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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C.  20549

 



FORM 10-Q

 

ý

 

Quarterly Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934

 

 

 

 

 

For the quarterly period ended June 30, 2004

 

 

 

 

or

 

 

 

 

 

o

 

Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934

 

 

 

 

 

For the transition period from              to             

 

Commission File Number
1-11978

The Manitowoc Company, Inc.
(Exact name of registrant as specified in its charter)

 

Wisconsin

 

39-0448110

(State or other jurisdiction
of incorporation or organization)

 

(I.R.S. Employer
Identification Number)

 

 

 

2400 South 44th Street,
Manitowoc, Wisconsin

 

54221-0066

(Address of principal executive offices)

 

(Zip Code)

 

(920) 684-4410

(Registrant’s telephone number, including area code)

 

Indicate by check mark whether the Registrant (1) has 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 Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes  ý  No  o

 

Indicate by check mark whether the Registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act). Yes  ý  No  o

 

The number of shares outstanding of the Registrant’s common stock, $.01 par value, as of June 30, 2004, the most recent practicable date, was 26,739,525.

 

 



 

PART I.  FINANCIAL INFORMATION

 

Item 1.  Financial Statements

 

THE MANITOWOC COMPANY, INC.
Consolidated Statements of Operations
For the Three and Six Months Ended June 30, 2004 and 2003
(Unaudited)
(In thousands, except per-share and average shares data)

 

 

 

Three Months Ended
June 30,

 

Six Months Ended
June 30,

 

 

 

2004

 

2003

 

2004

 

2003

 

Net sales

 

$

526,212

 

$

413,824

 

$

938,038

 

$

774,733

 

Costs and expenses:

 

 

 

 

 

 

 

 

 

Cost of sales

 

421,138

 

320,490

 

741,647

 

603,656

 

Engineering, selling and administrative expenses

 

69,144

 

65,215

 

137,136

 

126,130

 

Amortization expense

 

767

 

728

 

1,557

 

1,427

 

Restructuring and plant consolidation costs

 

801

 

4,178

 

801

 

4,178

 

Total costs and expenses

 

491,850

 

390,611

 

881,141

 

735,391

 

 

 

 

 

 

 

 

 

 

 

Earnings from operations

 

34,362

 

23,213

 

56,897

 

39,342

 

 

 

 

 

 

 

 

 

 

 

Other expenses:

 

 

 

 

 

 

 

 

 

Interest expense

 

(13,917

)

(15,329

)

(27,465

)

(29,948

)

Other income (expense), net

 

(267

)

5

 

238

 

(36

)

Total other expense

 

(14,184

)

(15,324

)

(27,227

)

(29,984

)

 

 

 

 

 

 

 

 

 

 

Earnings from continuing operations before taxes on income

 

20,178

 

7,889

 

29,670

 

9,358

 

Provision for taxes on income

 

5,407

 

2,300

 

8,159

 

2,799

 

Earnings from continuing operations

 

14,771

 

5,589

 

21,511

 

6,559

 

 

 

 

 

 

 

 

 

 

 

Discontinued operations:

 

 

 

 

 

 

 

 

 

Loss from discontinued operations, net of income taxes of $(95), $(161), $(282), and $(534)

 

(228

)

(392

)

(1,199

)

(1,117

)

Gain (loss) on sale or closure of discontinued operations, net of income taxes of $291, $(1,600), $108, and $(1,451)

 

709

 

(3,884

)

709

 

(3,594

)

 

 

 

 

 

 

 

 

 

 

Net earnings

 

$

15,252

 

$

1,313

 

$

21,021

 

$

1,848

 

 

 

 

 

 

 

 

 

 

 

Basic earnings per share:

 

 

 

 

 

 

 

 

 

Earnings from continuing operations

 

$

0.55

 

$

0.21

 

$

0.81

 

$

0.25

 

Loss from discontinued operations, net of income taxes

 

(0.01

)

(0.01

)

(0.04

)

(0.04

)

Gain (loss) on sale or closure of discontinued operations, net of income

 

0.03

 

(0.15

)

0.03

 

(0.14

)

Net earnings

 

$

0.57

 

$

0.05

 

$

0.79

 

$

0.07

 

 

 

 

 

 

 

 

 

 

 

Diluted earnings per share:

 

 

 

 

 

 

 

 

 

Earnings from continuing operations

 

$

0.54

 

$

0.21

 

$

0.79

 

$

0.25

 

Loss from discontinued operations, net of income taxes

 

(0.01

)

(0.01

)

(0.04

)

(0.04

)

Gain (loss) on sale or closure of discontinued operations, net of income

 

0.03

 

(0.15

)

0.03

 

(0.14

)

Net earnings

 

$

0.56

 

$

0.05

 

$

0.77

 

$

0.07

 

 

 

 

 

 

 

 

 

 

 

Weighted average shares outstanding - basic

 

26,727,708

 

26,544,501

 

26,697,340

 

26,543,320

 

Weighted average shares outstanding - diluted

 

27,196,924

 

26,628,261

 

27,147,693

 

26,603,182

 

 

See accompanying notes which are an integral part of these statements.

 

2



 

THE MANITOWOC COMPANY, INC.
Consolidated Balance Sheets
As of June 30, 2004 and December 31, 2003

(Unaudited)
(In thousands, except share data)

 

 

 

June 30,
2004

 

December 31,
2003

 

Assets

 

 

 

 

 

Current Assets:

 

 

 

 

 

Cash and cash equivalents

 

$

46,951

 

$

44,968

 

Marketable securities

 

2,225

 

2,220

 

Accounts receivable, less allowances of $28,168 and $24,419

 

276,660

 

245,010

 

Inventories - net

 

307,506

 

232,877

 

Deferred income taxes

 

72,057

 

71,781

 

Other current assets

 

44,484

 

49,233

 

Total current assets

 

749,883

 

646,089

 

Property, plant and equipment - net

 

334,013

 

334,618

 

Goodwill

 

406,432

 

406,233

 

Other intangible assets - net

 

122,823

 

124,380

 

Deferred income taxes

 

36,374

 

34,491

 

Other non-current assets

 

64,492

 

56,770

 

Total assets

 

$

1,714,017

 

$

1,602,581

 

 

 

 

 

 

 

Liabilities and Stockholders’ Equity

 

 

 

 

 

Current Liabilities:

 

 

 

 

 

Accounts payable and accrued expenses

 

$

519,794

 

$

454,394

 

Current portion of long-term debt

 

3,640

 

3,205

 

Short-term borrowings

 

18,351

 

22,011

 

Product warranties

 

32,313

 

33,823

 

Product liabilities

 

29,399

 

31,791

 

Total current liabilities

 

603,497

 

545,224

 

Non-Current Liabilities:

 

 

 

 

 

Long-term debt, less current portion

 

562,732

 

567,084

 

Pension obligations

 

55,697

 

57,239

 

Postretirement health and other benefit obligations

 

54,468

 

54,283

 

Other non-current liabilities

 

117,818

 

80,327

 

Total non-current liabilities

 

790,715

 

758,933

 

 

 

 

 

 

 

Commitments and contingencies (Note 5)

 

 

 

 

 

 

 

 

 

 

 

Stockholders’ Equity:

 

 

 

 

 

Common stock (36,746,482 shares issued, 26,739,525 and 26,572,024 shares outstanding, respectively)

 

367

 

367

 

Additional paid-in capital

 

82,925

 

81,297

 

Accumulated other comprehensive loss

 

(19,917

)

(16,768

)

Unearned compensation

 

(187

)

(328

)

Retained earnings

 

361,813

 

340,792

 

Treasury stock, at cost (10,006,957 and 10,174,458 shares, respectively)

 

(105,196

)

(106,936

)

Total stockholders’ equity

 

319,805

 

298,424

 

Total liabilities and stockholders’ equity

 

$

1,714,017

 

$

1,602,581

 

 

See accompanying notes which are an integral part of these statements.

 

3



 

THE MANITOWOC COMPANY, INC.

Consolidated Statements of Cash Flows

For the Six Months Ended June 30, 2004 and 2003

(Unaudited)

(In thousands)

 

 

 

Six Months Ended
June 30,

 

 

 

2004

 

2003

 

Cash Flows from Operations:

 

 

 

 

 

Net earnings

 

$

21,021

 

$

1,848

 

Adjustments to reconcile net earnings to cash provided by operating activities of continuing operations:

 

 

 

 

 

Discontinued operations, net of income taxes

 

490

 

4,711

 

Depreciation

 

25,511

 

23,042

 

Amortization of intangible assets

 

1,557

 

1,427

 

Amortization of deferred financing fees

 

1,635

 

2,204

 

Loss on debt extinguishment

 

555

 

 

Restructuring and plant consolidation costs

 

801

 

4,178

 

Deferred income taxes

 

(3,186

)

(2,544

)

Gain on sale of property, plant and equipment

 

(608

)

(636

)

Changes in operating assets and liabilities, excluding effects of business acquisitions and divestitures:

 

 

 

 

 

Accounts receivable

 

(43,678

)

(31,566

)

Inventories

 

(106,814

)

(14,517

)

Other current assets

 

(2,873

)

1,821

 

Accounts payable and accrued expenses

 

66,258

 

25,107

 

Other liabilities

 

31,566

 

8,174

 

Net cash provided by (used for) operating activities of continuing operations

 

(7,765

)

23,249

 

Net cash provised by (used for) operating activities of discontinued operations

 

(555

)

787

 

Net cash provided by (used for) operating activities

 

(8,320

24,036

 

 

 

 

 

 

 

Cash Flows from Investing:

 

 

 

 

 

Capital expenditures

 

(18,493

)

(11,145

)

Proceeds from sale of property, plant and equipment

 

3,588

 

4,974

 

Sale (purchase) of marketable securities

 

(5

)

119

 

Net cash used for investing activities of continuing operations

 

(14,910

)

(6,052

)

Net cash provided by investing activities of discontinued operations

 

9,000

 

6,989

 

Net cash provided by (used for) investing activities

 

(5,910

)

937

 

 

 

 

 

 

 

Cash Flows from Financing:

 

 

 

 

 

Payments on long-term debt

 

(7,814

)

(26,274

)

Proceeds from long-term debt

 

 

 

Payments on revolver borrowings - net

 

9,711

 

(2,000

)

Proceeds from notes financing

 

11,276

 

 

Debt issuance costs

 

 

(742

)

Exercises of stock options

 

3,368

 

78

 

Net cash provided by (used for) financing activities

 

16,541

 

(28,938

)

 

 

 

 

 

 

Effect of exchange rate changes on cash

 

(328

)

252

 

 

 

 

 

 

 

Net increase (decrease) in cash and cash equivalents

 

1,983

 

(3,713

)

Balance at beginning of period

 

44,968

 

28,035

 

Balance at end of period

 

$

46,951

 

$

24,322

 

 

See accompanying notes which are an integral part of these statements.

 

4



 

THE MANITOWOC COMPANY, INC.

Consolidated Statements of Comprehensive Income

For the Three and Six Months Ended June 30, 2004 and 2003

(Unaudited)

(In thousands)

 

 

 

Three Months Ended
June 30,

 

Six Months Ended
June 30,

 

 

 

2004

 

2003

 

2004

 

2003

 

 

 

 

 

 

 

 

 

 

 

Net earnings

 

$

15,252

 

$

1,313

 

$

21,021

 

$

1,848

 

Other comprehensive income (loss)

 

 

 

 

 

 

 

 

 

Derivative instrument fair market value adjustment - net of income taxes

 

259

 

601

 

(566

)

762

 

Foreign currency translation adjustments

 

(2,220

)

13,063

 

(2,583

)

7,617

 

 

 

 

 

 

 

 

 

 

 

Total other comprehensive income (loss)

 

(1,961

)

13,664

 

(3,149

)

8,379

 

 

 

 

 

 

 

 

 

 

 

Comprehensive income

 

$

13,291

 

$

14,977

 

$

17,872

 

$

10,227

 

 

See accompanying notes which are an integral part of these statements.

 

5



 

THE MANITOWOC COMPANY, INC.

Notes to Unaudited Consolidated Financial Statements

For the Three and Six Months Ended June 30, 2004 and 2003

 

1.  Accounting Policies

 

In the opinion of management, the accompanying unaudited consolidated financial statements contain all adjustments necessary to present fairly the results of operations, cash flows and comprehensive income for the three and six months ended June 30, 2004 and 2003 and the financial position at June 30, 2004.  The interim results are not necessarily indicative of results for a full year and do not contain information included in the company’s annual consolidated financial statements and notes for the year ended December 31, 2003.  The consolidated balance sheet as of December 31, 2003 was derived from audited financial statements, but does not include all disclosures required by accounting principles generally accepted in the United States of America.  It is suggested that these financial statements be read in conjunction with the financial statements and the notes thereto included in the company’s latest annual report.

 

All dollar amounts, except per share amounts, are in thousands of dollars throughout the tables included in these notes unless otherwise indicated.

 

Certain prior period amounts have been reclassified to conform to the current period presentation.

