UNITED STATESSECURITIES AND EXCHANGE COMMISSION
[X]
Quarterly Report Pursuant to Section 13 or 15(d) of the SecuritiesExchange Act of 1934
For the quarterly period ended March 31, 2003
or
[ ]
Transition Report Pursuant to Section 13 or 15(d) of the SecuritiesExchange Act of 1934
For the transition period from _________ to ___________
Commission File Number1-11978
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)
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 ( X ) No ( )Indicate by check mark whether the Registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act). Yes (X) No ( )The number of shares outstanding of the Registrant's common stock, $.01 par value, as of March 31, 2003, the most recent practicable date, was 26,412,735.
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
THE MANITOWOC COMPANY, INC.Consolidated Statements of EarningsFor the Three Months Ended March 31, 2003 and 2002(Unaudited)(In thousands, except per-share and average shares data)
Three Months Ended March 31,
2003
2002
Net sales
$
379,251
283,025
Costs and expenses:
Cost of sales
300,121
215,284
Engineering, selling and administrative expenses
63,497
43,320
Amortization expense
704
587
Plant consolidation costs
--
3,900
Total costs and expenses
364,322
263,091
Earnings from operations
14,929
19,934
Other income (expense):
Interest expense
(14,638
)
(10,612
Other income, net
33
702
Total other income (expense)
(14,605
(9,910
Earnings from continuing operations before taxes on income
324
10,024
Provision for taxes on income
110
3,910
Earnings from continuing operations
214
6,114
Discontinued operations:
Earnings from discontinued operations, net of income taxes of $16 and $304, respectively
31
476
Gain on sale of discontinued operations, net of income taxes of $149
290
Cumulative effect of accounting change, net of income taxes of $14,200
(36,800
Net earnings (loss)
535
(30,210
Basic earnings (loss) per share:
0.01
0.25
Earnings from discontinued operations, net of income taxes
0.00
0.02
Gain on sale of discontinued operations, net of income taxes
Cumulative effect of accounting change, net of income taxes
(1.52
(1.24
Diluted earnings (loss) per share:
(1.48
(1.22
Weighted average shares outstanding - basic
26,542,127
24,283,661
Weighted average shares outstanding - diluted
26,582,057
24,783,860
THE MANITOWOC COMPANY, INC.
Assets
March 31, 2003 (Unaudited)
December 31, 2002
Current Assets:
Cash and cash equivalents
33,275
28,035
Marketable securities
2,252
2,371
Accounts receivable, less allowances of $29,731 and $43,156
223,888
226,091
Inventories - net
272,391
255,218
Deferred income taxes
98,276
96,741
Other current assets
45,773
38,708
Total current assets
675,855
647,164
Property, plant and equipment - net
316,970
319,301
Goodwill - net
383,378
380,338
Other intangible assets - net
126,595
127,299
19,637
19,662
Other non-current assets
61,049
83,359
Total assets
1,583,484
1,577,123
Liabilities and Stockholders' Equity
Current Liabilities:
Accounts payable and accrued expenses
392,246
350,315
Current portion of long-term debt
31,902
33,328
Short-term borrowings
8,053
9,304
Product warranties
30,900
31,276
Product liability
36,520
36,175
Total current liabilities
499,621
460,398
Non-Current Liabilities:
Long-term debt, less current portion
610,988
623,547
Pension obligations
66,389
66,051
Postretirement health and other benefit obligations
65,902
65,777
Other non-current liabilities
50,149
66,235
Total non-current liabilities
793,428
821,610
Commitments and contingencies (Note 6)
Stockholders' Equity:
Common stock (36,746,482 shares issued, 26,412,735 shares outstanding for both periods)
367
Additional paid-in capital
81,230
Accumulated other comprehensive loss
(28,859
(23,574
Unearned compensation
(539
(609
Retained earnings
345,224
344,689
Treasury stock, at cost
(10,358,562 shares for both periods)
(106,988
Total stockholders' equity
290,435
295,115
Total liabilities and stockholders' equity
See accompanying notes which are an integral part of these statements.
