UNITED STATESSECURITIES AND EXCHANGE COMMISSIONN
Washington, D.C. 20549
FORM 10-Q
ý
Quarterly Report Pursuant to Section 13 or 15(d) of the SecuritiesExchange Act of 1934
For the quarterly period ended March 31, 2005
or
o
Transition Report Pursuant to Section 13 or 15(d) of the SecuritiesExchange 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 jurisdictionof incorporation or organization)
(I.R.S. EmployerIdentification 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).
The number of shares outstanding of the Registrant’s common stock, $.01 par value, as of March 31, 2005, the most recent practicable date, was 30,083,794.
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
THE MANITOWOC COMPANY, INC.Consolidated Statements of OperationsFor the Three Months Ended March 31, 2005 and 2004(Unaudited)(In thousands, except per-share and average shares data)
Three Months EndedMarch 31,
2005
2004
Net sales
$
536,919
411,826
Costs and expenses:
Cost of sales
438,203
320,509
Engineering, selling and administrative expenses
68,623
67,992
Amortization expense
821
790
Total costs and expenses
507,647
389,291
Earnings from operations
29,272
22,535
Other expense:
Interest expense
(13,511
)
(13,548
Loss on debt extinguishment
(8,275
(555
Other income, net
1,732
1,059
Total other expense
(20,054
(13,044
Earnings from continuing operations before taxes on income
9,218
9,491
Provision for taxes on income
2,766
2,753
Earnings from continuing operations
6,452
6,738
Discontinued operations:
Loss from discontinued operations, net of income taxes of $370
—
(971
Net earnings
5,767
Basic earnings per share:
0.22
0.25
Loss from discontinued operations, net of income taxes
(0.04
Diluted earnings per share:
0.21
Weighted average shares outstanding - basic
29,994,069
26,673,710
Weighted average shares outstanding - diluted
30,611,186
27,121,025
See accompanying notes which are an integral part of these statements.
2
THE MANITOWOC COMPANY, INC.Consolidated Balance SheetsAs of March 31, 2005 and December 31, 2004
(Unaudited)(In thousands, except share data)
March 31,2005
December 31,2004
Assets
Current Assets:
Cash and cash equivalents
68,849
176,415
Marketable securities
2,262
2,248
Accounts receivable, less allowances of $26,398 and $26,308
276,687
244,335
Inventories - net
329,984
287,036
Deferred income taxes
59,677
60,963
Other current assets
73,784
74,964
Total current assets
811,243
845,961
Property, plant and equipment - net
352,231
357,568
Goodwill
444,769
451,868
Other intangible assets - net
148,000
154,342
48,468
48,490
Other non-current assets
62,798
69,907
Total assets
1,867,509
1,928,136
Liabilities and Stockholders’ Equity
Current Liabilities:
Accounts payable and accrued expenses
540,236
513,504
Current portion of long-term debt
61,250
Short-term borrowings
9,811
10,355
Product warranties
36,659
37,870
Product liabilities
30,170
29,701
Total current liabilities
616,876
652,680
Non-Current Liabilities:
Long-term debt, less current portion
496,951
512,236
Pension obligations
66,435
67,798
Postretirement health and other benefit obligations
54,461
54,097
Long-term deferred revenue
83,099
82,587
Other non-current liabilities
44,680
39,809
Total non-current liabilities
745,626
756,527
Commitments and contingencies (Note 5)
Stockholders’ Equity:
Common stock (39,793,982 shares issued, 30,083,794 and 29,949,715 shares outstanding, respectively)
397
Additional paid-in capital
190,886
188,746
Accumulated other comprehensive income
39,408
61,014
Unearned compensation
(47
Retained earnings
376,749
372,398
Treasury stock, at cost (9,710,188 and 9,844,267 shares, respectively)
(102,433
(103,579
Total stockholders’ equity
505,007
518,929
Total liabilities and stockholders’ equity
3
THE MANITOWOC COMPANY, INC.Consolidated Statements of Cash FlowsFor the Three Months Ended March 31, 2005 and 2004(Unaudited)(In thousands)
Cash Flows from Operations:
Adjustments to reconcile net earnings to cash used for operating activities of continuing operations:
Discontinued operations, net of income taxes
971
Depreciation
14,055
11,859
Amortization of intangible assets
Amortization of deferred financing fees
589
983
1,844
555
1,883
(570
Loss (gain) on sale of property, plant and equipment
(1,496
2,202
Changes in operating assets and liabilities:
Accounts receivable
(39,325
(9,939
Inventories
(61,811
(83,901
Other assets
(11,938
(3,078
Accounts payable
40,774
48,987
Other liabilities
6,649
19,115
Net cash used for operating activities of continuing operations
(41,503
(6,259
Net cash used for operating activities of discontinued operations
(2,080
Net cash used for operating activities
(8,339
Cash Flows from Investing:
Capital expenditures
(8,220
(11,481
Proceeds from sale of property, plant and equipment
2,994
1,410
Purchase of marketable securities
(14
(9
Net cash used for investing activities
(5,240
(10,080
Cash Flows from Financing:
Payments on long-term debt
(67,715
(7,907
Proceeds from long-term debt
7,615
11,807
Payments on note financings
(285
Dividends paid
(2,101
Exercises of stock options
3,287
2,889
Net cash provided by (used for) financing activities
(59,199
6,789
Effect of exchange rate changes on cash
(1,624
(269
Net decrease in cash and cash equivalents
(107,566
(11,899
Balance at beginning of period
44,968
Balance at end of period
33,069
4
