UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] | Quarterly Report Pursuant to Section 13 or 15(d) of the Securities | |
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[ ] | Transition Report Pursuant to Section 13 or 15(d) of the Securities | |
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Commission File Number
1-11978
The Manitowoc Company, Inc.
(Exact name of registrant as specified in its charter)
Wisconsin | 39-0448110 |
(State or other jurisdiction | (I.R.S. Employer |
500 S. 16th Street, |
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(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 ( X ) No ( )
The number of shares outstanding of the Registrant's common stock, $.01 par value, as of September 30, 2001, the most recent practicable date, was 24,273,605.
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
THE MANITOWOC COMPANY, INC.
Consolidated Statements of Earnings
For the Quarter and Nine Months Ended September 30, 2001 and 2000
(Unaudited)
(In thousands, except per-share and average shares data)
Quarter Ended | Nine Months Ended | ||||||||
2001 | 2000 | 2001 | 2000 | ||||||
Net sales | $ | 301,011 | $ | 214,531 | $ | 828,596 | $ | 663,950 | |
Costs and expenses: | |||||||||
Cost of sales | 222,873 | 158,874 | 614,654 | 481,509 | |||||
Engineering, selling and administrative expenses | 40,891 | 29,289 | 112,196 | 84,849 | |||||
Amortization expense | 3,476 | 2,087 | 8,943 | 6,074 | |||||
Total costs and expenses | 267,240 | 190,250 | 735,793 | 572,432 | |||||
Earnings from operations | 33,771 | 24,281 | 92,803 | 91,518 | |||||
Other income (expense): | |||||||||
Interest expense | (12,362 | ) | (4,000 | ) | (25,302 | ) | (10,450 | ) | |
Other expenses, net | (677 | ) | (604 | ) | (1,217 | ) | (1,360 | ) | |
Total other income (expense) | (13,039 | ) | (4,604 | ) | (26,519 | ) | (11,810 | ) | |
Earnings before taxes on income and | 20,732 | 19,677 | 66,284 | 79,708 | |||||
Provision for taxes on income | 8,293 | 7,379 | 26,040 | 29,890 | |||||
Earnings before extraordinary loss | 12,439 | 12,298 | 40,244 | 49,818 | |||||
Extraordinary loss on debt extinguishment, |
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Net earnings | $ | 12,439 | $ | 12,298 | $ | 36,920 | $ | 49,818 | |
Basic earnings per share before extraordinary loss | $ | 0.51 | $ | 0.50 | $ | 1.66 | $ | 1.99 | |
Extraordinary loss, net of income tax benefit | - | - | (0.14 | ) | - | ||||
Basic earnings per share | $ | 0.51 | $ | 0.50 | $ | 1.52 | $ | 1.99 | |
Diluted earnings per share before extraordinary loss | $ | 0.51 | $ | 0.50 | $ | 1.64 | $ | 1.98 | |
Extraordinary loss, net of income tax benefit | - | - | (0.13 | ) | - | ||||
Diluted earnings per share | $ | 0.51 | $ | 0.50 | $ | 1.51 | $ | 1.98 | |
Dividends per share | $ | - | $ | 0.075 | $ | 0.075 | $ | 0.225 | |
Weighted average shares outstanding - basic | 24,273,605 | 24,638,599 | 24,268,412 | 25,069,860 | |||||
Weighted average shares outstanding - diluted | 24,522,524 | 24,684,739 | 24,539,425 | 25,154,226 |
See accompanying notes which are an integral part of these statements.
THE MANITOWOC COMPANY, INC.
