $0.2 million recorded in the Third Quarter 2000 was the result of
profitable operations in Canada.
The Company's backlog of orders at July 31, 2000 was approximately $78.5 million
compared to $94.2 million at July 31, 1999. Bookings in Third Quarter 2000 were
$65.8 million compared to $69.7 million in Third 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. Bookings have also been negatively impacted by the
Company's filing voluntary petitions for reorganization under Chapter 11 of the
U.S. Bankruptcy Code.
LIQUIDITY AND CAPITAL RESOURCES
40
<PAGE>
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, and more recently, also by the
Company's financial condition, as vendors have shortened payment terms and, in
some cases, required advance payments.
Net cash flow used for operating activities for the first three quarters of
fiscal year 2000 and 1999, respectively, was $7.0 million and $12.2 million,
respectively.
Net cash provided by investment and other transactions for the nine months ended
July 31, 2000 was $7.2 million compared to net cash used for investment and
other transactions of $11.9 million for the same period in 1999. During the
first three quarters of 2000, $9.1 million of cash, net of transaction costs,
was provided by the sale of the Canadian brake business. This was partially
offset by $0.1 million of cash used for deferred payments on previous
acquisitions. During the nine months ended July 31, 1999, $5.1 million was used
for an acquisition related to the Company's distribution and service center
network and payments made with respect to three earlier acquisitions.
Additionally, capital expenditures decreased to $1.9 million during the nine
months ended July 31, 2000 from $6.2 million during the nine months ended July
31, 1999. The fiscal year 2000 expenditures included computers and manufacturing
equipment. The fiscal year 1999 expenditures included computers and upgrades,
new operating system software, office and warehouse consolidations and
manufacturing equipment.
Net cash used for financing activities was $1.3 million in the first three
quarters of 2000 compared to net cash provided by financing activities of $23.8
million in the first three quarters of 1999. Net repayments, excluding amounts
re-loaned under the Junior DIP Facility, during the nine months ended July 31,
2000 included $6.7 million under the Revolving Credit Facility in the United
States and United Kingdom and $4.1 million of principal on the Term Loan A, Term
Loan B, and Acquisition Facility, mainly from the net proceeds from the sale of
the Canadian brake business.
The Company entered into several Amendments and Waivers under the Prepetition
Credit Facility, dated as of January 31, 2000 through April 28, 2000, whereby,
among other matters, the lenders waived compliance by the Company with such
financial covenants, for the period from January 31, 2000 until 5:00 p.m. May
26, 2000 (the "Waivers"). The Waivers permitted the Company, subject to certain
conditions, to make additional borrowings under the Revolving Credit Facility
and issue additional letters of credit, above levels in existence on January 28,
2000, in an aggregate amount of up to $12.4 million, during the period to which
the Waivers apply.
On June 15, 2000, the Bankruptcy Court approved a $35 million
Debtor-in-Possession Facility ("DIP Facility") (which was subsequently reduced
by agreement of the parties to $25 million) and authorized the Debtors to use
their collections in the operations of their business. The DIP and Junior DIP
Facilities contain a number of covenants that, among other things, limit the
Debtors' ability to create or assume liens, consolidate or merge with other
entities, create, incur, or assume additional indebtedness, dispose of certain
assets and make capital expenditures. The DIP and Junior DIP Facilities also
require the Debtors to comply with certain financial ratios and borrowing
condition tests based on monthly measurements of the latest twelve months
results of operations. The first measurement date is December 31, 2000. Cash
collected by the Company is used to repay the Term Loans, the Revolving Credit
Facility Borrowings and the Acquisition Facility Line Borrowings on a pro-rata
basis and these amounts are re-loaned to the Company under a Junior DIP Facility
up to $38 million. The Junior DIP Facility is junior to the DIP Facility. At
July 31, 2000, $31.3 million in borrowings are outstanding under the Junior DIP
Facility and are classified as current obligations in the July 31, 2000 balance
sheet.