THE MANITOWOC COMPANY, INC.Consolidated Statements of Comprehensive LossFor the Three Months Ended March 31, 2005 and 2004(Unaudited)(In thousands)
Other comprehensive loss:
Derivative instrument fair market value adjustment - net of income taxes
(3,509
(825
Foreign currency translation adjustments
(18,097
(5,058
Total other comprehensive loss
(21,606
(5,883
Comprehensive loss
(15,154
(116
5
THE MANITOWOC COMPANY, INC.Notes to Unaudited Consolidated Financial StatementsFor the Three Months Ended March 31, 2005 and 2004
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 loss for the three months ended March 31, 2005 and 2004 and the financial position at March 31, 2005 and except as otherwise discussed, such adjustments consist of only those of a normal recurring nature. 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, 2004. The consolidated balance sheet as of December 31, 2004 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 share and 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 of the sale and additional reserves for the closures of the other AWP businesses, the company recorded a $1.5 million pre-tax gain ($1.2 million net of taxes). This gain was recorded in gain (loss) on sale or closure of discontinued operations, net of income taxes in the Consolidated Statements of Operations in the second quarter of 2004. Delta was acquired in August 2002 as part of the acquisition of Grove Investors Inc. (Grove). During December 2003, the company completed plans to restructure its AWP businesses. The restructuring included the closure of the Potain GmbH (Liftlux) facility in Dillingen, 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 no longer participates in the aerial work platform market, other than providing aftermarket parts and service support. The sale of Delta, the closure of Liftlux and the discontinuation of the U.S. Manlift production represent discontinued operations under Statement of Financial Accounting Standards (SFAS) No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets.” Results of these companies have been classified as discontinued to exclude the results from continuing operations.
The following selected financial data of the AWP businesses for the three months ended March 31, 2004 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 was no activity related to the AWP businesses during the three months ended March 31, 2005. There were no general corporate expenses or interest expense allocated to discontinued operations.
6
Three MonthsEndedMarch 31, 2004
10,559
Pretax loss from discontinued operations
(1,167
Benefit for taxes on loss
(320
Net loss from discontinued operations
(847
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 company have been classified as discontinued to exclude the results from continuing operations.
The following selected financial data of North Central Crane for the three months ended March 31, 2004 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 North Central Crane during the three months ended March 31, 2005. There were no general corporate expenses or interest expense allocated to discontinued operations.
1,476
(174
(50
(124
3. Inventories
The components of inventory at March 31, 2005 and December 31, 2004 are summarized as follows:
March 31, 2005
December 31, 2004
Inventories - gross:
Raw materials
122,596
111,400
Work-in-process
109,185
87,825
Finished goods
156,389
144,480
Total inventories - gross
388,170
343,705
Excess and obsolete inventory reserve
(39,643
(38,132
Net inventories at FIFO cost
348,527
305,573
Excess of FIFO costs over LIFO value
(18,543
(18,537
7
Inventory is carried at lower of cost or market using the first-in, first-out (FIFO) method for 87% and 90% of total inventory at March 31, 2005 and December 31, 2004, respectively. The remainder of the inventory is costed using the last-in, first-out (LIFO) method.
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. The company recognized approximately $0.1 million of compensation expense related to restricted stock which was issued during 2002 for both the three months ended March 31, 2005 and 2004. 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 months ended March 31, 2005 and 2004.
Reported net earnings
Deduct: Total stock option-based employee compensation expense determined under fair value based method for all stock option awards, net of income taxes
(890
(1,099
Pro forma net earnings
5,562
4,668
Earnings per share:
Basic - as reported
Basic - pro forma
0.19
0.18
Diluted - as reported
Diluted - pro forma
0.17
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. Approximately 150 potentially responsible parties have been identified as having shipped hazardous materials to this site. Eleven of those, 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. 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 March 31, 2005 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.
8
As of March 31, 2005, 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 Investors, Inc. acquisition in 2002 for cranes manufactured in the United States for occurrences from 2000 through October 2002. As of March 31, 2005, the largest self-insured retention level currently maintained by the company is $2.0 million per occurrence and applies to product liability for cranes manufactured in the United States.