 

2. Discontinued Operations

 

During the second quarter of 2004, the company completed the sale of its wholly-owned subsidiary, Delta Manlift SAS (Delta), to JLG Industries, Inc.  Headquartered in Tonneins, France, Delta manufactures the Toucan brand of vertical mast lifts, a line of aerial work platforms distributed throughout Europe for use principally in industrial and maintenance operations.  The company received $9.0 million for Delta and certain other assets of the company’s Aerial Work Platform (AWP) businesses.  As a result the sale and additional reserves for the closures of the other AWP businesses, the company recorded a $1.0 million pre-tax gain ($0.7 million net of taxes).  This gain is recorded in gain (loss) on sale or closure of discontinued operations, net of income taxes in the Consolidated Statements of Operations.   Previously, during December 2003, the company completed plans to restructure its AWP businesses.  The restructuring included the closure of the Potain GmbH (Liftlux) facility in Dilingen, Germany and discontinuation of U.S. Manlift production at the Shady Grove, Pennsylvania facility.  With the sale of Delta and the closure of the Liftlux and U.S. Manlift operations, the company will no longer participate in the aerial work platform market, other than providing aftermarket parts and service support.  The sale of Delta, closure of Liftlux and discontinuation of the U.S. Manlift production represent discontinued operations under SFAS No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets.”  Results of these companies for the three and six months ended June 30, 2004 and 2003 have been classified as discontinued to exclude the results from continuing operations.  In addition, during 2003 the company recorded a $13.7 million pre-tax loss ($11.1 million net of taxes) for the closure of the AWP businesses.  This charge included the following: $4.9 million to write-off goodwill related to the AWP businesses (recorded in the second quarter of 2003); $3.5 million to record a reserve for the present value of future non-cancelable operating lease obligations (recorded in the fourth quarter of 2003); $3.1 million to write-down inventory to estimated realizable value (recorded in the fourth quarter of 2003); and $2.2 million for other closure costs (recorded in the fourth quarter of 2003).  The $4.9 million pre-tax charge ($3.5 million net of taxes) recorded in the second quarter of 2003 to write-off goodwill related to the AWP business was recorded in gain (loss) on sale or closure of discontinued operations, net of income taxes in the Consolidated Statement of Operations.

 

The following selected financial data of the AWP businesses for the three and six months ended June 30, 2004 and 2003 is presented for informational purposes only and does not necessarily reflect what the results of operations would have been had the businesses operated as a stand-alone entity.  There were no general corporate expenses or interest expense allocated to discontinued operations for this subsidiary during the periods presented.

 

6



 

 

 

Three Months Ended
June 30,

 

Six Months Ended
June 30,

 

 

 

2004

 

2003

 

2004

 

2003

 

 

 

 

 

 

 

 

 

 

 

Net sales

 

$

3,850

 

$

13,525

 

$

14,466

 

$

24,434

 

 

 

 

 

 

 

 

 

 

 

Pretax loss from discontinued operation

 

$

(225

)

$

(630

)

$

(1,209

)

$

(2,043

)

Pretax gain (loss) on sale or closure of discontinued operation

 

1,000

 

(4,900

)

817

 

(4,900

)

Provision (benefit) for taxes on income

 

224

 

(1,604

)

(96

)

(2,084

)

Earnings (loss) from discontinued operation, net of income taxes

 

$

551

 

$

(3,926

)

$

(296

)

$

(4,859

)

 

During the fourth quarter of 2003, the company terminated its distributor agreement with North Central Crane & Excavator Sales Corporation (North Central Crane), a wholly-owned crane distributor.  The company entered into a new distributor agreement with an independent third party for the area previously covered by North Central Crane.  The termination of North Central Crane represents a discontinued operation under SFAS No. 144, as this was the company’s only wholly-owned domestic crane distributor.  Results of this subsidiary for the three and six months ended June 30, 2004 and 2003 have been classified as discontinued to exclude the results from continuing operations.  During the fourth quarter of 2003, the company recorded a $1.1 million pre-tax loss ($0.9 million net of taxes), primarily for a loss on sale of inventory to the new independent third party distributor.

 

The following selected financial data of North Central Crane for the three and six months ended June 30, 2004 and 2003 is presented for informational purposes only and does not necessarily reflect what the results of operations would have been had the business operated as a stand-alone entity.  There were no general corporate expenses or interest expense allocated to discontinued operations for this subsidiary during the periods presented.

 

 

 

Three Months Ended
June 30,

 

Six Months Ended
June 30,

 

 

 

2004

 

2003

 

2004

 

2003

 

Net sales

 

$

1,085

 

$

6,351

 

$

2,561

 

$

13,784

 

 

 

 

 

 

 

 

 

 

 

Pretax earnings (loss) from discontinued operation

 

$

(98

)

$

77

 

$

(272

)

$

345

 

Provision (benefit) for taxes on income (loss)

 

(28

)

22

 

(78

)

113

 

Earnings (loss) from discontinued operation, net of income taxes

 

$

(70

)

$

55

 

$

(194

)

$

232

 

 

During the second quarter of 2003, the company and Quantum Heavy Equipment, LLC (Quantum) agreed in principle to a final post-closing adjustment for the sale of Manitowoc Boom Trucks, Inc. (Manitowoc Boom Trucks).  The agreement resulted in the company paying $4.7 million to Quantum.  Payment of the final post-closing adjustment was made during the third quarter of 2003.  This payment was largely the result of the reduction in working capital of Manitowoc Boom Trucks from September 30, 2002 to December 31, 2002 for which the company already received the cash.  The agreement resulted in the company recording an additional charge for the sale of Manitowoc Boom Trucks of approximately $0.6 million ($0.4 million net of tax) during the second quarter of 2003.  This charge is recorded in gain (loss) on sale or closure of discontinued operations, net of income taxes, in the Consolidated Statement of Operations.

 

The following selected financial data of Manitowoc Boom Trucks for the three months ended June 30, 2003 is presented for informational purposes only and does not necessarily reflect what the results of operations would have been had the business operated as a stand-alone entity. There were no general corporate expenses or interest expense allocated to discontinued operations for this subsidiary during the periods presented.

 

7



 

 

 

Three Months
Ended
June 30, 2003

 

Six Months
Ended
June 30, 2003

 

 

 

 

 

 

 

Net sales

 

$

 

$

 

 

 

 

 

 

 

Pretax loss on sale of discontinued operation

 

$

(584

)

$

(584

)

Benefit for taxes on loss

 

(179

)

(179

)

Loss from sale of discontinued operation, net of income taxes

 

$

(405

)

$

(405

)

 

On February 14, 2003, the company finalized the sale of Femco Machine Company, Inc. (Femco), the Crane segments’ crane aftermarket replacement parts and industrial repair business, to a group of private investors led by Femco management and its employees.Cash proceeds from the sale of Femco were approximately $7.0 million, which includes $0.4 million of cash received by the company for post-closing adjustments, and resulted in a gain on sale of approximately $0.4 million ($0.3 million net of taxes).  The disposition of Femco represents a discontinued operation under SFAS No. 144.  Results of Femco for the period from January 1, 2003 through February 14, 2003 have been classified as discontinued to exclude the results from continuing operations.

 

The following selected financial data of Femco for the period from January 1, 2003 through February 14, 2003 is presented for informational purposes only and does not necessarily reflect what the results of operations would have been had the business operated as a stand-alone entity.  There was no activity related to Femco during the three months ended June 30, 2003 and the three and six months ended June 30, 2004.  There were no general corporate expenses or interest expense allocated to discontinued operations for this subsidiary for the period presented. 

 

 

 

Six Months
Ended
June 30, 2003

 

 

 

 

 

Net sales

 

$

2,178

 

 

 

 

 

Pretax earnings from discontinued operation

 

$

47

 

Pretax gain on sale of discontinued operation

 

439

 

Provision for taxes on income

 

165

 

Earnings from discontinued operation, net of income taxes

 

$

321

 

 

3. Inventories

 

The components of inventory at June 30, 2004 and December 31, 2003 are summarized as follows:

 

 

 

June 30, 2004

 

December 31, 2003

 

Inventories - gross:

 

 

 

 

 

Raw materials

 

$

101,315

 

$

89,851

 

Work-in-process

 

99,614

 

81,378

 

Finished goods

 

162,123

 

120,565

 

Total inventories - gross

 

363,052

 

291,794

 

Excess and obsolete inventory reserve

 

(36,853

)

(40,299

)

Net inventories at FIFO cost

 

326,199

 

251,495

 

Excess of FIFO costs over LIFO value

 

(18,693

)

(18,618

)

Inventories - net

 

$

307,506

 

$

232,877

 

 

Inventory is carried at lower of cost or market using the first-in, first-out (FIFO) method for 90% and 88% of total inventory at June 30, 2004 and December 31, 2003, respectively. The remainder of the inventory is costed using the last-in, first-out (LIFO) method.

 

8



 

4. Stock-Based Compensation

 

The company accounts for its stock options under the recognition and measurement provisions of Accounting Principles Board Opinion No. 25, “Accounting for Stock Issued to Employees,” and related Interpretations.  No stock-based employee compensation cost related to stock options is reflected in earnings, as all option grants under those plans have an exercise price equal to the market value of the underlying common stock on the date of grant.  For both the three and six month periods ended June 30, 2004 and 2003, the company recognized approximately $0.1 million of compensation expense related to restricted stock which was issued during 2002.  The following table illustrates the effect on net earnings and earnings per share if the company had applied the fair value recognition provisions of SFAS 123, “Accounting for Stock-Based Compensation,” to stock based employee compensation for the three and six months ended June 30, 2004 and 2003.

 

 

 

Three Months Ended
June 30,

 

Six Months Ended
June 30,

 

 

 

2004

 

2003

 

2004

 

2003

 

Reported net earnings

 

$

15,252

 

$

1,313

 

$

21,021

 

$

1,848

 

Deduct: Total stock-based employee compensation expense determined under fair value based method for all awards, net of income taxes

 

(1,224

)

(1,144

)

(2,357

)

(2,219

)

Pro forma net earnings (loss)

 

$

14,028

 

$

169

 

$

18,664

 

$

(371

)

Earnings (loss) per share:

 

 

 

 

 

 

 

 

 

Basic - as reported

 

$

0.57

 

$

0.05

 

$

0.79

 

$

0.07

 

Basic - pro forma

 

$

0.52

 

$

0.01

 

$

0.70

 

$

(0.01

)

Diluted - as reported

 

$

0.56

 

$

0.05

 

$

0.77

 

$

0.07

 

Diluted - pro forma

 

$

0.52

 

$

0.01

 

$

0.69

 

$

(0.01

)

 

5.  Contingencies and Significant Estimates

 

The company has been identified as a potentially responsible party under the Comprehensive Environmental Response, Compensation, and Liability Act (CERLA) in connection with the Lemberger Landfill Superfund Site near Manitowoc, Wisconsin.  Eleven of the approximatelly 150 potentially responsible parties, including the company, have formed the Lemberger Site Remediation Group and have successfully negotiated with the United States Environmental Protection Agency and the Wisconsin Department of Natural Resources to fund the cleanup and settle their potential liability at this site.  Estimates indicate that the total costs to clean up this site are approximately $30 million.  However, the ultimate allocations of costs for this site are not yet final.  Although liability is joint and several, the company’s share of the liability is estimated to be 11% of the total cost.  Prior to December 31, 1996, the company accrued $3.3 million in connection with this matter.  The amounts the company has spent each year through June 30, 2004 to comply with its portion of the cleanup costs have not been material.  Remediation work at the site has been substantially completed, with only long-term pumping and treating of groundwater and site maintenance remaining.  The company’s remaining estimated liability for this matter, included in other current liabilities in the Consolidated Balance Sheet at June 30, 2004 is $0.6 million.  Based on the size of the company’s current allocation of liabilities at this site, the existence of other viable potential responsible parties and current reserve, the company does not believe that any liability imposed in connection with this site will have a material adverse effect on its financial condition, results of operations, or cash flows.

 

At certain of the company’s other facilities, the company has identified potential contaminants in soil and groundwater.  The ultimate cost of any remediation required will depend upon the results of future investigation.  Based upon available information, the company does not expect that the ultimate costs will have a material adverse effect on its financial condition, results of operations, or cash flows.

 

The company believes that it has obtained and is in substantial compliance with those material environmental permits and approvals necessary to conduct its various businesses.  Based on the facts presently known, the company does not expect environmental compliance costs to have a material adverse effect on its financial condition, results of operations, or cash flows.

 

9



 

As of June 30, 2004, various product-related lawsuits were pending.  To the extent permitted under applicable law, all of these are insured with self-insurance retention levels.  The company’s self-insurance retention levels vary by business, and have fluctuated over the last five years.  The range of the company’s self-insured retention levels is $0.1 million to $3.0 million per occurrence.  The high-end of the company’s self-insurance retention level is a legacy product liability insurance program inherited in the Grove acquisition in 2002 for cranes manufactured in the United States for occurrences from 2000 through October 2002.  As of June 30, 2004, the largest self-insured retention level currently maintained by the company is $2.0 million per occurrence and applies to product liability claims for cranes manufactured in the United States.

 

Product liability reserves in the Consolidated Balance Sheet at June 30, 2004, were $29.4 million; $7.4 million reserved specifically for cases and $22.0 million for claims incurred but not reported which were estimated using actuarial methods.  Based on the company’s experience in defending product liability claims, management believes the current reserves are adequate for resolution of aggregate self-insured claims and insured claims incurred as of June 30, 2004.  Any recoveries from insurance carriers are dependent upon the legal sufficiency of claims and solvency of insurance carriers.