Consolidated Balance Sheets
As of September 30, 2001 and December 31, 2000
(In thousands, except share data)
| September 30, | December 31, | |||
Current Assets: | |||||
Cash and cash equivalents | $ | 39,334 | $ | 13,983 | |
Marketable securities | 2,125 | 2,044 | |||
Accounts receivable | 166,503 | 88,231 | |||
Inventories | 150,992 | 91,178 | |||
Other current assets | 9,884 | 7,479 | |||
Future income tax benefits | 26,674 | 20,592 | |||
Total current assets | 395,512 | 223,507 | |||
Intangible assets - net | 524,490 | 308,751 | |||
Other non-current assets | 42,745 | 10,332 | |||
Property, plant and equipment - net | 176,258 | 99,940 | |||
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Liabilities and Stockholders' Equity | |||||
Current Liabilities: | |||||
Accounts payable and accrued expenses | $ | 287,440 | $ | 144,713 | |
Current portion of long-term debt | 44,023 | 270 | |||
Short-term borrowings | - | 81,000 | |||
Product warranties | 16,352 | 13,507 | |||
Total current liabilities | 347,815 | 239,490 | |||
Non-Current Liabilities: | |||||
Long-term debt, less current portion | 462,686 | 137,668 | |||
Postretirement health benefit obligations | 23,864 | 20,341 | |||
Other non-current liabilities | 39,044 | 11,262 | |||
Total non-current liabilities | 525,594 | 169,271 | |||
Stockholders' Equity: | |||||
Common stock (36,746,482 shares issued) | 367 | 367 | |||
Additional paid-in capital | 31,657 | 31,602 | |||
Accumulated other comprehensive loss | (5,919 | ) | (2,569 | ) | |
Retained earnings | 369,461 | 334,433 | |||
Treasury stock, at cost | |||||
(12,472,877 and 12,487,019 shares) | (129,970 | ) | (130,064 | ) | |
Total stockholders' equity | 265,596 | 233,769 | |||
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See accompanying notes which are an integral part of these statements.
THE MANITOWOC COMPANY, INC.
Consolidated Statements of Cash Flows
For the Nine Months Ended September 30, 2001 and 2000
(Unaudited)
(In thousands)
Nine Months Ended | ||||||
2001 | 2000 | |||||
Cash Flows from Operations: | ||||||
Net earnings | $ | 36,920 | $ | 49,818 | ||
Adjustments to reconcile net earnings to | ||||||
Depreciation | 16,218 | 7,360 | ||||
Amortization of goodwill | 8,943 | 6,074 | ||||
Amortization of deferred financing fees | 1,420 | 504 | ||||
Extraordinary loss on early extinguishment of debt, |
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(Gain) loss on sale of property, plant and equipment | (338 | ) | 227 | |||
Changes in operating assets and liabilities | ||||||
excluding the effects of business acquisitions: | ||||||
Accounts receivable | (5,585 | ) | (5,846 | ) | ||
Inventories | 1,492 | (841 | ) | |||
Other current assets | 9,180 | 1,608 | ||||
Non-current assets | (32,361 | ) | (1,393 | ) | ||
Current liabilities | 47,153 | 11,930 | ||||
Non-current liabilities | (885 | ) | (3 | ) | ||
Net cash provided by operations | 85,481 | 69,438 | ||||
Cash Flows from Investing: | ||||||
Business acquisitions - net of cash acquired | (284,759 | ) | (50,599 | ) | ||
Capital expenditures | (17,417 | ) | (10,446 | ) | ||
Proceeds from sale of property, plant, and | ||||||
equipment | 487 | 3,420 | ||||
Purchase of temporary investments - net | (81 | ) | (94 | ) | ||
Net cash used for investing | (301,770 | ) | (57,719 | ) | ||
Cash Flows from Financing: | ||||||
Proceeds from long-term borrowings | 345,116 | - | ||||
Proceeds from senior subordinated notes | 156,118 | - | ||||
Payments on long-term borrowings | (157,489 | ) | (32 | ) | ||
Proceeds (payments) on short-term borrowings - net | (79,382 | ) | 38,317 | |||
Debt issuance costs | (21,023 | ) | - | |||
Dividends paid | (1,893 | ) | (5,618 | ) | ||
Options exercised | 148 | 363 | ||||
Treasury stock purchased | - | (41,498 | ) | |||
Net cash provided by (used for) financing | 241,595 | (8,468 | ) | |||
Effect of exchange rate changes on cash | 45 | (62 | ) | |||
Net increase in cash and cash equivalents | 25,351 | 3,189 | ||||
Balance at beginning of period | 13,983 | 10,097 | ||||
Balance at end of period | $ | 39,334 | $ | 13,286 | ||
Supplemental cash flow information: | ||||||
Interest paid | $ | 15,696 | $ | 8,748 | ||
Income taxes paid | $ | 4,612 | $ | 30,511 |
See accompanying notes which are an integral part of these statements.
THE MANITOWOC COMPANY, INC.