THE MANITOWOC COMPANY, INC.Consolidated Statements of Cash FlowsFor the Three Months Ended March 31, 2003 and 2002(Unaudited)(In thousands)
Cash Flows from Operations:
Adjustments to reconcile net earnings to cash provided by operating activities of continuing operations:
Discontinued operations, net of income taxes
(321
(476
Depreciation
11,960
6,316
Amortization of intangible assets
Amortization of deferred financing fees
815
960
(1,085
697
36,800
Gain on sale of property, plant and equipment
(170
(1,943
Changes in operating assets and liabilities, excluding
effects of business acquisitions and divestitures:
Accounts receivable
(726
(27,782
Inventories
(19,398
(10,046
8,112
(3,695
Non-current assets
481
5,090
Current liabilities
31,579
26,311
Non-current liabilities
(7,404
(3,846
Net cash provided by operating activities of continuing operations
25,082
2,663
Net cash used for operating activities of discontinued operations
(274
(3,684
Net cash provided by (used for ) operating activities
24,808
(1,021
Cash Flows from Investing:
Business acquisitions, net of cash acquired
(4,017
Capital expenditures
(4,309
(6,818
Proceeds from sale of property, plant and equipment
967
5,771
Sale (purchase) of marketable securities
119
(26
Net cash used for investing activities of continuing operations
(3,223
(5,090
Net cash provided by (used for) investing activities of
discontinued operations
6,989
(172
Net cash provided by (used for) investing activities
3,766
(5,262
Cash Flows from Financing:
Payments on long-term debt
(21,992
(4,065
(Payments) proceeds from revolver borrowings - net
(1,251
14,100
Debt issuance costs
(662
Exercises of stock options
232
Net cash provided by (used for) financing
(23,905
10,267
Effect of exchange rate changes on cash
571
(147
Net increase in cash and cash equivalents
5,240
3,837
Balance at beginning of period
23,581
Balance at end of period
27,418
Other comprehensive income (loss):
Derivative instrument fair market value adjustment - net of income taxes
161
596
Foreign currency translation adjustments
(5,446
(121
Total other comprehensive income (loss)
(5,285
475
Comprehensive loss
(4,750
(29,735
1. Accounting Policies
August 8, 2002
Current assets
326,477
Property, plant and equipment
117,448
Goodwill
32,945
Other intangible assets
45,000
Other long-term assets
17,772
Total assets acquired
539,642
Current liabilities, excluding current debt
114,145
Debt
202,420
Other long-term liabilities
147,638
Total liabilities assumed
464,203
Net assets acquired
75,439
Total current assets of $326.5 million includes cash acquired of $13.8 million. The purchase consideration paid in excess of the fair values of the assets acquired and liabilities assumed was allocated first to the identifiable intangible assets with the remaining excess accounted for as goodwill. The company obtained third party valuations of certain tangible and identifiable intangible assets. Based upon the appraisal report of identifiable intangible assets, the allocation was as follows: $26.0 million to trademarks and tradenames with an indefinite life; $11.9 million to an in-place distributor network with an indefinite life; $7.1 million to patents with a weighted-average 10-year life; and the remaining $32.9 million to goodwill. The $32.9 million of goodwill was included in the Crane segment. None of that amount is expected to be deductible for tax purposes. The company also obtained third party valuations of the fair value of inventory and property, plant and equipment acquired. Based upon the apprai sal reports of these assets, the company increased the value of inventory and property, plant and equipment by $3.3 million and $1.1 million, respectively. The $3.3 million fair value adjustment to inventory was charged to cost of goods sold during the fourth quarter of 2002 as the related inventory items were sold. The $1.1 million fair value adjustment to property, plant and equipment is being depreciated over the estimated remaining useful lives of the property, plant and equipment.The company also completed certain restructuring and integration activities relating to this acquisition. The company recorded a charge totaling $12.1 million related to these restructuring and integration activities during 2002. 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. The $4.4 million recorded in the opening balance sheet related to severance and other employee related costs for headcount reductions at Grove facilities. See further detail in Note 9. "Plant Consolidation and Restructuring." The company has also developed and is finalizing certain other restructuring and integration activities relating to this acquisition, which will result in future adjustments to goodwill during the second quarter of 2003. The following unaudited pro forma financial information for the three months ended March 31, 2002 assumes the 2002 acquisition of Grove occurred as of January 1, 2002.