Product liability reserves in the Consolidated Balance Sheet at March 31, 2005, were $30.2 million; $6.9 million reserved specifically for cases and $23.3 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 estimated case resolutions on aggregate self-insured claims and insured claims. Any recoveries from insurance carriers are dependent upon the legal sufficiency of claims and solvency of insurance carriers.
At March 31, 2005 and December 31, 2004, the company had reserved $44.9 million and $46.5 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 the company’s Consolidated Statement of Operations in a future period could be material.
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.
At March 31, 2005, the company is contingently liable under open standby letters of credit issued by the company’s bank in favor of third parties totaling $32.7 million. The open standby letters of credit primarily related to business in the Marine segment.
6. Loss on Debt Extinguishment
In December 2004, the company sold, pursuant to an underwritten public offering, approximately 3.0 million shares of its common stock at a price of $36.25 per share. Net cash proceeds from this offering, after deducting underwriting discounts and commissions, were $104.9 million. In addition to underwriting discounts and commissions, the company estimated it would incur approximately $0.8 million of accounting, legal and other expenses related to the offering that were charged to additional paid-in capital. The company used a portion of the proceeds to redeem approximately $61.3 million of the 10 ½% senior subordinated notes due 2012 and to pay the prepayment premium to the note holders of $6.4 million. The company used the balance of the proceeds for general corporate purposes.
9
On January 10, 2005, the company completed the redemption of $61.3 million of the 10 ½% senior subordinated notes due 2012. As a result of this redemption, the company incurred a charge of approximately $8.3 million ($5.4 million net of income taxes) for the early extinguishment of debt related to the prepayment premium paid to the note holders of $6.4 million, and the partial write-off of debt issuance costs of $1.9 million. The charge was recorded in loss on debt extinguishment in the Consolidated Statement of Operations.
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 its 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. The charge was recorded in loss on debt extinguishment 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.
Basic weighted average common shares outstanding
Effect of dilutive securities - stock options and restricted stock
617,117
447,315
Diluted weighted average common shares outstanding
For both the three months ended March 31, 2005 and 2004, 0.2 million common shares issuable upon the exercise of stock options were anti-dilutive and were excluded from the calculation of diluted earnings per share.
During the first quarter of 2005, the company paid a quarterly dividend of $2.1 million dollars. At its February 2005 meeting, the board of directors approved changing to a quarterly dividend from an annual dividend beginning in the first quarter of 2005. At that meeting the board approved a first quarter 2005 dividend of $0.07 per share of common stock.
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. 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 liabilities and long-term deferred revenue at March 31, 2005 and December 31, 2004 was $123.9 million and $124.1 million, respectively. The total amount of residual value guarantees and buyback commitments given by the company and outstanding at March 31, 2005 was $117.8 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.
During the three months ended March 31, 2005 and the twelve months ended December 31, 2004, the company sold $0.9 million and $25.8 million, respectively, of its long term notes receivable to third party financing companies. The company fully guarantees collection of the notes to the financing companies. The company has accounted for the sales of the notes as a financing of receivables. The receivables remain on the company’s Consolidated Balance Sheet, net of payments made, in other non-current assets and the company has recognized an obligation equal to the net outstanding balance of the notes in other non-current liabilities in the Consolidated Balance Sheet. The cash flow benefit of these transactions, net of payments made by the customer, are reflected as financing activities in the Consolidated Statement of Cash Flows. During the three months ended March 31, 2005 the customers have paid $1.2 million of the notes to the third party financing companies. As of March 31, 2005, the outstanding balance of the notes receivables guaranteed by the company was $23.0 million.
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 $1.0 million and amounts greater than $1.5 million of the aggregate uncollected receivables during a twelve-month period. The company’s contingent factoring liability, net of cash collected from customers, was $31.4 million and $39.4 million at March 31, 2005 and December 31, 2004, respectively.
10
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 three months ended March 31, 2005 and 2004.
46,509
41,770
Accruals for warranties issued during the period
8,870
4,493
Settlements made (in cash or in kind) during the period
(9,227
(7,340
Currency translation
(1,218
(417
44,934
38,506
9. Plant Consolidations and Restructuring
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 $4.7 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 $9.6 million of the total $12.1 million reserve which includes $2.7 million non-cash write-down of property, plant and equipment, and $6.9 million cash paid to employees for severance. The remaining $2.5 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 2005.
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.