 

At June 30, 2004 and December 31, 2003, the company had reserved $38.7 million and $41.7 million, respectively, for warranty claims included in product warranties and other non-current liabilities in the Consolidated Balance Sheets.  Certain of these warranties and other related claims involve matters in dispute that ultimately are resolved by negotiations, arbitration, or litigation.

 

It is reasonably possible that the estimates for environmental remediation, product liability and warranty costs may change in the near future based upon new information that may arise or matters that are beyond the scope of the company’s historical experience.  Presently, there are no reliable methods to estimate the amount of any such potential changes.

 

The company is involved in numerous lawsuits involving asbestos-related claims in which the company is one of numerous defendants.  After taking into consideration legal counsel’s evaluation of such actions, the current political environment with respect to asbestos related claims, and the liabilities accrued with respect to such matters, in the opinion of management, ultimate resolution is not expected to have a material adverse effect on the financial condition, results of operations, or cash flows of the company.

 

The company is also involved in various legal actions arising out of the normal course of business, which, taking into account the liabilities accrued and legal counsel’s evaluation of such actions, in the opinion of management, the ultimate resolution is not expected to have a material adverse effect on the company’s financial condition, results of operations, or cash flows.

 

Currently, the company is in negotiations with one of its major Marine customers due to cost overruns from change orders on a contract.  The company estimates its overruns have been approximately $10.0 million.  The company has assumed this recovery in accounting for this long-term contract as it believes that the claim will result in additional contract revenue and the amount can be reliably estimated.  If negotiations are unsuccessful, the impact on its Consolidated Statement of Operations in a future period could be material.  Unfavorable resolution will not have any effect on the company’s furture cash flows

 

At June 30, 2004, the company is contingently liable under open standby letters of credit issued by the company’s bank in favor of third parties totaling $29.1 million.  The open standby letters of credit primarily related to business in the Marine segment.

 

6. Loss on Debt Extinguishment

 

During the first quarter of 2004, the company recorded a charge of $0.6 million ($0.4 million net of income taxes) related to the partial prepayment of the term loan B portion of its senior credit facility.  The loss relates to the write-off of unamortized financing fees and partial unwinding of the company’s floating-to-fixed interest rate swap.  This charge was recorded in other income (expense), net in the Consolidated Statement of Operations.

 

7.  Earnings Per Share

 

The following is a reconciliation of the average shares outstanding used to compute basic and diluted earnings per share. 

 

 

 

Three Months Ended
June 30,

 

Six Months Ended
June 30,

 

 

 

2004

 

2003

 

2004

 

2003

 

Basic weighted average common shares outstanding

 

26,727,708

 

26,544,501

 

26,697,340

 

26,543,320

 

Effect of dilutive securities - stock options and restricted stock

 

469,216

 

83,760

 

450,353

 

59,862

 

Diluted weighted average common shares outstanding

 

27,196,924

 

26,628,261

 

27,147,693

 

26,603,182

 

 

10



 

For the three and six months ended June 30, 2004, 0.2 million of common shares issuable upon the exercise of stock options, and for the three and six months ended June 30, 2003, 1.3 million of common shares issuable upon the exercise of stock options were, anti-dilutive and were excluded from the calculation of diluted earnings per share.

 

8. Guarantees

 

The company periodically enters into transactions with customers that provide for residual value guarantees and buyback commitments.  These transactions are recorded as operating leases for all significant residual value guarantees and for all buyback commitments.  Net proceeds received in connection with these initial transactions are recorded as deferred revenue and are amortized to income on a straight-line basis over a period equal to that of the customer’s third party financing agreement.  The deferred revenue included in other current and non-current liabilities at June 30, 2004 and December 31, 2003 was $108.9 million and $75.2 million, respectively.  The total amount of residual value guarantees given by the company and outstanding at June 30, 2004 was $50.5 million which assumes full loss against these guarantees.  If all buyback commitments were satisfied at June 30, 2004, the total cash cost to the company would be $56.8 million.  This amount is not reduced for amounts the company may recover from repossessing and subsequent resale of the units.

 

The residual value guarantees and buyback commitments expire at various times through 2009.

 

The company also has an accounts receivable factoring arrangement with a bank.  Under this arrangement, the company is required to repurchase from the bank the first $0.5 million and amounts greater than $1.0 million of the aggregate uncollected receivables during a twelve-month period.  The company’s contingent factoring liability, net of cash collected from customers was  $20.4 million and $22.4 million at June 30, 2004 and December 31, 2003, respectively.

 

During the second quarter of 2004, the company sold $11.3 million of its long term notes receivable to a third party financing company.  The company fully guarantees collection of the notes to the financing company.  The company has accounted for the sale of the notes as a financing of receivables and has recognized an obligation equal to the notes in other non-current liabilities in the Consolidated Balance Sheet as of June 30, 2004.

 

In the normal course of business, the company provides its customers a warranty covering workmanship, and in some cases materials, on products manufactured by the company.  Such warranty generally provides that products will be free from defects for periods ranging from 12 months to 60 months.  If a product fails to comply with the company’s warranty, the company may be obligated, at its expense, to correct any defect by repairing or replacing such defective products.  The company provides for an estimate of costs that may be incurred under its warranty at the time product revenue is recognized.  These costs primarily include labor and materials, as necessary, associated with repair or replacement.  The primary factors that affect the company’s warranty liability include the number of units shipped and historical and anticipated warranty claims.  As these factors are impacted by actual experience and future expectations, the company assesses the adequacy of its recorded warranty liability and adjusts the amounts as necessary.  Below is a table summarizing the warranty activity for the six months ended June 30, 2004.

 

Balance at December 31, 2003

 

$

41,770

 

Accruals for warranties issued during the six months

 

11,975

 

Settlements made (in cash or in kind) during the six months

 

(14,700

)

Currency translation

 

(352

)

Balance at June 30, 2004

 

$

38,693

 

 

9. Restructuring and Plant Consolidation

 

On January 1, 2003, the company adopted SFAS No. 146, “ Accounting for Costs Associated with Exit or Disposal Activities.” SFAS No. 146 addresses financial accounting and reporting for costs associated with exit or disposal activities.  SFAS No. 146 requires that a liability for certain costs associated with an exit or disposal activity be recognized when the liability is incurred.  During the second quarter of 2004, the company incurred approximately $0.8 million of restructuring costs related to the consolidation of its European crane facilities under programs implemented in 2003.  These charges have been included in restructuring and plant consolidation costs in the Consolidated Statement of Operations for the three and six months ended June 30, 2004.

 

During the second quarter of 2003, the company recorded a charge of $4.2 million to write-down certain facilities to estimated book value less cost to sell as a result of consolidation of certain Crane segment operations.  This charge has been

 

11



 

included in restructuring and plant consolidation costs in the Consolidated Statement of Operations for the three and six months ended June 30, 2003.

 

During the second quarter of 2003 the company completed its plans to consolidate the National Crane Corporation (National Crane) facility located in Nebraska to the Grove U.S. LLC facility located in Pennsylvania (Grove facility).  As a result, the company recorded a $12.4 million charge in the opening balance sheet of Grove Investors, Inc. (Grove).The actions to consolidate the National Crane facility with the Grove facility were taken in an effort to streamline the company’s cost structure and utilize available capacity at the Grove facility.  The charge included $3.7 million related to severance and other employee related costs for workforce reductions.  Approximately 290 hourly and salaried positions were eliminated with the consolidation. The charge also included $6.8 million to write-down the National Crane facility and land to estimated fair market value less cost to sell, to prepare the facility for sale and to write-down certain machinery and equipment which will not be relocated to the Grove facility.  In addition, the company recorded reserves of $1.2 million to write-off inventory which was acquired in the Grove acquisition and was not relocated, and $0.7 million for other consolidation costs.  Of the $12.4 million recorded for the consolidation of the National Crane facility, approximately $6.2 million were non-cash-related charges.  Of the $6.2 million cash related charges, $3.9 million has been utilized as of June 30, 2004.  The cash payments are expected to be completed by the third quarter of 2004.

 

During the first quarter of 2002, the company recorded a pre-tax restructuring charge of $3.9 million in connection with the consolidation of its Multiplex operations into other of its Foodservice operations.  These actions were taken in an effort to streamline the company’s cost structure and utilize available capacity.  The charge included $2.8 million to write-down the facility and land, which were held for sale, to estimated fair market value less cost to sell, $0.7 million related to the write-down of certain equipment, and $0.4 million related to severance and other employee related costs.  The entire charge was paid or utilized by December 31, 2002.  During the fourth quarter of 2003, the company recorded an additional charge related to the Multiplex facility and land of $0.3 million.  This charge was recorded in plant consolidation and restructuring costs in the Consolidated Statement of Operations for the year ended December 31, 2003.  During the first quarter of 2004, the company completed the sale of the building and land.  The company received proceeds of $2.7 million from the sale.

 

During the second quarter of 2002, the company finalized the purchase accounting for the acquisition of Potain SA (Potain), which included recording an $8.1 million liability associated with certain restructuring and integration activities.  To achieve reductions in operating costs and to integrate the operations of Potain, the company recorded an $8.1 million liability related primarily to employee severance benefits for workforce reductions.  Approximately 135 hourly and salaried positions were eliminated.  To date the company has utilized approximately $4.5 million of this liability.  The remainder of this reserve will be utilized through 2006 based upon the underlying contractual arrangements.

 

During the fourth quarter of 2002, the company completed certain integration activities related to the Grove acquisition and other restructuring activities in the Crane segment.  The total amount recognized by the company for these integration and restructuring activities was $12.1 million.  Of this amount $4.4 million was recorded in the opening balance sheet of Grove and $7.7 million was recorded as a charge to earnings during the fourth quarter of 2002.  These actions were taken in an effort to achieve reductions in operating costs, integrate and consolidate certain operations and functions within the segment and to utilize available capacity.

 

The $4.4 million recorded in Grove’s opening balance sheet related to severance and other employee related costs for headcount reductions at various Grove facilities.  The $7.7 million charge included $4.0 million related to severance and other employee related costs for headcount reductions at various Manitowoc and Potain facilities, $2.7 million related to the write-down of certain property, plant and equipment, and $1.0 million related to lease termination costs.  In total, approximately 600 hourly and salaried positions were eliminated and four facilities were consolidated into other Crane operations.  To date, the company has utilized approximately $9.1 million of the total $12.1 million reserve which includes $2.7 million non-cash write-down of property, plant and equipment, and $6.4 million cash paid to employees for severance.  The remaining $3.0 million reserve is recorded in accounts payable and accrued expenses in the Consolidated Balance Sheet and will be utilized by the company during the remainder of 2004.

 

10. Employee Benefit Plans

 

The company provides certain pension, health care and death benefits for eligible retirees and their dependents.  The pension benefits are funded, while the health care and death benefits are not funded but are paid as incurred.  Eligibility for coverage is based on meeting certain years of service and retirement qualifications.  These benefits may be subject to deductibles, co-payment provisions, and other limitations.  The company has reserved the right to modify these benefits.

 

12



 

The components of periodic benefit costs for the three and six months ended June 30, 2004 and 2003 are as follows: 

 

 

 

Three Months Ended June 30, 2004

 

Six Months Ended June 30, 2004

 

 

 

U.S.
Pension
Plans

 

Non-U.S.
Pension
Plans

 

Postretirement
Health and
Other Plans

 

U.S.
Pension
Plans

 

Non-U.S.
Pension
Plans

 

Postretirement
Health and
Other Plans

 

Service cost - benefits earned during the period

 

$

 

$

285

 

$

221

 

$

 

$

569

 

$

442

 

Interest cost of projected benefit obligations

 

1,582

 

958

 

868

 

3,165

 

1,917

 

1,735

 

Expected return on plan assets

 

(1,548

)

(696

)

 

(3,095

)

(1,392

)

 

Amortization of transition obligation

 

3

 

 

 

5

 

 

 

Amortization of prior service costs

 

1

 

 

 

1

 

 

 

Amortization of actuarial net (gain) loss

 

21

 

(16

)

18

 

43

 

(33

)

37

 

Net periodic benefit costs

 

$

59

 

$

531

 

$

1,107

 

$

119

 

$

1,061

 

$

2,214

 

Weighted average assumptions:

 

 

 

 

 

 

 

 

 

 

 

 

 

Discount rate

 

6.25

%

5.25

%

6.25

%

6.25

%

5.25

%

6.25

%

Expected return on plan assets

 

8.50

%

5.25

%

N/A

 

8.50

%

5.25

%

N/A

 

Rate of compensation increase

 

N/A

 

3.50

%

N/A

 

N/A

 

3.50

%

N/A

 

 

 

 

 

Three Months Ended June 30, 2003

 

Six Months Ended June 30, 2003

 

 

 

U.S.
Pension
Plans

 

Non-U.S.
Pension
Plans

 

Postretirement
Health and
Other Plans

 

U.S.
Pension
Plans

 

Non-U.S.
Pension
Plans

 

Postretirement
Health and
Other Plans

 

Service cost - benefits earned during the period

 

$

112

 

$

319

 

$

396

 

$

224

 

$

637

 

$

792

 

Interest cost of projected benefit obligations

 

1,565

 

839

 

1,326

 

3,130

 

1,678

 

2,652

 

Expected return on plan assets

 

(1,273

)

(534

)

 

(2,546

)

(1,067

)

 

Amortization of transition obligation

 

3

 

 

 

5

 

 

 

Amortization of prior service costs

 

1

 

 

 

1

 

 

 

Amortization of actuarial net (gain) loss

 

23

 

(10

)

91

 

46

 

(20

)

181

 

Net periodic benefit costs

 

$

431

 

$

614

 

$

1,813

 

$

860

 

$

1,228

 

$

3,625

 

Weighted average assumptions:

 

 

 

 

 

 

 

 

 

 

 

 

 

Discount rate

 

6.75

%

5.75

%

6.75

%

6.75

%

5.75

%

6.75

%

Expected return on plan assets

 

9.00

%

5.50

%

N/A

 

9.00

%

5.50

%

N/A

 

Rate of compensation increase

 

4.00

%

3.00

%

N/A

 

4.00

%

3.00

%

N/A

 

 

On December 8, 2003, the Medicare Prescription Drug, Improvement and Modernization Act of 2003 (the “Act”) was signed into law. The Act introduces a prescription drug benefit under Medicare (Medicare Part D) as well as a federal subsidy to sponsors of retiree health care benefit plans that provide a benefit that is at least actuarially equivalent to Medicare Part D. The company’s postretirement medical benefit plans provide for a prescription drug benefit. All disclosed measures of the accumulated benefit obligation or net periodic benefit cost of the company’s postretirement medical benefit plans currently do not reflect any amount associated with the subsidy because the company has not yet concluded whether the benefits provided by the plan are actuarially equivalent to the Medicare Part D benefit under the Act. FASB Staff Position No. FAS 106-2, “Accounting and Disclosure Requirements Related to the Medicare Prescription Drug, Improvement and Modernization Act of 2003” (the “FSP”) was issued on May 19, 2004 and is effective as of the first interim or annual period beginning after June 15, 2004. The FSP provides guidance on accounting for the effects of the new Medicare prescription drug legislation and also contains guidance on transition.