416,573
Earnings from continuing operations before income taxes
6,143
Net earnings from continuing operations before discontinued operations and cumulative effect of accounting change
3,747
Net loss
(32,577
Basic earnings per share:
0.14
(1.23
Diluted earnings per share:
(1.20
On April 8, 2002 the company purchased the remaining 50% interest in its joint venture Manitowoc Foodservice Europe (f/k/a Fabbrica Apparecchiature per la Produzione del Ghiaccio Srl), a manufacturer of ice machines based in Italy. The aggregate cash consideration paid by the company for the remaining interest was $3.4 million and resulted in $1.9 million of additional goodwill. The $1.9 million of goodwill was included in the Foodservice segment and is not expected to be deductible for tax purposes.
Three Months Ended
March 31, 2002
13,449
Pretax earnings from discontinued operation
352
(137
Net earnings from discontinued operation
215
On February 14, 2003, the company finalized the sale of Femco Machine Company, Inc. (Femco), the Crane segment's crane and excavator aftermarket replacement parts and industrial repair business, to a group of private investors led by the current Femco management and its employees. After the Grove acquisition, it was determined that Femco was not a core business to the Crane segment. 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 tax). The disposition of Femco represents a discontinued operation under SFAS No. 144. Results of Femco have been classified as discontinued, and the results for the three months ended March 31, 2002 have been restated to exclude the results of Femco. During December 2002, the company recorded a $3.4 million ($2.1 million net of tax) charge related to the decision to sell Femco. Of the charg e, $2.2 million related to recording the net assets of Femco at estimated fair value less cost to sell. In addition, the company performed an impairment analysis of the Femco goodwill in accordance with SFAS No. 142, "Goodwill and Other Intangible Assets," and determined that the entire $1.2 million of goodwill was impaired. The $3.4 million charge was recorded in discontinued operations in accordance with SFAS No. 144. The following selected financial data of Femco for the three months ended March 31, 2002 and 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 were no general corporate expenses or interest expense allocated to discontinued operations during any period.
2,178
4,871
47
428
Pre-tax gain on disposal
439
(165
(167
321
261
4. Inventories
The components of inventory at March 31, 2003 and December 31, 2002 are summarized as follows:
March 31, 2003
Components:
Raw materials
90,791
77,029
Work-in-process
79,545
87,253
Finished goods
120,838
109,560
Total inventories at FIFO costs
291,174
273,842
Excess of FIFO costs over LIFO value
(18,783
(18,624
Total inventories
Inventory is carried at lower of cost or market using the first-in, first-out (FIFO) method for 91% and 86% of total inventory at March 31, 2003 and December 31, 2002, respectively. The remainder of the inventory is costed using the last-in, first-out (LIFO) method.5. Stock-Based CompensationAt March 31, 2003, the company has three stock-based compensation plans. The company accounts for these plans 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. During the three months ended March 31, 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 months ended March 31, 2003 and 2002.
Reported net earnings (loss)
Deduct: Total stock-based employee compensation expense
determined under fair value based method for all awards,
net of income taxes
(1,439
(708
Pro forma net loss
(904
(30,918
Earnings (loss) per share:
Basic - as reported
Basic - pro forma
(0.03
(1.27
Diluted - as reported
Diluted - pro forma
(1.25
6. Contingencies and Significant Estimates
Basic weighted average common shares outstanding
Effect of dilutive securities - stock options
39,930
500,199
Diluted weighted average common shares outstanding
Balance at December 31,2002
38,514
Accruals for warranties issued during the quarter
4,931
Settlements made (in cash or in kind) during the quarter
(5,554
Currency translation
359
Balance at March 31, 2003
38,250
9. Plant Consolidation and Restructuring
During the first quarter of 2002, $84.3 million of the excess of the cost over fair value of the net assets acquired in the Potain acquisition was allocated to other intangible assets. Based upon a third-party appraisal report, the allocation was as follows: $53.0 million to trademarks and tradenames with an indefinite life; $17.5 million to patents with a weighted-average 15-year life; $8.8 million to engineering drawings with a weighted-average 15-year life; and $5.0 million to an in-place distribution network with an indefinite life. During the fourth quarter of 2002 a portion of the excess of the cost over fair value of the net assets acquired in the Grove acquisition was allocated to specific other intangible assets. Based upon a third-party appraisal report, the allocation was as follows: $26.0 million to trademarks and tradenames with an indefinite life; $11.9 million to an in-place distributor network with an indefinite life; and $7.1 million to patents with a weighted-average 10 year life. The gr oss 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 March 31, 2003 and December 31, 2002.