The components of periodic benefit costs for the three months ended March 31, 2005 and 2004 are as follows:
11
Three Months Ended March 31, 2005
Three Months Ended March 31, 2004
U.S.PensionPlans
Non - U.S.PensionPlans
PostretirementHealth andOther Plans
Service cost - benefits earning during the period
300
225
285
221
Interest cost of projected benefit obligations
1,599
1,031
833
1,582
958
868
Expected return on plan assets
(1,609
(768
(1,548
(696
Amortization of transition obligations
Amortization of prior service costs
1
Amortization of actuarial net (gain) loss
98
(13
16
21
(16
18
Net periodic benefit costs
92
541
1,074
59
531
1,107
Weighted average assumptions:
Discount rate
5.75
%
4.75
6.25
5.25
8.25
N/A
8.50
Rate of compensation increase
3.50
11. Goodwill and Other Intangible Assets
The changes in carrying amount of goodwill by reportable segment for the year ended December 31, 2004 and three months ended March 31, 2005 are as follows:
Cranes andRelated Products
FoodserviceEquipment
Marine
Total
Balance January 1, 2004
205,022
186,486
47,417
438,925
Tax adjustments related to purchase accounting
950
(360
590
Foreign currency impact
12,353
Balance as of December 31, 2004
218,325
186,126
(7,099
Balance as of March 31, 2005
211,226
The gross carrying amount and accumulated amortization of the company’s intangible assets other than goodwill were as follows as of March 31, 2005 and December 31, 2004.
GrossCarryingAmount
AccumulatedAmortization
NetBookValue
Trademarks and tradenames
97,095
99,224
Patents
28,836
(6,106
22,730
30,899
(5,542
25,357
Engineering drawings
10,180
(2,776
7,404
11,053
(2,519
8,534
Distribution network
20,771
21,227
156,882
(8,882
162,403
(8,061
12. Recent Accounting Changes and Pronouncements
In November 2004, the Financial Accounting Standards Board (FASB) issued SFAS No. 151, “Inventory Costs — an amendment of ARB No. 43, Chapter 4.” SFAS No. 151 seeks to clarify the accounting for abnormal amounts of idle facility expense, freight, handling costs and wasted material (spoilage) in the determination of inventory carrying costs. The statement requires such costs to be treated as a current period expense. This statement is effective for the company on January 1, 2006. The company does not believe the adoption of SFAS No. 151 will have a material impact on its Consolidated Financial Statements.
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During December 2004, the FASB revised SFAS No. 123, “Accounting for Stock Based Compensation.” SFAS No. 123-Revised supercedes APB Opinion No. 25, “Accounting for Stock Issued to Employees,” and related interpretations, and will require all companies to estimate the fair value of incentive stock options granted and then amortize that estimated fair value to expense over the options’ vesting period. SFAS No. 123-Revised is effective for all annual periods beginning after June 15, 2005. The company currently accounts for its stock option plans under the recognition and measurement principles of APB Opinion No. 25, and related interpretations. No employee or outside director compensation costs related to stock option grants are currently reflected in net earnings. The company is required to adopt SFAS No. 123-Revised on January 1, 2006. See Note 4, “Stock-Based Compensation,” for pro forma information if the company had elected to adopt the requirements of the previously issued SFAS No. 123.
In December 2004, the FASB issued SFAS No. 153, “Exchanges of Nonmonetary Assets — an amendment of APB Opinion No. 29.” This statement addresses the measurement of exchanges of nonmonetary assets and redefines the scope of transactions that should be measured based on the fair value of the assets exchanged. SFAS No. 153 is effective for the company on July 1, 2005. We do not believe the adoption of SFAS No. 153 will have a material impact on our Consolidated Financial Statements.
13
13. 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.