Consolidated Statements of Comprehensive Income
For the Quarter and Nine Months Ended September 30, 2001 and 2000
(Unaudited)
(In thousands)
Quarter Ended | Nine Months Ended | ||||||||
2001 | 2000 | 2001 | 2000 | ||||||
Net earnings | $ | 12,439 | $ | 12,298 | $ | 36,920 | $ | 49,818 | |
Other comprehensive income (loss): | |||||||||
Hedging activities - net of income taxes | (1,562 | ) | - | (1,773 | ) | - | |||
Foreign currency translation adjustments | 3,956 | (476 | ) | (1,577 | ) | (1,230 | ) | ||
Total other comprehensive income (loss) | 2,394 | (476 | ) | (3,350 | ) | (1,230 | ) | ||
Comprehensive income | $ | 14,833 | $ | 11,822 | $ | 33,570 | $ | 48,588 |
See accompanying notes which are an integral part of these statements.
THE MANITOWOC COMPANY, INC.
Notes to Unaudited Consolidated Financial Statements
For the Nine Months Ended September 30, 2001 and 2000
1. Accounting Policies
In the opinion of management, the accompanying unaudited condensed consolidated financial statements contain all adjustments necessary to present fairly the results of operations, cash flows and comprehensive income for the quarters and nine months ended September 30, 2001 and 2000 and the financial position at September 30, 2001. 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, 2000. The consolidated balance sheet as of December 31, 2000 was derived from audited financial statements, but does not include all disclosures required by generally accepted accounting principles. 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.
Net sales for the quarter and nine months ended September 30, 2000 have been restated to reflect the adoption of EITF
99-19, "Reporting Revenues Gross as a Principal versus Net as an Agent." The impact of this restatement was to reclassify costs formerly reported as a component of net sales to cost of goods sold. The amounts reclassified were $3,684 and $11,826 for the third quarter and nine-month period ended September 30, 2000, respectively.
All dollar amounts, except per share amounts, are in thousands of dollars throughout these notes unless otherwise indicated.
2. Inventories
The components of inventory at September 30, 2001 and December 31, 2000 are summarized as follows:
Sept. 30, | Dec. 31, | ||||
Components: | |||||
Raw materials | $ | 52,266 | $ | 33,935 | |
Work-in-process | 52,026 | 32,914 | |||
Finished goods | 68,211 | 45,880 | |||
Total inventories at FIFO costs | 172,503 | 112,729 | |||
Excess of FIFO costs over LIFO value | (21,511 | ) | (21,551 | ) | |
Total inventories | $ | 150,992 | $ | 91,178 |
Inventory is carried at lower of cost or market using the first-in, first-out (FIFO) method for 76% and 57% of total inventory at September 30, 2001 and December 31, 2000, respectively. The remainder of the inventory is costed using the last-in, first-out (LIFO) method.
3. Contingencies
The United States Environmental Protection Agency ("EPA") has identified the company as a potentially responsible party ("PRP") under the Comprehensive Environmental Response Compensation and Liability Act ("CERCLA"), liable for the costs associated with investigating and cleaning up contamination at the Lemberger Landfill Superfund Site (the "Site") near Manitowoc, Wisconsin.
Approximately 150 PRP's have been identified as having shipped substances to the Site. Eleven of the potentially responsible parties, including the company, have formed a group (the Lemberger Site Remediation Group, or LSRG) and have successfully negotiated with the EPA and the Wisconsin Department of Natural Resources to settle the potential liability at the Site and fund the cleanup.
Recent estimates indicate that the remaining costs to clean up the Site are nominal. However, the ultimate allocation of costs for the Site is not yet final. Although liability is joint and several, the company's percentage share of liability is estimated to be 11% of the total cleanup costs. Prior to December 31, 1996, the company accrued $3.3 million in connection with this matter. Expenses charged against this reserve during the third quarter and first nine months of 2001 and 2000 in connection with this matter were not significant. Remediation work at the Site has been substantially completed, with only long-term pumping and treating of ground water and Site maintenance remaining. The remaining estimated liability for this matter, included in other current and non-current liabilities at September 30, 2001, is $1.2 million.
As of September 30, 2001, various product-related lawsuits were pending. To the extent permitted under applicable law, all of these are insured with self-insurance retentions of $0.1 million for Potain Crane accidents; $1.0 million for all other Crane accidents; $1.0 million for Foodservice accidents occurring during 1990 to 1996; and $0.1 million for Foodservice accidents occurring during 1997 to 2001. The insurer's contribution is limited to $50.0 million.
Product liability reserves included in accounts payable and accrued expenses at September 30, 2001 were $10.5 million; $4.5 million reserved specifically for the cases referenced above, and $6.0 million for claims incurred but not reported which were estimated using actuarial methods. As of September 30, 2001, the highest reserve for an insured claim is $0.9 million. Based on the company's experience in defending itself against product liability claims, management believes the current reserves are adequate for estimated settlements on aggregate self-insured claims and insured claims. Any recoveries from insurance carriers are dependent upon the legal sufficiency of claims and the solvency of insurance carriers.