 

The expected 2004 contributions for the U.S. pension plans are as follows: minimum contribution for 2004 is $9.6 million; and discretionary contribution is $0.  The company expects to pay claims for postretirement health and other benefit plans of $4.2 million during 2004.

 

13



 

11. Legal Settlement

 

During the first quarter of 2004, the company reached a settlement agreement with a third party and recorded a $2.3 million gain, net of legal and settlement costs, in other income (expense) in the Consolidated Statement of Operations.

 

12.  Goodwill and Other Intangible Assets

 

The changes in carrying amount of goodwill by reportable segment for the year ended December 31, 2003 and six months ended June 30, 2004 are as follows:

 

 

 

Cranes and
Related Products

 

Foodservice
Equipment

 

Marine

 

Total

 

 

 

 

 

 

 

 

 

 

 

Balance as of January 1, 2003

 

$

147,113

 

$

185,808

 

$

47,417

 

$

380,338

 

Grove purchase accounting, net

 

30,173

 

 

 

30,173

 

Manitowoc Foodservice Europe purchase accounting, net

 

 

678

 

 

678

 

Potain purchase accounting, net

 

(1,021

)

 

 

(1,021

)

Impairment charge AWP

 

(4,900

)

 

 

(4,900

)

Foreign currency impact

 

965

 

 

 

965

 

Balance as of December 31, 2003

 

172,330

 

186,486

 

47,417

 

406,233

 

Foreign currency impact

 

199

 

 

 

199

 

Balance as of June 30, 2004

 

$

172,529

 

$

186,486

 

$

47,417

 

$

406,432

 

 

During 2003, the company completed the purchase accounting related to the Grove acquisition and the company recorded $30.2 million of purchase accounting adjustments to the August 8, 2002 Grove opening balance sheet.  The purchase accounting adjustments related to the following:  $13.2 million to finalize the accounting for deferred income taxes, related primarily to the non-U.S. Grove operations; $12.4 million for consolidation of the National Crane facility located in Nebraska to the Grove facility located in Pennsylvania (see further detail in Note 9, “Plant Consolidations and Restructuring”); $2.1 million, $0.5 million and $1.5 million for additional accounts receivable, inventory and warranty reserves, respectively; $0.9 million related to severance and other employee related headcount reductions at the facilities of Grove facilities in Europe (see further detail in Note 9, “Restructuring and Plant Consolidations”); $2.0 million of pension curtailment gain as a result of the closing of the National Crane facility located in Nebraska (reduction of goodwill); and $1.6 million for other purchase accounting related items.

 

During 2003, the company completed the purchase accounting related to Manitowoc Foodservice Europe S.r.l.  (f/k/a Fabbrica Apparecchiature per la Praduzione del Ghiaccio Srl).  The purchase accounting adjustments resulted in recording $0.7 million of additional reserves to the April 8, 2002 opening balance sheet.

 

During the fourth quarter of 2003, the company reversed a valuation allowance of approximately $1.0 million of foreign operating loss carryforwards acquired in the Potain acquisition.  This reversal reduced goodwill accordingly.

 

During the second quarter of 2003, the company completed its annual impairment analysis of goodwill and other intangible assets in accordance with SFAS No. 142, “Goodwill and Other Intangible Assets.”  As a result, the company recorded a goodwill impairment charge of $4.9 million.  This charge related to the company’s Aerial Work Platform reporting unit, a reporting unit in the company’s Crane segment.  The charge was based on economic conditions in this reporting unit at the time.  The fair value of this reporting unit was based on managements’ estimates of future cash flows.

 

The gross carrying amount and accumulated amortization of the company’s intangible assets other than goodwill, all as a result of the Potain and Grove acquisitions, were as follows as of June 30, 2004 and December 31, 2003. 

 

14



 

 

 

June 30, 2004

 

December 31, 2003

 

 

 

Gross
Carrying
Amount

 

Accumulated
Amortization

 

Net
Book
Value

 

Gross
Carrying
Amount

 

Accumulated
Amortization

 

Net
Book
Value

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Trademarks and tradenames

 

$

79,000

 

$

 

$

79,000

 

$

79,000

 

$

 

$

79,000

 

Patents

 

24,600

 

(4,453

)

20,147

 

24,600

 

(3,383

)

21,217

 

Engineering drawings

 

8,800

 

(2,024

)

6,776

 

8,800

 

(1,537

)

7,263

 

Distribution network

 

16,900

 

 

16,900

 

16,900

 

 

16,900

 

 

 

$

129,300

 

$

(6,477

)

$

122,823

 

$

129,300

 

$

(4,920

)

$

124,380

 

 

13. Recent Accounting Changes and Pronouncements

 

During December 2003, the Financial Accounting Standards Board (FASB) revised SFAS No. 132, “Employers’ Disclosures about Pensions and Other Postretirement Benefits,” to require additional disclosure about the assets, obligations, cash flows, and net periodic benefit cost of defined benefit pension plans and other defined benefit postretirement plans.  These disclosure requirements were effective immediately for the company’s domestic plans, except for estimated future benefit payments, which are effective in the second quarter of 2004.  This statement also requires interim-period disclosures of the components of net periodic benefit cost and, if significantly different from previously disclosed amounts, the amount of contributions and projected contributions to fund pension plans and other postretirement benefit plans.  These interim-period disclosures were effective in the first quarter of 2004 (see Note 10, “Employee Benefit Plans”).

 

In January 2003, the FASB issued FIN No. 46, “Consolidation of Variable Interest Entities.”  FIN No. 46 clarifies the application of Accounting Research Bulletin No. 51, “Consolidated Financial Statements,” to certain entities in which equity investors lack the characteristics of a controlling financial interest or do not have sufficient equity at risk for the entity to finance its activities without additional subordinated financial support from other parties.  A variable interest entity is required to be consolidated by the company that has a majority of the exposure to expected losses of the variable interest entity.  The consolidation provisions of FIN No. 46, as revised, were effective immediately for interests created after January 31, 2003 and were effective on March 31, 2004 for interests created before February 1, 2003.  The adoption of FIN No. 46 did not have an impact on the company’s Consolidated Financial Statements for the year ended December 31, 2003 for interests created after January 31, 2003 or on the company’s Consolidated Financial Statements for the three and months ended June 30, 2004 for interests created before February 1, 2003.

 

15



 

14. Subsidiary Guarantors of Senior Subordinated Notes due 2011 and 2012 and Senior Notes due 2013

 

The following tables present condensed consolidating financial information for (a) the parent company, The Manitowoc Company, Inc. (Parent); (b) on a combined basis, the guarantors of the Senior Subordinated Notes due 2011 and 2012 and Senior Notes due 2013, which include substantially all of the domestic wholly owned subsidiaries of the company (Subsidiary Guarantors); and (c) on a combined basis, the wholly and partially owned foreign subsidiaries of the company, which do not guarantee the Senior Subordinated Notes due 2011 and 2012 and Senior Notes due 2013 (Non-Guarantor Subsidiaries). Separate financial statements of the Subsidiary Guarantors are not presented because the guarantors are fully and unconditionally, jointly and severally liable under the guarantees, and the company believes such separate statements or disclosures would not be useful to investors.

 

The Manitowoc Company, Inc.

Condensed Consolidating Statement of Operations

For the Three Months Ended June 30, 2004

(In thousands)

 

 

 

Parent

 

Guarantor
Subsidiaries

 

Non-
Guarantor
Subsidiaries

 

Eliminations

 

Consolidated

 

 

 

 

 

 

 

 

 

 

 

 

 

Net sales

 

$

 

$

345,182

 

$

225,602

 

$

(44,572

)

$

526,212

 

Costs and expenses:

 

 

 

 

 

 

 

 

 

 

 

Cost of sales

 

 

283,058

 

182,652

 

(44,572

)

421,138

 

Engineering, selling and administrative  expense

 

5,570

 

36,980

 

26,594

 

 

69,144

 

Amortization expense

 

 

170

 

597

 

 

767

 

Restructuring

 

 

81

 

720

 

 

801

 

Total costs and expenses

 

5,570

 

320,289

 

210,563

 

(44,572

)

491,850

 

 

 

 

 

 

 

 

 

 

 

 

 

Earnings (loss) from operations

 

(5,570

)

24,893

 

15,039

 

 

34,362

 

 

 

 

 

 

 

 

 

 

 

 

 

Other income (expense):

 

 

 

 

 

 

 

 

 

 

 

Interest expense

 

(12,136

)

(490

)

(1,291

)

 

(13,917

)

Management fee income (expense)

 

4,809

 

(4,809

)

 

 

 

Other income (expense), net

 

9,284

 

(6,276

)

(3,275

)

 

(267

)

Total other income (expense)

 

1,957

 

(11,575

)

(4,566

)

 

(14,184

)

 

 

 

 

 

 

 

 

 

 

 

 

Earnings (loss) from continuing operations before taxes on income (loss) and equity in earnings of subsidiaries and  discontinued operations

 

(3,613

)

13,318

 

10,473

 

 

20,178

 

Provision (benefit) for taxes on income

 

23

 

(85

)

5,469

 

 

5,407

 

Earnings (loss) from continuing operations before equity in earnings of subsidiaries and discontinued operations

 

(3,636

)

13,403

 

5,004

 

 

14,771

 

Equity in earnings of subsidiaries

 

18,888

 

 

 

(18,888

)

 

Earnings (loss) from continuing operations before discontinued operations

 

15,252

 

13,403

 

5,004

 

(18,888

)

14,771

 

Discontinued operations:

 

 

 

 

 

 

 

 

 

 

 

Gain (loss) from discontinued operations, net of income taxes

 

 

(373

)

145

 

 

(228

)

Gain on sale of discontinued operations, net of income taxes

 

 

 

709

 

 

709

 

Net earnings (loss)

 

$

15,252

 

$

13,030

 

$

5,858

 

$

(18,888

)

$

15,252

 

 

16



 

The Manitowoc Company, Inc.

Condensed Consolidating Statement of Operations

For the Three Months Ended June 30, 2003

(In thousands)

 

 

 

Parent

 

Guarantor
Subsidiaries

 

Non-
Guarantor
Subsidiaries

 

Eliminations

 

Consolidated

 

 

 

 

 

 

 

 

 

 

 

 

 

Net sales

 

$

 

$

270,326

 

$

181,114

 

$

(37,616

)

$

413,824

 

Costs and expenses:

 

 

 

 

 

 

 

 

 

 

 

Cost of sales

 

 

210,371

 

147,735

 

(37,616

)

320,490

 

Engineering, selling and administrative  expense

 

4,447

 

36,655

 

24,113

 

 

65,215

 

Amortization expense

 

 

167

 

561

 

 

728

 

Restructuring

 

 

2,050

 

2,128

 

 

4,178

 

Total costs and expenses

 

4,447

 

249,243

 

174,537

 

(37,616

)

390,611

 

 

 

 

 

 

 

 

 

 

 

 

 

Earnings (loss) from operations

 

(4,447

)

21,083

 

6,577

 

 

23,213

 

 

 

 

 

 

 

 

 

 

 

 

 

Other income (expense):

 

 

 

 

 

 

 

 

 

 

 

Interest expense

 

(13,904

)

(566

)

(859

)

 

(15,329

)

Management fee income (expense)

 

4,806

 

(4,806

)

 

 

 

Other income (expense), net

 

6,347

 

(4,242

)

(2,100

)

 

5

 

Total other income (expense)

 

(2,751

)

(9,614

)

(2,959

)

 

(15,324

)

 

 

 

 

 

 

 

 

 

 

 

 

Earnings (loss) from continuing operations before taxes on income (loss) and equity in earnings of subsidiaries and  discontinued operations

 

(7,198

)

11,469

 

3,618

 

 

7,889

 

Provision (benefit) for taxes on income

 

3,512

 

(5,596

)

4,384

 

 

2,300

 

Earnings (loss) from continuing operations before equity in earnings of subsidiaries and discontinued operations

 

(10,710

)

17,065

 

(766

)

 

5,589

 

Equity in earnings of subsidiaries

 

12,023

 

 

 

(12,023

)

 

Earnings (loss) from continuing operations before discontinued operations

 

1,313

 

17,065

 

(766

)

(12,023

)

5,589

 

Discontinued operations:

 

 

 

 

 

 

 

 

 

 

 

Loss from discontinued operations, net of income taxes

 

 

(170

)

(222

)

 

(392

)

Loss on sale of discontinued operations, net of income taxes

 

 

(405

)

(3,479

)

 

(3,884

)

Net earnings (loss)

 

$

1,313

 

$

16,490

 

$

(4,467

)

$

(12,023

)

$

1,313

 

 

17



 

The Manitowoc Company, Inc.