The Manitowoc Company, Inc.Condensed Consolidating Statement of OperationsFor the Three Months Ended March 31, 2005(In thousands)
Parent
GuarantorSubsidiaries
Non-GuarantorSubsidiaries
Eliminations
Consolidated
337,379
254,718
(55,178
282,111
211,270
Engineering, selling and administrative expense
5,253
35,077
28,293
171
650
317,359
240,213
Earnings (loss) from operations
(5,253
20,020
14,505
Other income (expense):
(11,908
(691
(912
Management fee income (expense)
6,048
(6,048
Other income (expense), net
9,666
(5,863
(2,071
(4,469
(12,602
(2,983
Earnings (loss) from continuing operations before taxes on income (loss) and equity in earnings of subsidiaries
(9,722
7,418
11,522
Provision (benefit) for taxes on income
(3,326
2,538
3,554
Earnings (loss) from continuing operations before equity in earnings of subsidiaries
(6,396
4,880
7,968
Equity in earnings of subsidiaries
12,848
(12,848
14
The Manitowoc Company, Inc.Condensed Consolidating Statement of OperationsFor the Three Months Ended March 31, 2004(In thousands)
264,906
189,057
(42,137
211,548
151,098
5,271
34,311
28,410
170
620
246,029
180,128
(5,271
18,877
8,929
(11,967
(498
(1,083
4,809
(4,809
10,200
(3,398
(5,743
Total other income (expense)
2,487
(8,705
(6,826
Earnings (loss) from continuing operations before taxes on income (loss), equity in earnings of subsidiaries, and discontinued operations
(2,784
10,172
2,103
3,958
(122
Earnings (loss) from continuing operations before equity in earnings of subsidiaries and discontinued operations
(1,701
6,214
2,225
7,468
(7,468
(588
(383
5,626
1,842
15
The Manitowoc Company, Inc.Condensed Consolidating Balance Sheetas of March 31, 2005(In thousands)
22,742
2,607
43,500
Accounts receivable - net
341
116,777
159,569
137,328
192,656
42,705
16,972
530
51,679
21,575
68,580
308,391
434,272
11,600
162,113
178,518
5,434
246,537
192,798
41,445
106,555
18,373
30,095
28,313
18,733
15,752
Investment in affiliates
459,560
91,304
189,313
(740,177
591,860
868,523
1,147,303
32,521
195,859
311,856
18,263
18,396
27,893
2,277
242,015
342,340
488,915
8,036
19,848
14,991
31,596
Intercompany
(528,038
(13,863
187,380
354,521
30,955
52,144
19,146
18,128
7,406
54,332
50,211
286,562
Stockholders’ equity
576,297
518,401
(1,094,698
The Manitowoc Company, Inc.Condensed Consolidating Balance Sheetas of December 31, 2004(In thousands)
Current assets:
135,827
(4,523
45,111
Account receivable-net
114
89,890
154,331
Inventories-net
103,687
183,349
41,271
19,692
613
49,045
25,306
180,073
238,099
427,789
11,817
161,722
184,029
Goodwill-net
246,538
199,896
Other intangible assets
41,614
112,728
30,115
35,270
17,314
17,323
Investments in affiliates
91,191
(740,064
710,527
796,480
1,161,193
Liabilities and stockholders’ equity
Current liabilities:
34,013
223,746
255,745
19,306
18,564
27,391
2,310
95,263
270,443
286,974
Long-term debt
504,880
7,356
19,419
15,065
33,314
31,605
50,982
(497,236
(108,824
236,571
369,489
15,175
18,463
6,171
96,335
(43,691
334,394
569,728
539,825
(1,109,553
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The Manitowoc Company, Inc.Condensed Consolidating Statement of Cash FlowsFor the Three Months Ended March 31, 2005(In thousands)
SubsidiaryGuarantors
Net cash provided by (used in) operations
9,566
(85,822
47,601
(132
(3,415
(4,673
2,991
Intercompany investments
(62,441
96,186
(46,593
Net cash provided by (used for) investing activities
(62,587
92,774
(48,275
(61,250
(6,465
Payments on notes financings
178
(463
(60,064
687
Net increase (decrease) in cash and cash equivalents
(113,085
7,130
(1,611
The Manitowoc Company, Inc.Condensed Consolidating Statement of Cash FlowsFor the Three Months Ended March 31, 2004(In thousands)
22,275
(12,416
(10,730
(2,153
(5,283
(4,045
1,406
(19,017
18,257
(6,708
(21,179
12,978
(9,347
Proceeds from (payments on) long-term debt
(7,709
11,609
3,900
(4,820
(3,724
562
(8,737
11,816
(100
33,252
8,092
462
24,515
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14. 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:
Net sales:
Crane
357,984
252,609
Foodservice
118,693
108,024
60,242
51,193
Total net sales
Earning from operations:
19,549
9,609
14,194
14,076
782
4,121
Corporate expense
Earnings from operations of the Crane segment includes amortization expense of $0.8 million for both the three months ended March 31, 2005 and 2004.
As of March 31, 2005 and December 31, 2004, the total assets by segment were as follows:
1,285,388
1,279,665
332,447
302,865
131,042
110,336
Corporate
118,632
235,270
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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Results of Operations for the Three Months Ended March 31, 2005 and 2004
Analysis of Net Sales
The following table presents net sales by business segment (in thousands):
Consolidated net sales for the three months ended March 31, 2005 increased 30.4% to $536.9 million, from $411.8 million for the same period in 2004. All three of our segments had increased sales during the first quarter of 2005 compared to the first quarter of 2004.
Net sales from the Crane segment for the three months ended March 31, 2005 increased 41.7% to $358.0 million versus $252.6 million for the three months ended March 31, 2004. Net sales for the quarter ended March 31, 2005 increased over the prior year in all major geographic regions, as well as our aftermarket sales and service business. From a product line standpoint this sales increase was driven by increased volume of tower and mobile hydraulic cranes worldwide, increases in our aftermarket sales and service business, increased crawler crane sales in Asia, and increased boom truck sales in North America. In addition, the impact of the stronger Euro in the first quarter of 2005 versus 2004 had an approximate 2% favorable impact on sales. As of March 31, 2005, total Crane segment backlog was $532.0 million, a 56.5% increase over the December 31, 2004 backlog, which was $340.0 million.