It is reasonably possible that the estimates for environmental remediation and product liability costs may change in the near future based upon new information that may arise. Presently, there is no reliable means to estimate the amount of any such potential changes.
The company is also involved in various other legal actions arising in the normal course of business. After taking into consideration legal counsel's evaluation of such actions, in the opinion of management, ultimate resolution is not expected to have a material adverse effect on the consolidated financial statements of the company.
4. Stockholders' Equity
The board of directors of the company previously authorized the repurchase of up to 2.5 million shares of common stock at management's discretion. As of September 30, 2001, the company had purchased approximately 1.9 million shares at a cost of $49.8 million pursuant to this authorization. There were no common stock repurchases made during the first nine months of 2001.
In February 2001, the board of directors adopted a resolution to pay cash dividends annually rather than quarterly. The board of directors also resolved that it would determine the amount and timing of the annual dividend at its regular fall meeting each year. On October 22, 2001, the board of directors declared a common stock dividend of 22.5 cents per share, payable on December 7, 2001. This dividend, combined with the 7.5 cents per share dividend declared in February 2001, will bring the total dividends to be paid in 2001 to 30 cents per share.
5. Earnings Per Share
The following is a reconciliation of the earnings and average shares outstanding used to compute basic and diluted earnings per share.
Quarter Ended | Nine Months Ended | |||||||||||
2001 | 2000 | 2001 | 2000 | |||||||||
Earnings: | ||||||||||||
Earnings from continuing operations | $ | 12,439 | $ | 12,298 | $ | 40,244 | $ | 49,818 | ||||
Extraordinary loss from debt extinguishment, net | - | - | (3,324 | ) | - | |||||||
Net earnings | $ | 12,439 | $ | 12,298 | $ | 36,920 | $ | 49,818 | ||||
Basic weighted average common shares outstanding | 24,269,153 | 24,638,599 | 24,265,752 | 25,069,860 | ||||||||
Effect of dilutive securities - stock options | 253,371 | 46,140 | 273,673 | 84,366 | ||||||||
Diluted weighted average common shares outstanding | 24,522,524 | 24,684,739 | 24,539,425 | 25,154,226 | ||||||||
Basic earnings per share: | ||||||||||||
Earnings from continuing operations | $ | 0.51 | $ | 0.50 | $ | 1.66 | $ | 1.99 | ||||
Extraordinary loss from debt extinguishment, net | - | - | (0.14 | ) | - | |||||||
Net earnings | $ | 0.51 | $ | 0.50 | $ | 1.52 | $ | 1.99 | ||||
Diluted earnings per share: | ||||||||||||
Earnings from continuing operations | $ | 0.51 | $ | 0.50 | $ | 1.64 | $ | 1.98 | ||||
Extraordinary loss from debt extinguishment, net | - | - | (0.13 | ) | - | |||||||
Net earnings | $ | 0.51 | $ | 0.50 | $ | 1.51 | $ | 1.98 |
6. Long-term Debt
During the second quarter of 2001, in connection with the company's acquisition of Potain SA (see Note 7), the company restructured its long-term debt by entering into a $475 million senior credit facility (the "Senior Credit Facility") and issuing Euro 175 million (U.S. $156 million, as of May 9, 2001) aggregate principal amount of the company's 10-3/8% Senior Subordinated Notes due 2011 (the "Notes").
The Senior Credit Facility, comprised of a $125 million revolving credit facility and term loans aggregating $350 million, requires the company to meet specified financial tests, including various debt and cash flow ratios, and contains customary covenants, including covenants that limit the company's and its subsidiaries' ability to prepay principal, redeem or repurchase the Notes, incur additional debt, merge with other entities, make acquisitions, pay dividends, make distributions, repurchase capital stock, make investments or advances, create or become subject to liens and make capital expenditures.
Borrowings under the Senior Credit Facility bear interest at a rate equal to the sum of the base rate or a Eurodollar rate plus an applicable margin, which is based on the company's consolidated leverage ratio. The company will also pay agency fees and commitment fees on the unused portion of the Senior Credit Facility.