Condensed Consolidating Statement of Operations

For the Six Months Ended June 30, 2004

(In thousands)

 

 

 

Parent

 

Guarantor
Subsidiaries

 

Non-
Guarantor
Subsidiaries

 

Eliminations

 

Consolidated

 

 

 

 

 

 

 

 

 

 

 

 

 

Net sales

 

$

 

$

610,088

 

$

414,659

 

$

(86,709

)

$

938,038

 

Costs and expenses:

 

 

 

 

 

 

 

 

 

 

 

Cost of sales

 

 

494,606

 

333,750

 

(86,709

)

741,647

 

Engineering, selling and administrative  expense

 

10,841

 

71,291

 

55,004

 

 

137,136

 

Amortization expense

 

 

340

 

1,217

 

 

1,557

 

Restructuring

 

 

81

 

720

 

 

801

 

Total costs and expenses

 

10,841

 

566,318

 

390,691

 

(86,709

)

881,141

 

 

 

 

 

 

 

 

 

 

 

 

 

Earnings (loss) from operations

 

(10,841

)

43,770

 

23,968

 

 

56,897

 

 

 

 

 

 

 

 

 

 

 

 

 

Other income (expense):

 

 

 

 

 

 

 

 

 

 

 

Interest expense

 

(24,103

)

(988

)

(2,374

)

 

(27,465

)

Management fee income (expense)

 

9,618

 

(9,618

)

 

 

 

Other income (expense), net

 

18,929

 

(9,674

)

(9,017

)

 

238

 

Total other income (expense)

 

4,444

 

(20,280

)

(11,391

)

 

(27,227

)

 

 

 

 

 

 

 

 

 

 

 

 

Earnings (loss) from continuing operations before taxes on income (loss) and equity in earnings of subsidiaries and  discontinued operations

 

(6,397

)

23,490

 

12,577

 

 

29,670

 

Provision (benefit) for taxes on income

 

(1,060

)

3,873

 

5,346

 

 

8,159

 

Earnings (loss) from continuing operations before equity in earnings of subsidiaries and discontinued operations

 

(5,337

)

19,617

 

7,231

 

 

21,511

 

Equity in earnings of subsidiaries

 

26,358

 

 

 

(26,358

)

 

Earnings (loss) from continuing operations before discontinued operations

 

21,021

 

19,617

 

7,231

 

(26,358

)

21,511

 

Discontinued operations:

 

 

 

 

 

 

 

 

 

 

 

Loss from discontinued operations, net of income taxes

 

 

(750

)

(449

)

 

(1,199

)

Gain on sale of discontinued operations, net of income taxes

 

 

 

709

 

 

709

 

Net earnings (loss)

 

$

21,021

 

$

18,867

 

$

7,491

 

$

(26,358

)

$

21,021

 

 

18



 

The Manitowoc Company, Inc.

Condensed Consolidating Statement of Operations

For the Six Months Ended June 30, 2003

(In thousands)

 

 

 

Parent

 

Guarantor
Subsidiaries

 

Non-
Guarantor
Subsidiaries

 

Eliminations

 

Consolidated

 

 

 

 

 

 

 

 

 

 

 

 

 

Net sales

 

$

 

$

505,532

 

$

331,267

 

$

(62,066

)

$

774,733

 

Costs and expenses:

 

 

 

 

 

 

 

 

 

 

 

Cost of sales

 

 

395,849

 

269,873

 

(62,066

)

603,656

 

Engineering, selling and administrative  expense

 

8,581

 

71,418

 

46,131

 

 

126,130

 

Amortization expense

 

 

335

 

1,092

 

 

1,427

 

Restructuring

 

 

2,050

 

2,128

 

 

4,178

 

Total costs and expenses

 

8,581

 

469,652

 

319,224

 

(62,066

)

735,391

 

 

 

 

 

 

 

 

 

 

 

 

 

Earnings (loss) from operations

 

(8,581

)

35,880

 

12,043

 

 

39,342

 

 

 

 

 

 

 

 

 

 

 

 

 

Other expense:

 

 

 

 

 

 

 

 

 

 

 

Interest expense

 

(27,108

)

(1,234

)

(1,606

)

 

(29,948

)

Management fee income (expense)

 

9,649

 

(9,649

)

 

 

 

Other income (expense), net

 

15,644

 

(8,369

)

(7,311

)

 

(36

)

Total other expense

 

(1,815

)

(19,252

)

(8,917

)

 

(29,984

)

 

 

 

 

 

 

 

 

 

 

 

 

Earnings (loss) from continuing operations before taxes on income (loss) and equity in earnings of subsidiaries and discontinued operations

 

(10,396

)

16,628

 

3,126

 

 

9,358

 

Provision (benefit) for taxes on income

 

4,606

 

(7,361

)

5,554

 

 

2,799

 

Earnings (loss) from continuing operations before equity in earnings of subsidiaries and discontinued operations

 

(15,002

)

23,989

 

(2,428

)

 

6,559

 

Equity in earnings of subsidiaries

 

16,850

 

 

 

(16,850

)

 

Earnings (loss) from continuing operations  before discontinued operations

 

1,848

 

23,989

 

(2,428

)

(16,850

)

6,559

 

Discontinued operations:

 

 

 

 

 

 

 

 

 

 

 

Loss from discontinued operations, net of income taxes

 

 

(438

)

(679

)

 

(1,117

)

Loss on sale of discontinued operations, net of income taxes

 

 

(115

)

(3,479

)

 

(3,594

)

Net earnings (loss)

 

$

1,848

 

$

23,436

 

$

(6,586

)

$

(16,850

)

$

1,848

 

 

19



 

The Manitowoc Company, Inc.

Condensed Consolidating Balance Sheet

as of June 30, 2004

(In thousands)

 

 

 

Parent

 

Guarantor
Subsidiaries

 

Non-
Guarantor
Subsidiaries

 

Eliminations

 

Consolidated

 

Assets

 

 

 

 

 

 

 

 

 

 

 

Current Assets:

 

 

 

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

27,154

 

$

1,120

 

$

18,677

 

$

 

$

46,951

 

Marketable securities

 

2,225

 

 

 

 

2,225

 

Accounts receivable - net

 

1,600

 

110,469

 

164,591

 

 

276,660

 

Inventories - net

 

 

108,959

 

198,547

 

 

307,506

 

Deferred income taxes

 

14,770

 

 

57,287

 

 

72,057

 

Other current assets

 

476

 

23,327

 

20,681

 

 

44,484

 

Total current assets

 

46,225

 

243,875

 

459,783

 

 

749,883

 

 

 

 

 

 

 

 

 

 

 

 

 

Property, plant and equipment - net

 

12,080

 

163,054

 

158,879

 

 

334,013

 

Goodwill

 

5,434

 

249,687

 

151,311

 

 

406,432

 

Other intangible assets - net

 

 

39,169

 

83,654

 

 

122,823

 

Deferred income taxes

 

35,863

 

 

511

 

 

36,374

 

Other non-current assets

 

28,177

 

18,244

 

18,071

 

 

64,492

 

Investment in affiliates

 

448,160

 

100,931

 

210,625

 

(759,716

)

 

Total assets

 

$

575,939

 

$

814,960

 

$

1,082,834

 

$

(759,716

)

$

1,714,017

 

 

 

 

 

 

 

 

 

 

 

 

 

Liabilities and Stockholders’ Equity

 

 

 

 

 

 

 

 

 

 

 

Current Liabilities:

 

 

 

 

 

 

 

 

 

 

 

Accounts payable and accrued expenses

 

$

37,830

 

$

221,882

 

$

260,082

 

$

 

$

519,794

 

Current portion long-term debt

 

2,900

 

 

740

 

 

3,640

 

Short-term borrowings

 

 

 

18,351

 

 

18,351

 

Product warranties

 

 

18,676

 

13,637

 

 

32,313

 

Product liabilities

 

 

27,621

 

1,778

 

 

29,399

 

Total current liabilities

 

40,730

 

268,179

 

294,588

 

 

603,497

 

 

 

 

 

 

 

 

 

 

 

 

 

Non-Current Liabilities:

 

 

 

 

 

 

 

 

 

 

 

Long-term debt, less current portion

 

543,048

 

 

19,684

 

 

562,732

 

Pension obligations

 

2,864

 

21,904

 

30,929

 

 

55,697

 

Postretirement health and other benefit obligations

 

54,464

 

4

 

 

 

54,468

 

Intercompany

 

(391,338

)

(72,639

)

228,290

 

235,687

 

 

Other non-current liabilities

 

6,366

 

47,679

 

63,773

 

 

117,816

 

Total non-current liabilities

 

215,404

 

(3,052

)

342,676

 

235,687

 

790,715

 

 

 

 

 

 

 

 

 

 

 

 

 

Stockholders’ equity

 

319,805

 

549,833

 

445,570

 

(995,403

)

319,805

 

 

 

 

 

 

 

 

 

 

 

 

 

Total liabilities and stockholders’ equity

 

$

575,939

 

$

814,960

 

$

1,082,834

 

$

(759,716

)

$

1,714,017

 

 

20



 

The Manitowoc Company, Inc.

Condensed Consolidating Balance Sheet

as of December 31, 2003

(In thousands)

 

 

 

Parent

 

Subsidiary
Guarantors

 

Non-
Guarantor
Subsidiaries

 

Eliminations

 

Consolidated

 

Assets

 

 

 

 

 

 

 

 

 

 

 

Current Assets:

 

 

 

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

11,816

 

$

(100

)

$

33,252

 

$

 

$

44,968

 

Marketable securities

 

2,220

 

 

 

 

2,220

 

Accounts receivable - net

 

4,086

 

76,648

 

164,276

 

 

245,010

 

Inventories - net

 

 

89,103

 

143,774

 

 

232,877

 

Deferred income taxes

 

50,297

 

 

21,484

 

 

71,781

 

Other current assets

 

302

 

24,944

 

23,987

 

 

49,233

 

Total current assets

 

68,721

 

190,595

 

386,773

 

 

646,089

 

 

 

 

 

 

 

 

 

 

 

 

 

Property, plant and equipment - net

 

12,089

 

149,696

 

172,833

 

 

334,618

 

Goodwill

 

5,434

 

249,599

 

151,200

 

 

406,233

 

Other intangible assets - net

 

 

44,483

 

79,897

 

 

124,380

 

Deferred income taxes

 

12,906

 

 

21,585

 

 

 

34,491

 

Other non-current assets

 

26,370

 

8,397

 

22,003

 

 

56,770

 

Investment in affiliates

 

448,160

 

100,937

 

210,667

 

(759,764

)

 

Total assets

 

$

573,680

 

$

743,707

 

$

1,044,458

 

$

(759,764

)

$

1,602,581

 

 

 

 

 

 

 

 

 

 

 

 

 

Liabilities and Stockholders’ Equity

 

 

 

 

 

 

 

 

 

 

 

Current Liabilities:

 

 

 

 

 

 

 

 

 

 

 

Accounts payable and accrued expenses

 

$

17,649

 

$

202,917

 

$

233,828

 

$

 

$

454,394

 

Current portion of long-term debt

 

2,900

 

 

305

 

 

3,205

 

Short-term borrowings

 

 

 

22,011

 

 

22,011

 

Product warranties

 

 

19,805

 

14,018

 

 

33,823

 

Product liabilities

 

 

29,145

 

2,646

 

 

31,791

 

Total current liabilities

 

20,549

 

251,867

 

272,808

 

 

545,224

 

 

 

 

 

 

 

 

 

 

 

 

 

Non-Current Liabilities:

 

 

 

 

 

 

 

 

 

 

 

Long-term debt, less current portion

 

559,640

 

 

7,444

 

 

567,084

 

Pension obligations

 

12,467

 

14,309

 

30,463

 

 

 

57,239

 

Postretirement health and other benefit obligations

 

 

54,283

 

 

 

 

54,283

 

Intercompany

 

(332,026

)

(113,823

)

227,802

 

218,047

 

 

Other non-current liabilities

 

14,626

 

9,362

 

56,339

 

 

80,327

 

Total non-current liabilities

 

254,707

 

(35,869

)

322,048

 

218,047

 

758,933

 

 

 

 

 

 

 

 

 

 

 

 

 

Stockholders’ equity

 

298,424

 

527,709

 

450,102

 

(977,811

)

298,424

 

 

 

 

 

 

 

 

 

 

 

 

 

Total liabilities and stockholders’ equity

 

$

573,680

 

$

743,707

 

$

1,044,958

 

$

(759,764

)

$

1,602,581

 

 

21



 

The Manitowoc Company, Inc.