The DIP and Junior DIP Facilities benefit from superpriority administrative
claim status and senior and junior liens as provided for under the Bankruptcy
Code. Under the Bankruptcy Code, a superpriority claim is senior to unsecured
prepetition claims and all other administrative expenses incurred in the Chapter
11 case. Borrowings under the DIP Facility are priced at the Alternate Base Rate
of the Post-Petition Agent under the DIP Facility plus 1.5% or, at the Debtors'
option, LIBOR plus 3 1/2%. This DIP Facility has an initial maturity date of
December 1, 2000, which date, absent a default, shall be automatically
extendable to June 1, 2001 if a sale of the Debtors shall not have been
consummated prior to December 1, 2000. Borrowings under the Junior DIP Facility
are priced at the Alternate Base Rate of the Post-Petition Agent under the DIP
Facility plus 2.0% or, at the Debtors' option, LIBOR plus 3 1/2%. This Junior
DIP Facility matures on the earlier of the initial maturity date of December 1,
2000, which date, absent a default, shall be automatically extendable to June 1,
2001 if a sale of the Debtors shall not have been consummated prior to December
1, 2000, or upon confirmation of a plan of reorganization.
41
<PAGE>
The principal sources of liquidity for the Company's operating requirements have
been cash flows from operations and borrowings under the DIP Facility and Junior
DIP Facility. While the Company expects that such sources will provide
sufficient working capital to operate its businesses, there can be no assurances
that such sources will prove to be sufficient.
Immediately prior to the bankruptcy filings, the Company's UK subsidiary had a
short-term bank credit line with an outstanding balance of $1.9 million. This
credit line was converted to the Revolving Credit Facility borrowing in
conjunction with the bankruptcy.
The matters described under this caption "Liquidity and Capital Resources", to
the extent that they relate to future events or expectations, may be
significantly affected by the Chapter 11 proceedings. Those proceedings will
involve, or result in, various restrictions on the Debtors' activities,
limitations on financing, the need to obtain Bankruptcy Court approval for
various matters and uncertainty as to relationships with vendors, suppliers,
customers and others with whom the Debtors may conduct or seek to conduct
business.
Under the Bankruptcy Code, postpetition liabilities and prepetition liabilities
(i.e., liabilities subject to compromise) of the Debtors must be satisfied
before shareholders of the Debtors can receive any distribution. The ultimate
recovery to the Debtor's shareholders, if any, will not be determined until the
end of the case when the fair value of the Debtor's assets is compared to the
liabilities and claims against the Debtors. The Debtors and their professional
advisors are in the process of analyzing strategic alternatives and developing a
plan of reorganization for the Debtors. Based on the Debtor's analysis of
scheduled and filed claims and the valuation of the Debtor, a determination will
be made as to the payment of claims and the distribution of value, if any, to
the Debtor's shareholders.
The Company believes that the filing provides the Debtors with the opportunity
to restructure its indebtedness. The Company plans to continue to implement its
cost savings initiatives to bring costs in line with market requirements.
Although management believes that no material adverse effects have occurred to
date, disruption of operations relating to the Chapter 11 reorganization could
adversely affect the Debtors' relationships with their creditors, customers,
suppliers or employees.
The Company is currently seeking, and is engaged in discussions regarding, its
strategic alternatives. The Company has engaged in discussions with its bank
lenders and representatives of the Creditors Committee concerning the possible
restructuring of the Company's capital structure pursuant to a plan of
reorganization, 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.
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:
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o Liquidity Status and Chapter 11 Filing - The Company did not meet certain
of the financial covenants under the Prepetition 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 $5.3 million
have been issued.
The Company entered into several Amendments and Waivers under the
Prepetition Credit Facility, dated as of January 31, 2000 through April 28,
2000, whereby, among other matters, the lenders waived compliance by the
Company with such financial covenants, for the period from January 31, 2000
until 5:00 p.m. May 26, 2000 (the "Waivers"). The Waivers permitted the
Company, subject to certain conditions, to make additional borrowings under
the Revolving Credit Facility and issue additional letters of credit, above
levels in existence on January 28, 2000, in an aggregate amount of up to
$12.4 million, during the period as to which the Waivers apply.