The Notes are unsecured obligations of the company, ranking subordinate in right of payment to all senior debt of the company and are fully and unconditionally guaranteed by the company's domestic subsidiaries (the "Guarantor Subsidiaries"). The Notes include covenants similar to the Senior Credit Facility described above.
In connection with its long-term debt restructuring, the company incurred an extraordinary loss of $3,324 (net of income tax benefit of $2,216) resulting from a prepayment penalty due to the payment of its then existing credit facilities and the write-off of the related unamortized financing fee.
The company enters into interest rate swap agreements to reduce the impact of changes in interest rates on its floating rate debt. As of September 30, 2001, the company had outstanding two interest rate swap agreements, having a total notional principal amount of $187.5 million. The interest rate swaps are designated as a cash flow hedge instrument based upon the criteria established by SFAS No. 133. For a derivative designated as a cash flow hedge, the effective portion of the derivative's gain or loss due to a change in fair value is initially recorded as a component of other comprehensive income and subsequently reclassified into earnings when the hedged exposure affects earnings. The fair value of these arrangements, which represents the costs to settle these contracts, approximates a loss of $1.8 million at September 30, 2001.
7. Acquisition of Potain and Subsidiary Guarantors
On May 9, 2001, the company, through its subsidiary Manitowoc France SAS, acquired from Legris Industries SA all of the outstanding capital stock of Potain SA ("Potain") for $307.1 million, subject to a post-closing adjustment for Potain's net income from January 1, 2001 through the closing date. Potain is a leading designer, manufacturer and supplier of tower cranes for the building and construction industry.
The acquisition of Potain, whose operations are included in the company's financial statements as of May 9, 2001, has been recorded using the purchase method of accounting. The cost of the acquisition has been allocated on the basis of the estimated fair values of the assets acquired and liabilities assumed. The preliminary estimate of the excess of the cost over the fair value of the net assets acquired is $194.8 million, the amortization of which will cease effective January 1, 2002 (see Note 8). Pro forma consolidated net sales, net earnings, basic earnings per share and diluted earnings per share were $929.1 million, $28.1 million, $1.16 and $1.14, respectively, for the nine-month period ended September 30, 2001. The pro forma financial information assumes the Potain acquisition occurred on January 1, 2001. Comparable prior year nine-month pro forma information is not available as the Potain books and records were maintained under French GAAP, however, U.S. GAAP reconciled net sales and net income f or Potain for the year ended December 31, 2000 were $260.0 million and $15.8 million, respectively.
The following condensed consolidating financial statements illustrate the composition of The Manitowoc Company, Inc. ("Parent"), the Guarantor Subsidiaries and the company's non-domestic subsidiaries ("Non-Guarantor Subsidiaries") for the balance sheet as of September 30, 2001, the statement of earnings for the quarter and nine-month period ended September 30, 2001 and the statement of cash flows for the nine-months ended September 30, 2001. Separate financial statements of the respective Guarantor Subsidiaries are not provided because the company believes separate financial statements would not provide additional information that would be useful in assessing the financial condition of the Guarantor Subsidiaries.
The Manitowoc Company, Inc.
Condensed Consolidating Statement of Earnings
For the Quarter Ended September 30, 2001
(Unaudited)
(In thousands)
| Non-Guarantor | ||||||||||||||
Parent | Subsidiaries | Subsidiaries | Eliminations | Consolidated | |||||||||||
Net sales | $ | - | $ | 227,463 | $ | 73,548 | $ | - | $ | 301,011 | |||||
Costs and expenses: | |||||||||||||||
Cost of sales | - | 167,634 | 55,239 | - | 222,873 | ||||||||||
Engineering, selling and administrative | 2,887 | 28,055 | 9,949 | - | 40,891 | ||||||||||
Amortization expense | 21 | 2,203 | 1,252 | - | 3,476 | ||||||||||
Total costs and expenses | 2,908 | 197,892 | 66,440 | - | 267,240 | ||||||||||
Earnings (loss) from operations | (2,908 | ) | 29,571 | 7,108 | - | 33,771 | |||||||||
Other income (expense): | |||||||||||||||
Interest expense | (11,238 | ) | (357 | ) | (767 | ) | - | (12,362 | ) | ||||||
Management fee income (expense) | 3,384 | (3,384 | ) | - | - | - | |||||||||
Other expense - net | (314 | ) | (124 | ) | (239 | ) | - | (677 | ) | ||||||
Total other income (expense) | (8,168 | ) | (3,865 | ) | (1,006 | ) | - | (13,039 | ) | ||||||
Earnings before taxes on income and |
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Provision (benefit) for taxes on income | (4,075 | ) | 9,556 | 2,812 | - | 8,293 | |||||||||
Equity in earnings of subsidiaries | 19,440 | - | - | (19,440 | ) | - | |||||||||
Net earnings | $ | 12,439 | $ | 16,150 | $ | 3,290 | $ | (19,440 | ) | $ | 12,439 |
The Manitowoc Company, Inc.