Condensed Consolidating Statement of Cash Flows

For the Six Months Ended June 30, 2004

(In thousands)

 

 

 

Parent

 

Subsidiary
Guarantors

 

Non-
Guarantor
Subsidiaries

 

Eliminations

 

Consolidated

 

 

 

 

 

 

 

 

 

 

 

 

 

Net cash provided by (used in) operations

 

$

42,916

 

$

4,547

 

$

(30,134 

)

$

(25,649

)

$

(8,320

)

 

 

 

 

 

 

 

 

 

 

 

 

Cash Flows from Investing:

 

 

 

 

 

 

 

 

 

 

 

Capital expenditures

 

(2,524

)

(10,178

)

(5,791

)

 

(18,493

)

Proceeds from sale of property, plant and equipment

 

40

 

738

 

2,810

 

 

3,588

 

Purchase of marketable securities

 

(5

)

 

 

 

(5

)

Intercompany investments

 

(20,747

)

(5,163

)

261

 

25,649

 

 

Net cash provided by (used for) investing activities of continuing operations

 

(23,236

)

(14,603

)

(2,720

)

25,649

 

(14,910

)

Net cash provided by investing activities of discontinued operations

 

 

 

9,000

 

 

9,000

 

Net cash provided by (used for) investing activities

 

(23,236

)

(14,603

)

6,280

 

25,649

 

(5,910

)

 

 

 

 

 

 

 

 

 

 

 

 

Cash Flows from Financing:

 

 

 

 

 

 

 

 

 

 

 

Proceeds from (payments on) long-term debt

 

(7,710

)

 

9,607

 

 

1,897

 

Proceeds from notes financing

 

 

11,276

 

 

 

11,276

 

Exercises of stock options

 

3,368

 

 

 

 

3,368

 

Net cash provided by (used for) financing  activities

 

(4,342

)

11,276

 

9,607

 

 

16,541

 

 

 

 

 

 

 

 

 

 

 

 

 

Effect of exchange rate changes on cash

 

 

 

(328

)

 

(328

)

 

 

 

 

 

 

 

 

 

 

 

 

Net increase (decrease) in cash and cash equivalents

 

15,338

 

1,220

 

(14,575

)

 

1,983

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance at beginning of period

 

11,816

 

(100

)

33,252

 

 

44,968

 

Balance at end of period

 

$

27,154

 

$

1,120

 

$

18,677

 

$

 

$

46,951

 

 

22



 

The Manitowoc Company, Inc.

Condensed Consolidating Statement of Cash Flows

For the Six Months Ended June 30, 2003

(In thousands)

 

 

 

Parent

 

Subsidiary
Guarantors

 

Non-
Guarantor
Subsidiaries

 

Eliminations

 

Consolidated

 

 

 

 

 

 

 

 

 

 

 

 

 

Net cash provided by (used in) operations

 

$

8,161

 

$

12,534

 

$

20,191

 

$

(16,850

)

$

24,036

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash Flows from Investing:

 

 

 

 

 

 

 

 

 

 

 

Capital expenditures

 

(302

)

(1,717

)

(9,126

)

 

(11,145

)

Proceeds from sale of property, plant and equipment

 

 

35

 

4,939

 

 

4,974

 

Sale of marketable securities

 

119

 

 

 

 

119

 

Intercompany investments

 

21,679

 

(11,416

)

(27,113

)

16,850

 

 

Net cash provided by (used for) investing activities of continuing operations

 

21,496

 

(13,098

)

(31,300

)

16,850

 

(6,052

)

Net cash provided by investing activities of discontinued operations

 

 

6,989

 

 

 

6,989

 

Net cash provided by (used for) investing activities

 

21,496

 

(6,109

)

(31,300

)

16,850

 

937

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash Flows from Financing:

 

 

 

 

 

 

 

 

 

 

 

Proceeds from (payments on) long-term debt

 

(27,434

)

357

 

803

 

 

(26,274

)

Payments on revolver borrowings - net

 

(2,000

)

 

 

 

(2,000

)

Debt issuance costs

 

(742

)

 

 

 

(742

)

Exercises of stock options

 

78

 

 

 

 

78

 

Net cash provided by (used for) financing  activities

 

(30,098

)

357

 

803

 

 

(28,938

)

 

 

 

 

 

 

 

 

 

 

 

 

Effect of exchange rate changes on cash

 

 

 

252

 

 

252

 

 

 

 

 

 

 

 

 

 

 

 

 

Net increase (decrease) in cash and cash equivalents

 

(441

)

6,782

 

(10,054

)

 

(3,713

)

 

 

 

 

 

 

 

 

 

 

 

 

Balance at beginning of period

 

2,650

 

(1,427

)

26,812

 

 

28,035

 

Balance at end of period

 

$

2,209

 

$

5,355

 

$

16,758

 

$

 

$

24,322

 

 

23



 

15.  Business Segments 

 

The company identifies its segments using the “management approach,” which designates the internal organization that is used by management for making operating decisions and assessing performance as the source of the company’s reportable segments.  The company has three reportable segments: Cranes and Related Products (Crane), Foodservice Equipment (Foodservice), and Marine.  Net sales and earnings from operations by segment is summarized as follows:

 

 

 

Three Months Ended
June 30,

 

Six Months Ended
June 30,

 

 

 

2004

 

2003

 

2004

 

2003

 

Net sales:

 

 

 

 

 

 

 

 

 

Crane

 

$

331,783

 

$

246,925

 

$

584,392

 

$

467,498

 

Foodservice

 

130,947

 

126,968

 

238,971

 

232,004

 

Marine

 

63,482

 

39,931

 

114,675

 

75,231

 

Total net sales

 

$

526,212

 

$

413,824

 

$

938,038

 

$

774,733

 

Earnings from operations:

 

 

 

 

 

 

 

 

 

Crane

 

$

16,442

 

$

4,374

 

$

26,050

 

$

11,813

 

Foodservice

 

20,778

 

21,224

 

34,854

 

33,452

 

Marine

 

2,714

 

2,930

 

6,835

 

3,526

 

Total

 

39,934

 

28,528

 

67,739

 

48,791

 

Corporate expense

 

(5,572

)

(5,315

)

(10,842

)

(9,449

)

Interest expense

 

(13,917

)

(15,329

)

(27,465

)

(29,948

)

Other income (expense), net

 

(267

)

5

 

238

 

(36

)

Earnings from continuing operations before taxes on income

 

$

20,178

 

$

7,889

 

$

29,670

 

$

9,358

 

 

Crane segment operating earnings for the three and six months ended June 30, 2004 includes amortization expense of  $0.7 million and $1.6 million, respectively, and for both periods a charge of $0.8 million related to restructuring activities (see Note 9. “Restructuring and Plant Consolidation”).  Crane segment operating earnings for the three and six months ended June 30, 2003 includes amortization expense of $0.7 million and $1.4 million, respectively, and for both periods a charge of $4.2 million related to restructuring activities (see Note 9. “Restructuring and Plant Consolidation”).

 

As of June 30, 2004 and December 31, 2003, the total assets by segment were as follows: 

 

 

 

June 30, 2004

 

December 31, 2003

 

Crane

 

$

1,161,817

 

$

1,094,183

 

Foodservice

 

325,604

 

290,586

 

Marine

 

94,478

 

91,519

 

Corporate

 

132,118

 

126,293

 

Total

 

$

1,714,017

 

$

1,602,581

 

 

24



 

Item 2.  Management’s Discussion and Analysis of Financial Condition and Results of Operations

 

Results of Operations for the Three and Six Months Ended June 30, 2004 and 2003

 

Analysis of Net Sales

 

The following table presents net sales by business segment (in thousands):

 

 

 

Three Months Ended
June 30,

 

Six Months Ended
June 30,

 

 

 

2004

 

2003

 

2004

 

2003

 

Net sales:

 

 

 

 

 

 

 

 

 

Cranes and Related Products

 

$

331,783

 

$

246,925

 

$

584,392

 

$

467,498

 

Foodservice Equipment

 

130,947

 

126,968

 

238,971

 

232,004

 

Marine

 

63,482

 

39,931

 

114,675

 

75,231

 

Total net sales

 

$

526,212

 

$

413,824

 

$

938,038

 

$

774,733

 

 

During the second quarter of 2004, we completed the sale of our wholly-owned subsidiary, Delta Manlift SAS (Delta).  In addition, during the fourth quarter of 2003, we completed plans to close our other Aerial Work Platform businesses located in Dilingen, Germany and Shady Grove, Pennsylvania.  Also, during the fourth quarter of 2003, we terminated our distributor agreement with North Central Crane & Excavator Sales Corporation (North Central Crane), our wholly-owned crane distributor.  Finally, during the first quarter of 2003 we completed the sale of Femco Machine Company, Inc. (Femco).  We have reported the results of these operations as discontinued and have restated prior period amounts in accordance with Statement of Financial Accounting Standards (SFAS) No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets.”  Prior period amounts throughout this Management Discussion and Analysis have been restated to reflect the reporting of these operations as discontinued.

 

Consolidated net sales for the three months ended June 30, 2004 increased approximately 27.2% to $526.2 million, from $413.8 million for the same period in 2003.  Consolidated net sales for the six months ended June 30, 2004 increased approximately 21.1% to $938.0 million, from $774.7 million for the same period in 2003.  The increase in sales for both the three and six months ended June 30, 2004 compared to the same periods in 2003 was driven by the results of all three of our segments.

 

Net sales from the Crane segment for the three months ended June 30, 2004 increased 34.4% to $331.8 million versus $246.9 million for the three months ended June 30, 2003.  Net sales from the Crane segment for the six months ended June 30, 2004 increased 25.0% to $584.4 million versus $467.5 million for the six months ended June 30, 2003.  The increased sales for both the three and six months ended June 30, 2004 were driven by increased volume of tower and mobile hydraulic cranes worldwide, increased crawler crane sales in Asia, increases in our aftermarket sales and service business, as well as the impact of the Euro exchange rate on the three and six months ended June 30, 2004 versus the same periods in 2003.  The impact of the Euro exchange rate was approximately 2.3% and 4.3% of the 34.4% and 25.0% increase in sales during the three and six months ended June 30, 2004, respectively, compared to the three and six months ended June 30, 2003.  As of June 30, 2004, total crane backlog was $331.3 million compared to $220.7 million as of December 31, 2003 and $164.8 million as of June 30, 2003.

 

Net sales from the Foodservice segment increased 3.1% to $130.9 million in the three months ended June 30, 2004 versus the three months ended June 30, 2003.Net sales from the Foodservice segment for the six months ended June 30, 2004 increased 3.0% to $239.0 million versus $232.0 million for the six months ended June 30, 2003.  The sales increase in our Foodservice segment for both the three and six months ended June 30, 2004 compared to the same periods in 2003 is primarily the result of increased sales at our ice division and at our private label refrigerator manufacturer. The foodservice industry is improving as we see improvements in some of our end markets.  Same-store sales at casual dining and quick-serve restaurants are rising.  Hotels are seeing an increase in revenues and convenience stores continue to perform well.  As a result, our customers are starting to move forward with projects that had been postponed during the recent recession.

 

25



 

Revenues from our Marine segment increased 59.0% and 52.4% in the three and six months ended June 30, 2004, respectively, compared to the three and six months ended June 30, 2003. The increase in revenues for the three and six months ended June 30, 2004 is a result of higher commercial contract revenue from construction contracts awarded to us during late 2003 and early 2004.  In addition, sales for the first six months of 2003 were impacted by the 44-day strike at Marinette Marine Corporation (Marinette).  Finally, we had a short but profitable repair season in the first quarter of 2004 compared to the first quarter of 2003.  Between January and April of 2004, we achieved near record repair revenue at our Sturgeon Bay shipyard.

 

Analysis of Operating Earnings 

 

The following table presents operating earnings by business segment (in thousands): 

 

 

 

Three Months Ended
June 30,

 

Six Months Ended
June 30,

 

 

 

2004

 

2003

 

2004

 

2003

 

Earnings from operations:

 

 

 

 

 

 

 

 

 

Cranes and Related Products

 

$

16,442

 

$

4,374

 

$

26,050

 

$

11,813

 

Foodservice Equipment

 

20,778

 

21,224

 

34,854

 

33,452

 

Marine

 

2,714

 

2,930

 

6,835

 

3,526

 

Corporate expense

 

(5,572

)

(5,315

)

(10,842

)

(9,449

)

Total

 

$

34,362

 

$

23,213

 

$

56,897

 

$

39,342

 

 

Crane segment operating earnings for the three and six months ended June 30, 2004 includes amortization expense of  $0.7 million and $1.6 million, respectively, and for both periods a charge of $0.8 million related to restructuring activities.  The restructuring charge relates to costs incurred during the second quarter of 2004 for the consolidation of certain of our European crane facilities.  These charges have been included in restructuring and plant consolidation costs in the Consolidated Statement of Operations for the three and six months ended June 30, 2004.  Crane segment operating earnings for the three and six months ended June 30, 2003 includes amortization expense of $0.7 million and $1.4 million, respectively, and for both periods a charge of $4.2 million related to restructuring activities.  The $4.2 million charge recorded in the second quarter of 2003 related to a write-down of certain facilities to estimated book value less cost to sell as a result of consolidation of certain Crane segment operations.  This charge has been included in restructuring and plant consolidation costs in the Consolidated Statement of Operations for the three and six months ended June 30, 2003.