Net sales from the Foodservice segment increased 9.9% to $118.7 million in the three months ended March 31, 2005 versus the three months ended March 31, 2004. Sales in the Foodservice segment’s ice, beverage and refrigeration divisions all increased for the three months ended March 31, 2005 compared to the same period in 2004. We are seeing continued improvements in 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.
Net sales from our Marine segment increased 17.7% to $60.2 million in the first quarter of 2005 versus the first quarter of 2004. The increase in net sales was a result of higher commercial contract revenue from construction contracts awarded to us during late 2003 and early 2004 and a strong winter repair season.
Analysis of Operating Earnings
The following table presents operating earnings by business segment (in thousands):
Earnings from operations:
Cranes and Related Products
Foodservice Equipment
General corporate expense
Consolidated gross profit for the three months ended March 31, 2005 was $98.7 million, an increase of 8.1% over the consolidated gross profit for the same period in 2004 of $91.3 million. The increase in consolidated gross profit was primarily driven by significantly higher gross profit in the Crane segment on increased volume and productivity gains. Gross profit in the crane segment was negatively impacted by the continued increases in commodity costs. First quarter 2005 gross profit of the Foodservice segment was up 3.0% compared to the first quarter of 2004. The Foodservice segment’s gross profit for the first quarter of 2005 benefited from increased sales, but was negatively impacted by continued increases in commodity costs, net pricing actions, and lower margins in our contract-manufacturing operation. The Marine segment’s gross profit for the first quarter of 2005 was down significantly from the first quarter of 2004 due to continued impact of commodity costs and labor inefficiencies on certain construction projects.
Engineering, selling and administrative expenses for the first quarter of 2005 were relatively flat at $68.6 million versus $68.0 million for the first quarter of 2004. All of this slight increase is attributed to the impact of the Euro exchange rates for the three months ended March 31, 2005 versus March 31, 2004.
For the three months ended March 31, 2005 the Crane segment reported net operating earnings of $19.5 million compared to $9.6 million for the three months ended March 31, 2004. As discussed above, operating earnings were positively impacted by increased volume, the strengthened Euro, productivity gains and leveraged engineering, selling and administrative expenses. Commodity price increases negatively impacted the Crane segment in the first quarter of 2005.
Operating earnings in the Foodservice segment were relatively flat at $14.2 million during the first quarter of 2005 compared to $14.1 million for the first quarter of 2004. Operating earnings for the first quarter of 2005 were negatively impacted by continued commodity cost increases and lower margins in our contract-manufacturing operation. Commodity cost increases negatively impacted the Foodservice segment in the first quarter of 2005 by approximately $1.4 million compared to the first quarter of 2004. This commodity cost impact is net of pricing actions undertaken by the Foodservice segment.
Marine segment operating earnings decreased $3.3 million to $0.8 million for the first quarter of 2005. Marine segment operating earnings were negatively impacted by commodity price increases. Several of our contracts were fixed price contracts which were bid and awarded prior to the unprecedented rise in steel and other commodities during the past year. Labor inefficiencies were incurred due to a larger mix of first-time or single vessel construction projects. In addition, higher labor costs on several of the projects as a result of having to utilize subcontract labor due to labor availability because of the number of projects in process at one time in our shipyards coupled with the busy winter repair season also negatively impacted operating earnings.
Analysis of Non-Operating Income Statement Items
Interest expense remained relatively constant at $13.5 million for both the three months ended March 31, 2005 and 2004. Interest expense savings due to lower debt level at March 31, 2005 compared to March 31, 2004 was offset by higher variable interest rates and the impact of the increase in the Euro exchange rate on our Euro denominated Senior Subordinated note. The weighted average interest rate on outstanding borrowings at March 31, 2005 was 8.6% compared to 7.8% at March 31, 2004.
In December 2004, we sold, pursuant to an underwritten public offering, approximately 3.0 million shares of our common stock at a price of $36.25 per share. Net cash proceeds from this offering, after deducting underwriting discounts and commissions, were $104.9 million. In addition to underwriting discounts and commissions, we estimated we would incur approximately $0.8 million of accounting, legal and other expenses related to the offering that were charged to additional paid-in capital. We used a portion of the proceeds to redeem approximately $61.3 million of the 10 ½% senior subordinated notes due 2012 and to pay the prepayment premium to the note holders of $6.4 million. We used the balance of the proceeds for general corporate purposes. On January 10, 2005, we completed the redemption of $61.3 million of the senior subordinated notes due 2012. As a result of this redemption, we incurred a charge of approximately $8.3 million ($5.4 million net of income taxes) for the early extinguishment of debt related to the premium paid to the note holders of $6.4 million, and the partial write-off of debt issuance costs of $1.9 million. The charge was recorded in loss on debt extinguishment in the Consolidated Statement of Operations.