Gross
Net
Carrying
Accumulated
Book
Amount
Amortization
Value
Trademarks and tradenames
79,000
Patents
24,600
(1,833
22,767
(1,376
23,224
Engineering drawings
8,800
(872
7,928
(625
8,175
Distribution network
16,900
129,300
(2,705
(2,001
11. Recent Accounting Changes and Pronouncements
The Manitowoc Company, Inc.Condensed Consolidating Statement of EarningsFor the Three Months Ended March 31, 2003(In thousands)
Guarantor
Non-Guarantor
Parent
Subsidiaries
Eliminations
Consolidated
196,395
182,856
150,035
150,086
Engineering, selling and administrative
4,134
33,294
26,069
172
532
183,501
176,687
Earnings (loss) from operations
(4,134
12,894
6,169
(13,204
(667
(767
Management fee income (expense)
4,843
(2,199
(2,644
-
Other income (expense), net
6,081
(9,368
3,320
(2,280
(12,234
(91
Earnings (loss) from continuing operations before taxes on income and equity in earnings of subsidiaries
(6,414
660
6,078
- --
Provision (benefit) for taxes on income
(911
94
927
Earnings (loss) from continuing operations before equity in earnings of subsidiaries
(5,503
566
5,151
Equity in earnings of subsidiaries
5,717
(5,717
Earnings (loss) from continuing operations
Earnings from discontinued operations,
net of income tax of $16
(31
(290
Net earnings
887
(6,038
The Manitowoc Company, Inc.Condensed Consolidating Statement of EarningsFor the Three Months Ended March 31, 2002(In thousands)
207,469
75,556
154,904
60,380
3,545
28,331
11,444
187,135
72,411
(3,545
20,334
3,145
(9,501
(405
(706
3,853
(4,528
675
(314
(49
1,065
(5,962
(4,982
1,034
(9,507
15,352
4,179
(3,227
5,211
1,926
(6,280
10,141
2,253
12,394
(12,394
net of income tax of $304
(26,183
23,930
The Manitowoc Company, Inc.Condensed Consolidating Balance Sheetas of March 31, 2003(In thousands)
Non-
3,522
1,899
27,854
Accounts receivable - net
4,137
76,859
142,892
102,670
169,721
72,887
(207
25,596
397
20,724
24,652
83,195
201,945
390,715
11,986
142,793
162,191
231,604
151,774
23,724
9,368
(13,455
29,657
27,628
3,764
Equity in affiliates
1,048,164
(1,048,164
1,196,726
613,338
821,584
) $
30,423
112,101
249,722
Current portion long-term debt
28,419
3,483
1,200
2,839
4,014
17,503
13,397
Product liabilities
14,781
21,739
60,042
147,225
292,354
595,860
15,128
10,242
21,778
34,369
942
64,960
Intercompany payable/(receivable) - net
228,139
(203,756
(24,383
11,066
11,339
27,744
846,249
(105,679
52,858
Stockholders' Equity
571,792
476,372
Total liabilities and
stockholders' equity
The Manitowoc Company, Inc.Condensed Consolidating Balance Sheetas of December 31, 2002 (In thousands)
Subsidiary
Guarantors
2,650
(3,982
29,367
3,934
87,440
134,717
112,425
23,639
427
34,899
3,382
82,269
230,997
333,898
12,687
148,153
158,461
229,383
150,955
9,931
9,731
34,639
8,767
39,953
1,027,876
(1,027,876
1,167,402
627,031
810,566
20,458
166,401
163,456
4,909
2,000
7,304
19,764
11,512
15,554
20,621
50,877
201,719
207,802
609,836
209
13,502
Pension obligation
10,357
22,223
33,471
Postretirement health and other
benefit obligations
925
64,852
202,370
(346,609
144,239
(2,078
9,069
59,244
821,410
(250,256
250,456
675,568
352,308
The Manitowoc Company, Inc.Condensed Consolidating Statement of Cash FlowsFor the Three Months Ended March 31, 2003(In thousands)
Net cash provided by (used in) operations
(6,048
(1,307
32,163
Business acquisitions - net of cash acquired
463
(326
(4,446
Proceeds from sale of property, plant, and equipment
(342
1,309
Sale of marketable securities
Intercompany investments
30,837
(30,837
Net cash provided by (used for) investing activities of continuing operations
31,419
(668
(33,974
Net cash provided by (used for) investing activities of discontinued operations
6,321
Proceeds from long-term debt
(23,409
1,417
(426
(825
(24,497
592
Net increase (decrease) in cash and cash equivalents
874
5,014
(648
2,648
(3,115
28,502
The Manitowoc Company, Inc.Condensed Consolidating Statement of Cash FlowsFor the Three Months Ended March 31, 2002(In thousands)
(7,614
12,453
(5,860
(1,182
(1,746
(3,890
(3,306
9,077
Purchase of marketable securities
(5,403
5,403
(6,611
(5,052
6,573
(5,224
(451
(3,614
13,881
(344
7,229
(3,048
4,456
141
18,984
4,112
7,370
15,936