 

Gross profit of all three segments was negatively impacted by increased commodity prices, especially steel, during the second quarter of 2004 compared to the second quarter of 2003.  Increased commodity prices decreased gross profit, net of price increases, for the Crane, Foodservice and Marine segments by $4.2 million, $1.5 million and $0.6 million, respectively, compared to the second quarter of 2003.  Consolidated gross profit for the three months ended June 30, 2004 was $105.1 million, an increase of 12.6% over the consolidated gross profit for the same period in 2003 of $93.3 million.  Gross profit margin was 20.0% and 22.6% for the three months ended June 30, 2004 and 2003, respectively. Consolidated gross profit for the six months ended June 30, 2004 was $196.4 million, an increase of 14.8% over the consolidated gross profit for the same period in 2003 of $171.1 million.  Gross profit margin was 20.9% and 22.1% for the six months ended June 30, 2004 and 2003, respectively.  In addition to the impact of the increased commodity prices, consolidated gross profit for the three and six months ended June 30, 2004 was impacted by the following items: (i) increased volumes in the Crane and Foodservice segments; (ii) a profitable repair season in the Marine segment; (iii) a strong Euro and the effects of integration savings; (iv) favorable product mix and cost reductions implemented in recent years in the Foodservice segment; (v) lower margin project mix in the Marine segment with several first-time vessels (vi) the effect of the strike at Marinette in the first quarter of 2003.

 

Engineering, selling and administrative expenses increased $3.9 million for the three months ended June 30, 2004 compared to the same period in 2003.  Approximately $1.3 million of this increase is the result of the exchange rate between the U.S. Dollar and the Euro during the second quarter 2004 compared to second quarter of  2003.  Engineering, selling and administrative expenses increased $11.0 million for the six months ended June 30, 2004 compared to the same period in 2003.  Approximately $5.3 million of this increase is the result of the exchange rate between the U.S. Dollar and the Euro during the first six months of 2004 compared to the first six months of 2003.  Engineering spending in the Crane and Foodservice segments for new product introductions and higher employee benefit costs in all three segments also contributed

 

26



 

to the increase in expenses.  Corporate expenses increased approximately $0.3 million and  $1.4 million for the three and six months ended June 30, 2004, respectively, compared to the same periods in 2003.  This is primarily the result of $0.5 million expense for a sales and use tax settlement (incurred in the first quarter of 2004) and costs associated with our compliance activities relating to the Sarbanes-Oxley Act of 2002.

 

For the three months ended June 30, 2004, the Crane segment reported net operating earnings of $16.4 million compared to $4.4 million for the three months ended June 30, 2003.For the six months ended June 30, 2004, the Crane segment reported net operating earnings of $26.1 million compared to $11.8 million for the six months ended June 30, 2003.  As discussed above, the company recorded restructuring charges during the second quarter of 2004 and 2003 of $0.8 million and $4.2 million, respectively, which are included in operating earnings of the Crane segment for each respective period.  Operating earnings of the Crane segment for both the three and six months ended June 30, 2004, were positively impacted by increased volume, the Euro exchange rate and cost savings as a result of prior year integration actions.  The operating earnings increase was somewhat offset by continued competitive pricing pressures, and increased commodity prices.

 

Operating earnings in the Foodservice segment decreased 2.1% to $20.8 million during the second quarter of 2004 compared to $21.2 million for the second quarter of 2003.  The decrease in operating earnings of the Foodservice segment is a result of increased commodity prices, as discussed above, for the second quarter of 2004 versus the second quarter of 2003.  Operating earnings in the Foodservice segment increased 4.2% to $34.9 million during the six months ended June 30, 2004 compared to $33.5 million for the same period in 2003.The improvement in operating earnings for the six months ended June 30, 2004 versus the six months ended June 30, 2003 is a result of ongoing cost improvements, improved gross margin as a result of increased volumes, offset somewhat by increased commodity prices and increased engineering spending for new product development.

 

Operating earnings in the Marine segment decreased 7.3% to $2.7 million during the second quarter of 2004 compared to $2.9 million for the second quarter of 2003.  Operating earnings for the second quarter of 2004 were impacted by the higher volume of first-time projects which carry lower margins than later ships in multi-vessel contracts.  In addition, operating earnings were negatively impacted by increased steel prices.  Operating earnings in the Marine segment increased 93.8% to $6.8 million during the six months ended June 30, 2004 compared to $3.5 million for the six months ended June 30, 2003. The increase in the Marine segment’s operating earnings for the six months ended June 30, 2004 compared to the same period in 2003 was due in large part to the Marinette Marine strike during the first quarter of 2003.  The Marine segment also benefited from a strong winter repair season in the first half of 2004 and a full slate of new construction work ongoing a three of its shipyards during the first half of the year.

 

Analysis of Non-Operating Income Statement Items

 

Interest expense decreased $1.4 million and $2.5 million for the three and six months ended June 30, 2004, respectively, compared to the three and six months ended June 30, 2003.This decrease is the result of lower average debt levels from one year ago, offset partially by a 100 basis point increase in the weighted average interest rate on outstanding debt.

 

During the first quarter of 2004, we reached a settlement agreement with a third party and recorded a $2.3 million gain, net of legal and settlement costs, in other income (expense), net in the Consolidated Statement of Operations.  In addition, during the first quarter of 2004, we recorded a charge of $0.6 million ($0.4 million net of income taxes) related to the partial prepayment of the term loan B portion of our senior credit facility.  The loss relates to the write-off of unamortized financing fees and partial unwinding of our floating-to-fixed interest rate swap.  The loss was recorded in other income (expense), net in the Consolidated Statement of Operations.

 

The effective tax rate for the six months ended June 30, 2004 was 27.5% compared to 30% for the six months ended June 30, 2003.  The lower effective rate in 2004 compared to 2003 was primarily a result of a shift in the mix of current year earnings toward operations located in lower tax foreign jurisdictions.

 

As a result of the above, earnings from continuing operations were $14.7 million and $21.5 million for the three and six months ended June 30, 2004, respectively, compared to $5.6 million and $6.6 million for the three and six months ended June 30, 2003, respectively.

 

The loss from discontinued operations, net of income taxes, for the three and six months ended June 30, 2004 and 2003 reflects the operating results of our discontinued aerial work platform, North Central Crane and Femco Machine Company, Inc. (Femco),  businesses.

 

27



 

During the second quarter of 2004, we completed the sale of our wholly-owned subsidiary, Delta Manlift SAS (Delta), to JLG Industries, Inc.  Headquartered in Tonneins, France, Delta manufactures the Toucan brand of vertical mast lifts, a line of aerial work platforms distributed throughout Europe for use principally in industrial and maintenance operations. Previously, during December 2003, we completed plans to restructure our Aerial Work Platform (AWP) businesses.  The restructuring included the closure of the Potain GmbH (Liftlux) facility in Dilingen, Germany and discontinuation of U.S. Manlift production at the Shady Grove, Pennsylvania facility.  With the sale of Delta and the closure of the Liftlux and U.S. Manlift operations, we will no longer participate in the aerial work platform market, other than providing aftermarket parts and service support.  Delta, Liftlux and U.S. Manlift represent discontinued operations under SFAS No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets.”  Results of these companies for the three and six months ended June 30, 2004 and 2003 have been classified as discontinued operations. 

 

During the fourth quarter of 2003, we terminated our distributor agreement with North Central Crane & Excavator Sales Corporation (North Central Crane).  We entered into a new distributor agreement with an independent third party for the area previously covered by North Central Crane.  The termination of North Central Crane represents a discontinued operation under SFAS No. 144.  Results of this company for the three and six months ended June 30, 2004 and 2003 have been classified as discontinued operations.

 

On February 14, 2003, we finalized the sale of Femco Machine Company, Inc. (Femco), the Crane segments’ aftermarket replacement parts and industrial repair business, to a group of private investors.  The disposition of Femco represents a discontinued operation under SFAS No. 144.  Results of Femco for the period from January 1, 2003 through February 14, 2003 have been classified as discontinued operations.

 

The gain on sale or closure of discontinued operations, net of income taxes for the three and six months ended June 30, 2004 represents the gain recorded in connection with the sale of Delta. We received $9.0 million for the Delta subsidiary and certain other assets of our AWP businesses.  As a result the sale and additional reserves for the closures of the other AWP businesses, we recorded a $1.0 million pre-tax gain ($0.8 million net of taxes).

 

The loss on sale or closure of discontinued operations, net of income taxes for the three and six months ended June 30, 2003 represents a goodwill impairment recorded by the company during the second quarter of 2003.  We completed our annual impairment analysis of goodwill and other intangible assets in accordance with SFAS No. 142, “Goodwill and Other Intangible Assets.”  As a result, we recorded a goodwill impairment charge of $4.9 million related to our AWP reporting unit, a reporting unit in our Crane segment.  The charge was based on current economic conditions in this reporting unit.In addition, during the second quarter of 2003, we reached an agreement with Quantum Heavy Equipment, LLC (Quantum) for a final post-closing adjustment for the sale of Manitowoc Boom Trucks, Inc. (Manitowoc Boom Trucks).  The agreement resulted in us paying $4.7 million to Quantum.  Payment of the final post-closing adjustment was made during the third quarter of 2003.  The agreement resulted in us recording an additional charge for the sale of Manitowoc Boom Trucks of approximately $0.6 million ($0.4 million net of tax) during the second quarter of 2003.These losses are offset by the gain recorded for the sale of Femco during the first quarter of 2003.  Cash proceeds from the sale of Femco were approximately $7.0 million, which includes $0.4 million of cash received by the company for post-closing adjustments, and resulted in a gain on sale of approximately $0.4 million ($0.3 million net of taxes).

 

Financial Condition

 

First Six Months of 2004

 

During the first six months of 2004, cash and cash equivalents increased approximately $2.0 million to $47.0 million at June 30, 2004.  Cash flows from continuing operations for the six months ended June 30, 2004 were negative $(7.7) million.  During the first six months of 2004 we built inventory to accommodate the large increase in backlog in the Crane segment.  In addition, receivables increased approximately $43.7 million as a result of increased sales.  Offsetting the increase in inventory and receivables was net earnings of $21.0 million and an increase in payables and other liabilities of approximately $97.8 million due to purchases of inventory and timing of payments.

 

Capital expenditures for the first six months of 2004 were $18.5 million, an increase of $7.3 million from the first six months of 2003.  The primary reasons for the increase were spending on an ERP system in the Foodservice segment, new equipment purchases in the Marine segment and new product tooling costs. In addition, the company received $9.0 million of cash from the sale of Delta during the second quarter of 2004.  These cash proceeds are reported in the discontinued operations section of the cash flow from investing activities.

 

28



 

During the first six months of 2004, we prepaid approximately $7.9 million of the Term Loan B portion of our senior credit facility.

 

During the second quarter of 2004, we sold $11.3 million of our long term notes receivable to a third party financing company.  We fully guarantee collection of the notes to the financing company.  We have accounted for the sale of the notes as a financing of receivables.

 

First Six Months of 2003

 

During the first six months of 2003, cash and cash equivalents decreased $3.7 million to $24.3 million at June 30, 2003.  Cash flows from continuing operations for the six months ended June 30, 2003 were $23.2 million.  Historically, the first six months of our year had not been a strong generating cash flow period due to the seasonality of our businesses. During the first six months of 2003 the most significant providers of cash were an increase in accounts payable and other liabilities totaling $33.3 million and a $9.0 million tax refund, while receivables and inventories increased $31.6 million and $14.5 million, respectively.  This is primarily due to increased production within the Crane and Foodservice segments in the first half of each year.  These businesses typically increase activity compared to lower volumes in the fourth quarter in preparation for the higher volume second and third quarters.

 

In addition, the company received approximately $7.0 million of cash from the sale of Femco during the first quarter of 2003.  These cash proceeds are reported in the discontinued operations section of the cash flow from investing activities.

 

As a result of the strong cash flow from operations and the cash proceeds received from the sale of Femco, we paid down approximately $28.3 million of debt during the first half of 2003.

 

Liquidity and Capital Resources

 

Our primary cash requirements include working capital, interest and principal payments on indebtedness, capital expenditures, and dividends. The primary sources of cash for each of these are cash flows from continuing operations and borrowings under our senior credit facility. We had $49.2 million in cash and short term investments along with $95.9 million of unused availability under the terms of the revolving credit portion of our senior credit facility at June 30, 2004.  The availability under the revolving credit portion of our senior credit facility is reduced for outstanding letters of credit of $29.1 million as of June 30, 2004.

 

Our debt at June 30, 2004, consisted primarily of term loan B borrowings under our senior credit facility, our senior notes due 2013, our senior subordinated notes due 2011, and our senior subordinated notes due 2012.

 

At June 30, 2004 the senior credit facility consisted of term loan B borrowings totaling $10.0 million.  There was no amount outstanding under the term loan A or revolving credit portions of our senior credit facility at June 30, 2004.  As a result of partial prepayments made since we entered into the senior credit facility, the term loan B now requires quarterly principal payments of $26 thousand from December 2004 through March 2006 and $2.0 million from June 2006 through May 2007.  The term loan A portion of our senior credit facility was prepaid in full during the fourth quarter of 2003.  Substantially all of our domestic tangible and intangible assets are pledged as collateral under the senior credit facility.