On May 17, 2000, Holdings, MMH and their domestic operating subsidiaries
filed voluntary petitions for reorganization under Chapter 11 of the U.S.
Bankruptcy Code. See Note 1, Reorganization under Chapter 11. On May 18,
2000, the Bankruptcy Court entered an order approving $10.0 million in
interim debtor-in-possession financing to the Debtors and authorizing the
Debtors to utilize their collections in the operation of their business.
This $10 million amount represented the initial portion under a commitment
by the lenders to provide $35 million in financing (including a letter of
credit facility) in connection with the Debtors' Chapter 11 cases. The full
$35 million facility (which was reduced by agreement of the parties to $25
million) was approved by the Bankruptcy Court on June 15, 2000. This
facility has an initial maturity date of December 1, 2000, which date,
absent a default, shall be automatically extendable to June 1, 2001 if a
sale of the Debtors shall not have been consummated prior to December 1,
2000.
The Company believes that the filing provides the Debtors with the
opportunity to restructure its indebtedness. The Company plans to continue
to implement its cost savings initiatives to bring costs in line with
market requirements. Although management believes that no material adverse
effects have occurred to date, disruption of operations relating to the
Chapter 11 reorganization could adversely affect the Debtors' relationships
with their creditors, customers, suppliers or employees.
As of the end of the third quarter of 2000, the Company had $309.7 million
of indebtedness outstanding, including $93.8 million under the Prepetition
Credit Facility, the DIP Facility and the Junior DIP Facility (including
accrued interest) and $211.9 million evidenced by the Senior Notes
(including accrued interest).
The Company is currently seeking, and is engaged in discussions regarding,
its strategic alternatives. The Company has engaged in discussions with its
bank lenders and representatives of the Creditors Committee concerning the
possible restructuring of the Company's capital structure pursuant to a
plan of reorganization, 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.
POTENTIAL MATERIAL ADVSERSE 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
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unsatisfied as of the HII 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.
o RISKS ASSOCIATED WITH LARGE CRANE PROJECTS - The Company's principal
business includes designing, manufacturing, marketing and servicing large
cranes for the capital goods industries. Long periods of time are often
necessary to plan, design and build these machines. With respect to these
machines, there are risks of customer acceptance and start-up or
performance problems. Large amounts of capital are required to be devoted
by some of the Company's customers to purchase these machines and to
finance the steel mills, paper mills and other facilities that use these
machines. The Company's success in obtaining and managing sales
opportunities can affect the Company's financial performance. In addition,
some projects are located in undeveloped or developing economies where
business conditions are less predictable. Finally, the market for large
cranes is down substantially and the outlook is not expected to improve for
the foreseeable future.
o RISKS ASSOCIATED WITH INTERNATIONAL OPERATIONS - The Company has
operations and assets located in Canada, Mexico, Chile, the United Kingdom,
South Africa, Thailand, Australia and Singapore and is establishing joint
ventures in Malaysia and Saudi Arabia. The Company also sells its products
through distributors and agents in over 50 countries, some of which are
merely ad hoc arrangements and may be terminated at any time. The Company's
international operations (including Canada, Mexico, Chile, South Africa,
Singapore, Thailand, Australia and the United Kingdom) accounted for 37.1%
and 39.8% of the Company's aggregate net sales for the six months ended
July 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.
o COMPETITION - The markets in which the Company operates are highly
competitive. Both domestically and internationally, the Company faces
competition from a number of different manufacturers in each of its product
lines, some of which have greater financial and other resources than the
Company. The principal competitive factors affecting the Company include
performance, functionality, price, brand recognition, customer service and
support, financial strength and stability, and product availability. The
current depressed level of new equipment orders has increased the intensity
of competition and has reduced selling prices and margins on new equipment
bookings. There can be no assurance that the Company will be able to
compete successfully with its existing competitors or with new competitors.