13. Subsidiary Guarantors of Senior Subordinated Notes due 2012The 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 2012, 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, National Crane Corporation and Manitowoc Boom Trucks, Inc., which was sold by the company during the fourth quarter of 2002, all of which do not guarantee the Senior Subordinated Notes due 2012 (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.
(26,398
2,468
16,246
(9,653
(55
(117
(5,107
6,456
11,139
(6,958
11,280
12,026
14. Business SegmentsThe 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, Foodservice Equipment, and Marine. Net sales and earnings from operations by segment is summarized as follows:
Net sales:
Cranes and related products
238,914
129,375
Foodservice equipment
105,037
102,777
Marine
35,300
50,873
Total net sales
Earnings (loss) from operations:
6,239
12,077
12,227
5,475
597
5,927
Corporate expense
Total
Earnings from operations for the three months ended March 31, 2002 of the Foodservice equipment segment includes a $3.9 million charge for the consolidation of the company's Multiplex operations into other Foodservice operations. See further detail in Note 9. "Plant Consolidation and Restructuring."As of March 31, 2003 and December 31, 2002, the total assets by segment were as follows:
1,018,505
1,022,771
328,881
320,840
91,673
93,983
Corporate
144,425
139,529
Item 2. Management's Discussion and Analysis of Financial Condition and Results of OperationsResults of Operations for the Quarters Ended March 31, 2003 and 2002
There were two items that affect the comparability of performance information of the company between the periods discussed in this report. In order to make our discussion of period-to-period comparisons more meaningful, in this Management's Discussion and Analysis we from time to time discuss performance information for a period excluding the effects of these transactions. The two items were the following:
Analysis of Net SalesThe following table presents net sales by business segment:
Cranes and Related Products
Foodservice Equipment
In the fourth quarter of 2002 we divested of Manitowoc Boom Trucks, Inc. and in the first quarter of 2003 we divested of Femco Machine Company, Inc. 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 first quarter of 2003 increased approximately 34.0% to $379.3 million, from $283.0 million for the same period in 2002. A significant amount of this increase was the result of the Grove acquisition, which was completed by the company on August 8, 2002. Grove's net sales were $150.4 million for the first quarter of 2003. Excluding Grove's net sales for the first quarter of 2003, consolidated net sales decreased 19.2% compared to the first quarter of 2002. Net sales for the first quarter of 2003 continued to be affected by the continued depressed demand for crawler cranes in the U.S. market and the 44-day strike at Marinette Marine. The work stoppage was resolved on March 7, 2003, with a new four-year labor agreement.Net sales from the Crane segment for the first quarter of 2003 increased 84.7% to $238.9 million versus the first quarter of last year. The increased sales were driven by the $150.4 million of sales during the first quarter of 2003 from Grove. Excluding Grove's net sales for the first quarter of 2003, Crane segment net sales decreased 31.6% compared to the first quarter of 2002. Crane sales were impacted by very slow demand for U.S. crawler cranes. In addition, global demand for cranes remains weak due to low non-residential construction activity and deferrals in spending for power plant renovation. Following two years of double digit declines in sales, the worldwide crawler crane market is expected to decline further this year, possibly more than 25%. Both the mobile telescopic and tower crane categories are expected to decline between 5 and 10 % worldwide. Crane segment backlog was $202.1 million at March 31, 2003 compared to $133.8 million at December 31, 2002.Net sales from the Foodservice segment increased 2.2% to $105.0 million in the first quarter of 2003 versus the first quarter of 2002, despite continuing difficulties in the quick-service and hospitality markets, as product innovations helped to improve penetration in the replacement markets. During the first quarter of 2003 our ice business shipments increased while industry shipments decreased.