 

Borrowings under the senior credit facility bear interest at a rate equal to the sum of a base rate or a Eurodollar rate plus an applicable margin, which is based on our consolidated total leverage ratio, as defined in the senior credit facility. The weighted-average interest rate for the term loan B was 4.6% at June 30, 2004. The annual commitment fee in effect on the unused portion of our revolving credit facility at June 30, 2004 was 0.5%.

 

On November 6, 2003, we completed the sale of $150.0 million of 7 1/8% Senior Notes due 2013 (Senior Notes due 2013). The Senior Notes due 2013 are unsecured senior obligations ranking prior to our 175 million Euro of 10 3/8% Senior Subordinated Notes due 2011 ($213.1 million based on June 30, 2004 exchange rates) and $175 million of 10 ½% Senior Subordinated Notes due 2012.  Our secured senior indebtedness under our senior credit facility ranks equally with the Senior Notes due 2013, except that it is secured by substantially all domestic tangible and intangible assets of the company and its subsidiaries.  Interest on the Senior Notes due 2013 is payable semiannually in May and November each year, commencing May 1, 2004.  The Senior Notes due 2013 can be redeemed by us in whole or in part for a premium on or after November 1, 2008.  In addition, we may redeem for a premium at any time prior to November 1, 2006, up to 35% of the face amount of the Senior Notes due 2013 with the proceeds of one or more equity offerings.  The company used the net proceeds from the sale of the Senior Notes due 2013 for prepayment of its term loan A and partial prepayment of its term loan B under its senior credit facility.

 

We had outstanding at June 30, 2004, 175 million Euro ($213.1 million based on June 30, 2004 exchange rates) of 10 3/8% Senior Subordinated Notes due 2011. The Senior Subordinated Notes due 2011 are unsecured obligations ranking subordinate

 

29



 

in right of payment to all of our senior debt (other than our 10 ½% Senior Subordinated Notes due 2012), are equal in rank to our 10 ½% Senior Subordinated Notes due 2012, and are fully and unconditionally, jointly and severally guaranteed by substantially all of our domestic subsidiaries. Interest on these Senior Subordinated Notes due 2011 is payable semiannually in May and November each year. These notes can be redeemed by us in whole or in part for a premium after May 15, 2006.

 

We also had outstanding at June 30, 2004,  $175 million of 10 ½% Senior Subordinated Notes due 2012. The Senior Subordinated Notes due 2012 are unsecured obligations of the company ranking subordinate in right of payment to all of our senior debt (other than our 10 3/8% Senior Subordinated Notes due 2011), are equal in rank to our 10 3/8% Senior Subordinated Notes due 2011, and are fully and unconditionally, jointly and severally guaranteed by substantially all of our domestic subsidiaries.  Interest on the Senior Subordinated Notes due 2012 is payable semiannually in February and August each year.  These notes can be redeemed by us in whole or in part for a premium on or after August 1, 2007.  In addition, we may redeem for a premium, at any time prior to August 1, 2005, up to 35% of the face amount of these Senior Subordinated Notes due 2012 with the proceeds of one or more equity offerings. 

 

Our senior credit facility, Senior Notes due 2013, and Senior Subordinated Notes due 2011 and 2012 contain customary affirmative and negative covenants.  In general, the covenants contained in the senior credit facility are more restrictive than those of the Senior Notes due 2013 and Senior Subordinated Notes due 2011 and 2012.  Among other restrictions, these covenants require us to meet specified financial tests, which include the following: consolidated interest coverage ratio; consolidated total leverage ratio; consolidated senior leverage ratio; and fixed charge coverage.  These covenants also limit our ability to redeem or repurchase our debt, incur additional debt, make acquisitions, merge with other entities, pay dividends or distributions, repurchase capital stock, lend money or make advances, create or become subject to liens, and make capital expenditures.  The senior credit facility also contains cross-default provisions whereby certain defaults under any other debt agreements would result in default under the senior credit facility.  We were in compliance with all covenants as of June 30, 2004, and based upon our current plans and outlook, we believe we will be able to comply with these covenants during the subsequent 12-month period.

 

Recent Accounting Changes and Pronouncements

 

During December 2003, the Financial Accounting Standards Board (FASB) revised SFAS No. 132, “Employers’ Disclosures about Pensions and Other Postretirement Benefits,” to require additional disclosure about the assets, obligations, cash flows, and net periodic benefit cost of defined benefit pension plans and other defined benefit postretirement plans.  These disclosure requirements were effective immediately for our domestic plans, except for estimated future benefit payments, which are effective in the second quarter of 2004.  This statement also requires interim-period disclosures of the components of net periodic benefit cost and, if significantly different from previously disclosed amounts, the amount of contributions and projected contributions to fund pension plans and other postretirement benefit plans.  These interim-period disclosures were effective in the first quarter of 2004.

 

In January 2003, the FASB issued FIN No. 46, “Consolidation of Variable Interest Entities.”  FIN No. 46 clarifies the application of Accounting Research Bulletin No. 51, “Consolidated Financial Statements,” to certain entities in which equity investors lack the characteristics of a controlling financial interest or do not have sufficient equity at risk for the entity to finance its activities without additional subordinated financial support from other parties.  A variable interest entity is required to be consolidated by the company that has a majority of the exposure to expected losses of the variable interest entity.  The consolidation provisions of FIN No. 46, as revised, were effective immediately for interests created after January 31, 2003 and were effective on March 31, 2004 for interests created before February 1, 2003.  The adoption of FIN No. 46 did not have an impact on our Consolidated Financial Statements for the year ended December 31, 2003 for interests created after January 31, 2003 or on our Consolidated Financial Statements for the three and six months ended June 30, 2004 for interests created before February 1, 2003.

 

Critical Accounting Policies

 

Our critical accounting policies have not significantly changed since the 2003 Form 10-K was filed.

 

Cautionary Statements About Forward-Looking Information  

 

Statements in this report and in other company communications that are not historical facts are forward-looking statements, which are based upon our current expectations.  These statements involve risks and uncertainties that could cause actual results to differ materially from what appears within this Form 10-Q.

 

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Forward-looking statements include descriptions of plans and objectives for future operations, and the assumptions behind those plans.  The words “anticipates,” “believes,” “intends,” “estimates,” and “expects,” or similar expressions, usually identifies forward-looking statements.  Any and all projections of future performance are forward-looking statements.

 

In addition to the assumptions, uncertainties, and other information referred to specifically in the forward-looking statements, a number of factors relating to each business segment could cause actual results to be significantly different from what is presented in this Form 10-Q.  Those factors include, without limitation, the following:

 

Cranes and Related Products – market acceptance of new and innovative products; cyclically of the construction industry; the effects of government spending on construction-related projects throughout the world; changes in world demand for our crane product offering; the replacement cycle of technologically obsolete cranes; demand for used equipment; action of competitors; and foreign exchange rate risk.

 

Foodservice Equipment – market acceptance of new and innovative products; demographic information affecting families and general population growth; household income; weather; consolidations within the restaurant and foodservice equipment industries; global expansion of customers; actions of competitors; the commercial ice-cube machine replacement cycle in the United States; specialty foodservice market growth; future strength of the beverage industry; and the demand for quickservice restaurant and kiosks.

 

Marine – shipping volume fluctuations based on performance of the steel industry; weather and water levels on the Great Lakes; trends in government spending on new vessels; five-year survey schedule; the replacement cycle of older marine vessels; growth of existing marine fleets; consolidation of the Great Lakes marine industry; frequency of casualties on the Great Lakes; and the level of construction and industrial maintenance.

 

Corporate (including factors that may affect all three segments) – changes in laws and regulations throughout the world; the ability to finance, complete and/or successfully integrate, restructure and consolidate acquisitions, divestitures, strategic alliances and joint ventures; competitive pricing; changes in commodity prices; changes in domestic and international economic and industry conditions; changes in the interest rate environment; risk associated with growth; foreign currency fluctuations; world-wide political risk; health epidemics; pressure of additional financing leverage resulting from acquisitions; success in increasing manufacturing efficiencies; changes in revenue, margins, and costs; work stoppages and labor negotiations; and the ability of our customers to obtain financing.

 

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Item 3.  Quantitative and Qualitative Disclosure about Market Risk

 

The company’s market risk disclosures have not significantly changed since the 2003 Form 10-K was filed.  The company’s quantitative and qualitative disclosures about market risk are incorporated by reference from Item 7A of the company’s Annual Report on Form 10-K for the year ended December 31, 2003.

 

Item 4.  Controls and Procedures

 

Disclosure Controls and Procedures: The company maintains disclosure controls and procedures designed to ensure that information the company must disclose in its filings with the Securities and Exchange Commission is recorded, processed, summarized and reported on a timely basis.  The company’s management, with the participation of the company’s Chief Executive Officer and Chief Financial Officer, has reviewed and evaluated the effectiveness of the company’s disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) as of the end of the period covered by this report (the “Evaluation Date”).  Based on such evaluation, the company’s Chief Executive Officer and Chief Financial Officer have concluded that, as of the Evaluation Date, the company’s disclosure controls and procedures are effective.

 

Internal Controls Over Financial Reporting: The company is currently undergoing a comprehensive effort to ensure compliance with Section 404 of the Sarbanes-Oxley Act of 2002 for the year ending December 31, 2004.  This effort includes internal control documentation and review under the direction of senior management.  During the course of these activities, the company has identified certain internal control issues which management believes need to be improved.  These control issues are, in large part, the result of the company’s increased size and complexity due to recent acquisitions.  The review has not identified any material weakness in internal control as defined by the Public Company Accounting and Oversight Board.  However, the company has made improvements to its internal controls over financial reporting as a result of its review efforts and will continue to do so.  These improvements include formalization of policies and procedures, changes to employee access to computer systems, improved segregation of duties, and additional monitoring controls. 

 

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PART II.  OTHER INFORMATION

 

Item 4. Submission of Matters to a Vote of Security Holders

 

At the annual meeting of the company’s shareholders on May 4, 2004, management’s nominees named below were elected as directors by the indicated votes cast for each nominee.  Of the 22,995,755 shares of Common Stock which were represented at the meeting, at least 97.6% of the shares voting were voted for the election of each of management’s nominees.

 

Three directors were elected to serve until the Annual Meeting of Shareholders to be held in the year 2006: 

 

Name of Nominee

 

For

 

Withheld

 

 

 

 

 

 

 

Robert C. Stift

 

22,432,998

 

562,757

 

Virgis W. Colbert

 

22,654,239

 

341,516

 

Kenneth W. Krueger

 

22,693,528

 

302,227

 

 

In addition at the annual meeting on May 4, 2004, the shareholders approved the adoption of The Manitowoc Company, Inc. 2004 Non-Employee Director Stock and Awards Plan.  The following is the result of the vote: 

 

 

 

Votes

 

% of votes cast

 

 

 

 

 

 

 

For

 

13,449,086

 

72.8

%

Against

 

4,841,273

 

26.2

%

Abstain

 

177,561

 

1.0

%

Total

 

18,467,920

 

100.0

%

 

Further information concerning the matters voted upon at the 2004 Annual Meeting of Shareholders is contained in the company’s proxy statement dated April 8, 2004 with respect to the 2004 Annual Meeting.

 

Item 6.  Exhibits and Reports on Form 8-K

 

(a)          Exhibits:  See exhibit index following the signature page of this Report, which is incorporated herein by reference.

 

(b)         Reports on Form 8-K: The company filed the following Current Reports on Form 8-K during the quarter ended June 30, 2004:

 

                  Form 8-K dated May 4, 2004 Announcing certain senior management promotions.

 

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SIGNATURES

 

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. 

 

 

Date: August 3, 2004

The Manitowoc Company, Inc.

 

 

(Registrant)

 

 

 

 

 

 

 

 

/s/  Terry D. Growcock

 

 

Terry D. Growcock

 

 

Chairman and Chief Executive Officer

 

 

 

 

 

/s/ Carl J. Laurino

 

 

Carl J. Laurino
Senior Vice President and Chief Financial
Officer

 

 

 

 

 

/s/   Maurice D. Jones

 

 

Maurice D. Jones

 

 

Senior Vice President, General
Counsel and Secretary

 

 

34



 

THE MANITOWOC COMPANY, INC.

EXHIBIT INDEX

TO FORM 10-Q

FOR QUARTERLY PERIOD ENDED

June 30, 2004

 

Exhibit No.*

 

Description

 

Filed/Furnished
Herewith

 

 

 

 

 

4

 

Amendment No. 1 to the Rights Agreement dated August 5, 1996, between the Registrant and First Chicago Trust Company of New York

 

X (1)

 

 

 

 

 

31

 

Rule 13a - 14(a)/15d - 14(a) Certifications

 

X (1)

 

 

 

 

 

32.1

 

Certification of CEO pursuant to 18 U.S.C. Section 1350

 

X (2)

 

 

 

 

 

32.2

 

Certification of CFO pursuant to 18 U.S.C. Section 1350

 

X (2)

 


(1) Filed Herewith

(2) Furnished Herewith

 

Pursuant to Item 601(b)(2) of Regulation S-K, the Registrant agrees to furnish to the Securities and Exchange Commission upon request a copy of any unfiled exhibits or schedules to such document.

 

35