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 our 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 charge was recorded in loss on debt extinguishment in the Consolidated Statement of Operations.
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As a result of the above, earnings from continuing operations were $9.2 million for the three months ended March 31, 2005 compared to $9.5 million for the three months ended March 31, 2004.
The loss from discontinued operations, net of income taxes, for the three months ended March 31, 2004 reflects the operating results of our discontinued Aerial Work Platform businesses and North Central Crane, our formerly company-owned Midwest crane distributor.
Financial Condition
First Quarter of 2005
During the first quarter of 2005, cash and cash equivalents decreased by $107.6 million as of December 31, 2004 to $68.8 million at March 31, 2005. As discussed above, on January 10, 2005 we completed the redemption of $61.3 million of our senior subordinated notes due 2012, which also resulted in us paying a premium to the note holders of $6.4 million. During the quarter, accounts receivable and inventory increased $39.3 million and $61.8 million, respectively. These increases are primarily the result of higher sales in the Crane and Foodservice segments and increased backlog in the Crane segment. Offsetting these increases in operating assets was a $40.8 million increase in accounts payable and accrued expenses, primarily as a result of the increased inventory.
Capital expenditures for the quarter were $8.2 million. The company continues to invest capital in the Foodservice ERP system, the new China manufacturing facilities in both the Crane and Foodservice segments, and new product tooling costs.
First Quarter of 2004
During the first quarter of 2004, cash and cash equivalents decreased $11.9 million to $33.1 million at March 31, 2004. Cash flows from continuing operations for the quarter ended March 31, 2004 were negative $6.3 million. During the first quarter of 2004 we built inventory to accommodate the large increase in backlog for cranes and related products. In addition, receivables increased approximately $9.9 million as a result of increased sales. Offsetting the increase in inventory and receivables was an increase in payables of approximately $48.9 million due to purchases of inventory and timing of payments.
Capital expenditures for the quarter were $11.5 million. 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.
During the first quarter of 2004, we prepaid approximately $7.9 million of our Term Loan B.
Liquidity and Capital Resources
Our primary cash requirements include working capital, interest 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 $71.1 million in cash and short term investments along with $92.3 million of unused availability under the terms of the revolving credit portion of our senior credit facility at March 31, 2005. This availability under the revolving credit portion of our senior credit facility is reduced for outstanding letters of credit of $32.7 million as of March 31, 2005.
Our outstanding debt at March 31, 2005 consisted primarily of our senior notes due 2013, our senior subordinated notes due 2011 and 2012.
The senior credit facility was comprised of $175 million term loan A, a $175 million term loan B, and $125 million revolving credit facility. During the third quarter of 2004, we prepaid the final outstanding principal balance of the term loan B portion of our senior credit facility totaling $10.0 million. As of March 31, 2005, we had no amount outstanding under the term loan A, term loan B or revolving credit portions of our senior credit facility. 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.
23
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 annual commitment fee in effect on the unused portion of our revolving credit facility at March 31, 2005 was 0.5%.
We had outstanding at March 31, 2005, $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 (Senior Subordinated Notes due 2011) ($225.6 million based on March 31, 2005 exchange rates) and $175 million of 10 ½% Senior Subordinated Notes due 2012 (Senior Subordinated Notes due 2012). Our secured senior indebtedness, including 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.
We had outstanding at March 31, 2005, 175 million Euro ($225.6 million) of the Senior Subordinated Notes due 2011. The Senior Subordinated Notes due 2011 are unsecured obligations ranking subordinate in right of payment to all of our senior debt, are equal in rank to our Senior Subordinated Notes due 2012, and are fully and unconditionally, jointly and severally guaranteed by substantially all of our domestic subsidiaries. Interest on the 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 March 31, 2005, $113.8 million of the 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, are equal in rank to our Senior Subordinated Notes due 2011 and are fully and unconditionally, jointly and severally guaranteed by substantially all of the company’s 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. During the fourth quarter of 2004, the company issued approximately 3.0 million shares of its common stock at an offering price of $36.25. A portion of the net proceeds received from this offering was used to redeem 35% of the Senior Subordinated Notes due 2012. The redemption was completed on January 10, 2005.
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 the 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 limited 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 March 31, 2005, and based upon our current plans and outlook, we believe we will be able to comply with these covenants during the remaining life of the facility.