Analysis of Operating EarningsThe following table presents operating income by business segment:
Consolidated operating earnings for the first quarter of 2003 were $14.9 million, a decrease of 25.1% versus the first quarter of 2002. Included in operating earnings for the first quarter of 2003 is $2.7 million of operating earnings from Grove. This decrease is primarily the result of reduced operating earnings at other Crane business units and the Marine segment and higher corporate expenses, offset by improved operating earnings in the Foodservice segment.Consolidated gross margin in 2003 was impacted by the following items: (i) the loss of our ability to spread fixed costs over a broader base of gross revenue in crawler cranes due to the decline in sales (referred to as lost absorption); (ii) a shift in product mix towards smaller mobile hydraulic cranes; (iii) price competition in the crane segment, particularly in Europe; (iv) historically lower gross margins from the Grove product line; and (v) the strike at Marinette Marine.Engineering, selling and administrative expenses increased $20.2 million for the three months ended March 31, 2003 compared to the same period in 2002. This increase is primarily the result of the acquisition of Grove and higher corporate expenses. The increase in corporate expenses is the result of growth from acquisition and corporate assumption of certain staff responsibilities previously handled by acquired companies.Operating earnings in the Crane segment decreased 48.3% to $6.2 million during the first quarter of 2003 compared to the first quarter of 2002. The decrease in operating earnings of the Crane segment was primarily due to lost absorption in crawler cranes and a shift in product mix towards smaller mobile hydraulic cranes. In addition, the price competition in certain areas and historical Grove margins discussed above reduced operating earnings in the first quarter of 2003 compared to the first quarter of 2002. Our worldwide integration and reorganization efforts are proceeding as planned. We have identified an additional $10 million in savings that we expect to achieve by year-end in addition to the $20 million target announced during the assimilation process.Operating earnings in the Foodservice segment increased 123.3% to $12.2 million during the first quarter of 2003 compared to the first quarter of 2002. During the first quarter of 2002, we recorded a pre-tax restructuring charge of $3.9 million in connection with the consolidation of our Multiplex operations into other of our Foodservice operations. These actions were taken in an effort to streamline our cost structure and utilize available capacity. We estimate annual cost savings of approximately $2.7 million as a result of this consolidation. The charge included $2.8 million to write-down the building and land, which are available 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. All of the charge was paid or utilized by December 31, 2002. Excluding the $3.9 million charge, Foodservice segment operating earnings increased 30.4% compared to the first quarter of 2002. In addition, the increase is due to modest revenue growth, ongoing cost improvements, new product development, and improved performance by Diversified Refrigeration, Inc. (DRI), our private-label contract manufacturing operation.
The strike at Marinette Marine was the principle factor that caused the Marine segment operating earnings to drop 89.9% to $0.6 million in the first quarter of 2003 compared to $5.9 million in the first quarter of 2002. Analysis of Non-Operating Income Statement Items
First Quarter of 2003
During the quarter, cash and cash equivalents increased $5.2 million to $33.3 million at March 31, 2003. Cash flows from continuing operations for the quarter ended March 31, 2003 were $25.1 million. Historically, the first quarter has not been a strong generating cash flow quarter due to the seasonality of our businesses. During the quarter the most significant providers of cash were an increase in accounts payable and other accrued expenses and a $9.0 million tax refund, while receivables remained relatively flat compared to a $27.8 million use of cash in the first quarter of 2002. Inventories were a $19.4 million use of cash for the first quarter of 2003. This is primarily due to increased production within the Crane and Foodservice segments in the first quarter 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.