Failure to compete successfully could have a material adverse effect on the
Company's financial condition, liquidity and results of operations. In
addition, the Company's ability to compete successfully will likely be
adversely affected by the Company's liquidity crisis.
o MARKET RISKS - The Company's business is affected by the state of the
United States and global economy in general, and by the varying economic
cycles of the industries in which its products are used. There can be no
assurance that any future condition of the United States economy or the
economies of the other countries in which the Company does business will
not have an adverse effect on the Company's business, operations or
financial performance.
YEAR 2000 COMPLIANCE
The Company has not experienced any significant disruption in operations as a
result of the Year 2000 issue, although there remains a potential for Year 2000
problems to occur after January 1, 2000. Management, however, believes that any
potential problems would not have a significant impact on operations of the
Company. All material information technology ("IT") and non-IT equipment,
processes and software were compliant and resulted in no material Year 2000
issues through November 17, 2000.
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The Company also assessed and addressed Year 2000 issues with significant
vendors. The Company sought assurances from all of its vendors with respect to
Year 2000 issues. The Company does not, however, control the systems of other
companies, and cannot assure that these systems were timely converted and, if
not converted, would not have an adverse effect on the Company's business
operations. In the event that the Company's significant vendors or suppliers did
not complete their Year 2000 compliance efforts, the Company could have
experienced disruptions in its operations. Disruptions in the economy generally
resulting from Year 2000 issues also could have affected the Company. With
respect to products sold by the Company, management continues to believe that
any liability for Year 2000 compliance will not be material.
FUTURE ACCOUNTING CHANGES
In June 1998, the Financial Accounting Standards Board (FASB) has issued
Statement of Accounting Standards ("SFAS") No. 133 "Accounting for Derivative
Instruments and Hedging Activities." It requires all derivative instruments to
be recorded in the statements of financial position at fair value. In June 1999,
the statement's effective date was delayed by one year, and it will be effective
for the year ending October 31, 2001. Interim reporting for this standard will
be required. Due to the Company's current limited use of derivative instruments,
the adoption of this statement is not expected to have a material effect on the
Company's financial condition or results of operations.
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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company is potentially exposed to market risk asssociated with changes in
foreign exchange and interest rates. From time to time the Company will enter
into derivative financial instruments to hedge these exposures. An instrument
will be treated as a hedge if it is effective in offsetting the impact of
volatility in the Company's underlying interest rate and foreign exchange rate
exposures. The Company does not enter into derivatives for speculative purposes.
There have been no material changes in the Company's market risk exposures as
compared to those discussed in the Company's 1999 Annual Report on Form 10-K,
except for the termination of the Company's interest rate swap during the
quarter ended April 30, 2000.
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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 ($10.1 million based on exchange
rates at July 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 and its United Kingdom
subsidiary have initiated litigation in the Milwaukee County Circuit Court
against Ace American Insurance Company, AON Risk Services, Inc. of Illinois, and
National Union Fire Insurance Company of Pittsburgh, Pennsylvania, seeking
additional insurance coverage for defense and indemnification obligations. 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's
United Kingdom subsidiary 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 July 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
----------------------------------
In advance of the Chapter 11 bankruptcy filings described in Item 2 -
Management's Discussion and Analysis of Financial Condition and Results of
Operations of Part I, the Debtors were unable to pay the interest on the
Senior Notes.
Item 4. Submission of Matters to a Vote of Security Holders
---------------------------------------------------
Not applicable.
Item 5. Other Information
-----------------
Not applicable.
Item 6. Exhibits and Reports on Form 8-K
--------------------------------
(a) Exhibits
Exhibit 27 Financial Data Schedule
(b) Reports on Form 8-K
The Registrants filed no reports on Form 8-K during the quarter ended
July 31, 2000.
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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: December 15, 2000 /s/ David D. Smith
-------------------
David D. Smith
Vice President - Finance
(Principal Financial Officer)
MORRIS MATERIAL HANDLING, INC.
Date: December 15, 2000 /s/ David D. Smith
-------------------
David D. Smith
Vice President - Finance
(Principal Financial Officer)
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EXHIBIT
NUMBER
27.1 Financial Data Schedule
27.2 Financial Data Schedule
49