Recent Accounting Changes and Pronouncements
In November 2004, the Financial Accounting Standards Board (FASB) issued SFAS No. 151, “Inventory Costs — an amendment of ARB No. 43, Chapter 4.” SFAS No. 151 seeks to clarify the accounting for abnormal amounts of idle facility expense, freight, handling costs and wasted material (spoilage) in the determination of inventory carrying costs. The statement requires such costs to be treated as a current period expense. This statement is effective for us on January 1, 2006. We do not believe the adoption of SFAS No. 151 will have a material impact on our Consolidated Financial Statements.
During December 2004, the FASB revised SFAS No. 123, “Accounting for Stock Based Compensation.” SFAS No. 123-Revised supercedes APB Opinion No. 25, “Accounting for Stock Issued to Employees,” and related interpretations, and will require all companies to estimate the fair value of incentive stock options granted and then amortize that estimated fair value to expense over the options’ vesting period. SFAS No. 123-Revised is effective for all annual periods beginning after June 15, 2005. We currently account for our stock option plans under the recognition and measurement principles of APB Opinion No. 25, and related interpretations. No employee or outside director compensation costs related to stock option grants are currently reflected in net earnings. We are required to adopt SFAS No. 123-Revised on January 1, 2006. See Note 4, “Stock-Based
24
Compensation,” for pro forma information if we had elected to adopt the requirements of the previously issued SFAS No. 123.
In December 2004, the FASB issued SFAS No. 153, “Exchanges of Nonmonetary Assets — an amendment of APB Opinion No. 29.” This statement addresses the measurement of exchanges of nonmonetary assets and redefines the scope of transactions that should be measured based on the fair value of the assets exchanged. SFAS No. 153 is effective for us on July 1, 2005. We do not believe the adoption of SFAS No. 153 will have a material impact on our Consolidated Financial Statements.
Critical Accounting Policies
Our critical accounting policies have not materially changed since the 2004 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.
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:
Crane—market acceptance of new and innovative products; cyclicality 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; actions of competitors; and foreign exchange rate risk.
Foodservice—market acceptance of new and innovative products; 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; successful and timely completion of new facilities and facility expansions; competitive pricing; availability of certain raw materials; changes in raw materials and commodity prices; changes in domestic and international economic and industry conditions, including steel industry conditions; changes in the interest rate environment; risks 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.
Item 3. Quantitative and Qualitative Disclosure about Market Risk
The company’s market risk disclosures have not materially changed since the 2004 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, 2004.
25
Item 4. Controls and Procedures
Disclosure Controls and Procedures: The company maintains disclosure controls and procedures designed to ensure that the information the Company must disclose in its filings with the Securities and Exchange Commission is recorded, processed, summarized and reported on a timely basis. As reported in Item 9A of our Annual Report on Form 10-K for the year ended December 31, 2004 (the “2004 Annual Report”), we determined that a material weakness identified in our internal control over financial reporting exposed deficiencies in our disclosure controls and procedures, and we concluded that our 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”)) were ineffective at December 31, 2004. We have since implemented the remedial measures described in the 2004 Form 10-K to correct those deficiencies. 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 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 the remedial measures implemented to correct the deficiencies in our disclosure controls and procedures have been effective to correct those deficiencies and that, as of the Evaluation Date, the company’s disclosure controls and procedures are effective.
Changes in Internal Controls Over Financial Reporting: Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Exchange Act Rule 13a-15(f). In Item 9A of the 2004 Annual Report we reported that we had misapplied Statement of Financial Accounting Standards (SFAS) No. 52, “Foreign Currency Translation,” to our foreign acquisitions, which resulted in the restatement of our Consolidated Balance Sheets and Consolidated Statements of Stockholders’ Equity and Comprehensive Income (Loss) (“Consolidated Financial Statements”) for the years ended December 31, 2003 and 2002, the interim Consolidated Financial Statements for the first, second and third quarters for 2004 and 2003, and an audit adjustment to the fourth quarter 2004 Consolidated Financial Statements. The company concluded that this misapplication of SFAS No. 52 constituted a material weakness in our controls over financial reporting. To correct this material weakness, we notified appropriate internal accounting personnel by memo of the appropriate application of SFAS No. 52 to these situations, and we conducted follow-up training of those personnel regarding the appropriate accounting treatment of foreign exchange rates in connection with the preparation of the company’s financial statements. Other than these corrective measures with respect to the application of SFAS No. 52, we made no changes in our internal controls over financial reporting during the quarter ended March 31, 2005 which have materially affected, or which are reasonably likely to materially affect, our internal control over financial reporting.
26
PART II. OTHER INFORMATION
Item 6. Exhibits
(a) Exhibits: See exhibit index following the signature page of this Report, which is incorporated herein by reference.
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: May 3, 2005
(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
27
THE MANITOWOC COMPANY, INC.EXHIBIT INDEXTO FORM 10-QFOR QUARTERLY PERIOD ENDEDMarch 31, 2005
Exhibit No.*
Description
Filed/FurnishedHerewith
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
(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.
28