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 flow from continuing operations and borrowings under our Senior Credit Facility. We had $93.0 million of unused availability under the terms of the Revolving Credit portion of our Senior Credit Facility at March 31, 2003.Our debt at March 31, 2003 consisted primarily of our Senior Credit Facility, our Senior Subordinated Notes due 2011 and our Senior Subordinated Notes due 2012.At March 31, 2003, the Senior Credit Facility consisted of Term Loan A and Term Loan B facilities totaling $255.0 million and $1.2 million outstanding under the Revolving Credit portion. As a result of prepayments made, Term Loan A requires no additional principal payments during 2003. Term Loan B requires quarterly principal payments of $0.4 million through March 2006 and $33.3 million from June 2006 through May 2007. Substantially all 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 rates for Term Loan A, Term Loan B, and the Revolving Credit Facility were 3.96%, 4.27%, and 5.88%, respectively, at March 31, 2003. The annual commitment fee in effect on the unused portion of our Revolving Credit Facility at March 31, 2003 was 0.5%.We had outstanding at March 31, 2003, 175 million Euro ($189.0 million) of 10 3/8% 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 10 1/2 % 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 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. In addition, we may redeem for a premium, at any time prior to May 15, 2004, up to 35% of the face amount of these Senior Subordinated Notes with the proceeds of one or more equity offerings.We also had outstanding at March 31, 2003, $175 million of 10 1/2% 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 10 3/8% 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, commencing February 1, 2003. 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 with the proceeds of one or more equity offerings. The Senior Credit Facility and the 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 Subordinated Notes due 2011 and 2012. Among other restrictions, these covenants require us to meet specified financial tests, including minimum levels of earnings before interest, taxes, depreciation, and amortization (EBITDA), and various debt to EBITDA ratios which become more restrictive over time. These covenants also limit our ability to redeem or repurchase the Senior Subordinated Notes due 2011 and 2012, 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 a default under the Senior Credit Facility. At March 31, 2003, we were in compliance with all of our covenants.
Acquisitions
On August 8, 2002 the company acquired all of the outstanding common shares of Grove Investors, Inc. (Grove). The results of Grove's operations have been included in the Consolidated Statement of Earnings since that date. Grove is a leading provider of mobile telescopic cranes, truck-mounted cranes, and aerial work platforms for the global market. Grove's products are used in a wide variety of applications by commercial and residential building contractors as well as by industrial, municipal, and military end users. Grove's products are marketed to independent equipment rental companies and directly to end users under the brand names Grove Crane, Grove Manlift, and National Crane.The Company views Grove as a strategic fit with its crane business for a number of reasons. Grove is a global leader in the mobile telescopic crane industry, specifically in all-terrain and rough-terrain mobile telescopic cranes. The company did not offer these types of cranes, so Grove filled this void in the company's product offering. Coupled with the company's recent entrance into the tower crane product line with the acquisition of Potain, Grove enables the company to offer customers three major crane categories, namely crawler cranes, tower cranes and mobile telescopic cranes. With the addition of Grove, the company is able to offer customers equipment and lifting solutions for virtually every construction application. The company also believes that the combination of the two companies will provide opportunities to capitalize on their respective strengths in systems, technologies and manufacturing expertise, and that this combination will create natural synergies in its world wide distribution and serv ice network.The aggregate purchase price paid for Grove was $277.8 million. This includes the issuance of $70.0 million of the company's common stock, the assumption of $202.4 million of Grove debt outstanding as of August 8, 2002, and direct acquisition costs of $5.4 million. In exchange for the outstanding shares of Grove common stock, the company issued approximately 2.2 million shares of the company's common stock out of treasury with an average market price of $32.34 per share. The number of shares issued at the close of the transaction was calculated based on the average closing price of the company's common stock for the ten consecutive trading days ending on and including the second day prior to the closing of the transaction. In addition, the company assumed all of Grove's outstanding liabilities, contingencies and commitments (approximately $464.2 million including the outstanding debt). Substantially all of the assumed debt was refinanced.On April 8, 2002 the company purchased the remaining 50% interest in its joint venture Manitowoc Foodservice Europe (f/k/a Fabbrica Apparecchiature per la Produzione del Ghiaccio Srl), a manufacturer of ice machines based in Italy. The aggregate cash consideration paid by the company for the remaining interest was $3.4 million and resulted in $1.9 million of additional goodwill. The $1.9 million of goodwill was included in the Foodservice segment and is not expected to be deductible for tax purposes.
Recent Accounting Changes and Pronouncements
In August 2001, the Financial Accounting Standards Board (FASB) issued SFAS No. 143, "Accounting for Obligations Associated with the Retirement of Long-Lived Assets." The provisions of SFAS No. 143 establish accounting standards for the recognition and measurement of an asset retirement obligation. This statement was effective for us beginning January 1, 2003, and did not have a material effect on our consolidated financial statements.In April 2002, the FASB issued SFAS No. 145, "Rescission of FAS Nos. 4, 44, and 64, Amendment of FAS 13 and Technical Corrections as of April 2002," which mainly addresses the accounting and disclosure related to early extinguishment of debt transactions as well as several other technical corrections. SFAS No. 145 was effective for us beginning January 1, 2003. The adoption of SFAS No. 145 will result in us reclassifying our 2001 loss on early extinguishment of debt from an extraordinary item to a component of earnings from continuing operations.In June 2002, the FASB issued SFAS No. 146, "Accounting for Costs Associated with Exit or Disposal Activities," which addresses financial accounting and reporting for costs associated with exit or disposal activities. SFAS No. 146 requires that a liability for a cost associated with an exit or disposal activity be recognized when the liability is incurred. This Statement also establishes that fair value is the objective for initial measurement of the liability. Severance pay under SFAS No. 146, in many cases, would be recognized over time rather than up front. The provisions of this statement are effective for exit or disposal activities that are initiated after December 31, 2002. Effective January 1, 2003, we adopted the initial recognition and measurement provisions of FASB Interpretation (FIN) No. 45, "Guarantor's Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others." FIN No. 45 requires a guarantor to recognize, at the inception of a qualified guarantee, a liability for the fair value of the obligation undertaken in issuing the guarantee. The adoption of FIN No. 45 did not have a material impact on the company's financial statements.
Critical Accounting Policies
The company's critical accounting policies have not materially changed since the 2002 Form 10-K was filed.
The company's market risk disclosures have not materially changed since the 2002 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, 2002.
Item 4. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
We maintain a system of disclosure controls and procedures (as defined in Rules 13d-14(c) and 15d - 14(c) under the Securities Exchange Act of 1934) designed to provide reasonable assurance that material information about the company is made known to the officers certifying this report, and accordingly is reflected in our SEC reports, including this report. Based on their evaluation, as of a date within 90 days of the filing of this Form 10-Q, our Chief Executive Officer and Chief Financial Officer have concluded that our disclosure controls and procedures are effective.
Change in Internal Controls
There have been no significant changes in our internal controls (which are designed to provide reasonable assurance as to the reliability of our published financial statements) or in other factors that could significantly affect these controls subsequent to the date of their evaluation.
PART II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders
On April 7, 2003, the company filed its annual Proxy Statement for its Annual Meeting of Shareholders, which will be held on May 6, 2003. As discussed in the Proxy Statement, two matters of business are scheduled to be voted upon by stockholders at the meeting:
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits: See exhibit index following the certifications 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 March 31, 2003:
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 12, 2003
The Manitowoc Company, Inc.
(Registrant)
/s/ Terry D. Growcock
Terry D. Growcock
Chairman and Chief Executive Officer
/s/ Timothy M. Wood
Timothy M. Wood
Vice President and Chief Financial Officer
/s/ Maurice D. Jones
Maurice D. Jones
Vice President, General Counsel and Secretary
CERTIFICATIONS
Certification of Principal Executive Officer
I, Terry D. Growcock, certify that:
1. I have reviewed this quarterly report on Form 10-Q of The Manitowoc Company, Inc.;
2. Based on my knowledge, this quarterly report does not contain any untrue statements of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made not misleading with respect to the period covered by this quarterly report;
3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report;
4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15b-14) for the registrant and we have:
a) Designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared;
b) Evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the "Evaluation Date"); and
c) Presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date:
5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent function):
a) All significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and
b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and
6. The registrant's other certifying officer and I have indicated in this quarterly report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.
Certification of Principal Financial Officer
I, Timothy M. Wood, certify that:
Exhibit No.*
Description
FiledHerewith
99.1
Certification of CEO pursuant to 18 U.S.C. Section 1350
X
99.2
Certification of CFO pursuant to 18 U.S.C. Section 1350
* 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.