Condensed Consolidating Statement of Earnings
For the Nine Months Ended September 30, 2001
(Unaudited)
(In thousands)
| Non-Guarantor | ||||||||||||||
Parent | Subsidiaries | Subsidiaries | Eliminations | Consolidated | |||||||||||
Net sales | $ | - | $ | 697,341 | $ | 131,255 | $ | - | $ | 828,596 | |||||
Costs and expenses: | |||||||||||||||
Cost of sales | - | 515,359 | 99,295 | - | 614,654 | ||||||||||
Engineering, selling and administrative | 9,033 | 86,043 | 17,120 | - | 112,196 | ||||||||||
Amortization expense | 315 | 6,662 | 1,966 | - | 8,943 | ||||||||||
Total costs and expenses | 9,348 | 608,064 | 118,381 | - | 735,793 | ||||||||||
Earnings (loss) from operations | (9,348 | ) | 89,277 | 12,874 | - | 92,803 | |||||||||
Other income (expense): | |||||||||||||||
Interest expense | (23,030 | ) | (1,505 | ) | (767 | ) | - | (25,302 | ) | ||||||
Management fee income (expense) | 10,207 | (10,207 | ) | - | - | - | |||||||||
Other expense - net | (698 | ) | (238 | ) | (281 | ) | - | (1,217 | ) | ||||||
Total other income (expense) | (13,521 | ) | (11,950 | ) | (1,048 | ) | - | (26,519 | ) | ||||||
Earnings before taxes on income, equity |
(22,869 |
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77,327 |
11,826 |
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66,284 | |||||||||
Provision (benefit) for taxes on income | (8,542 | ) | 29,110 | 5,472 | - | 26,040 | |||||||||
Equity in earnings of subsidiaries | 54,571 | - | - | (54,571 | ) | - | |||||||||
Earnings before extraordinary loss | 40,244 | 48,217 | 6,354 | (54,571 | ) | 40,244 | |||||||||
Extraordinary loss on debt |
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Net earnings | $ | 36,920 | $ | 48,217 | $ | 6,354 | $ | (54,571 | ) | $ | 36,920 |
The Manitowoc Company, Inc.
Condensed Consolidating Statement of Balance Sheet
as of September 30, 2001
(Unaudited)
(In thousands)
Non- | |||||||||||
Guarantor | Guarantor | ||||||||||
Parent | Subsidiaries | Subsidiaries | Eliminations | Consolidated | |||||||
Assets | |||||||||||
Current Assets: | |||||||||||
Cash and cash equivalents | $ | 25,874 | $ | (2,260 | ) $ | 15,720 | $ | - | $ | 39,334 | |
Marketable securities | 2,125 | - | - | - | 2,125 | ||||||
Accounts receivable | 273 | 91,539 | 74,691 | - | 166,503 | ||||||
Inventories | - | 75,754 | 75,238 | - | 150,992 | ||||||
Other current assets | 80 | 8,051 | 1,753 | - | 9,884 | ||||||
Future income tax benefits | 21,912 | - | 4,762 | - | 26,674 | ||||||
Total current assets | 50,264 | 173,084 | 172,164 | - | 395,512 | ||||||
Intangible assets - net | 20,955 | 304,156 | 199,379 | - | 524,490 | ||||||
Other non-current assets | 2,943 | 26,593 | 13,209 | - | 42,745 | ||||||
Property, plant and equipment - net | 4,789 | 95,282 | 76,187 | - | 176,258 | ||||||
Equity in affiliates | 928,368 | - | - | (928,368 | ) | - | |||||
Total assets | $ | 1,007,319 | $ | 599,115 | $ | 460,939 | $ | (928,368 | ) $ | 1,139,005 | |
Liabilities and Stockholders' Equity | |||||||||||
Current Liabilities: | |||||||||||
Accounts payable and accrued expenses | $ | 40,323 | $ | 153,727 | $ | 93,390 | $ | - | $ | 287,440 | |
Current portion long-term debt | 37,020 | - | 7,003 | - | 44,023 | ||||||
Short-term borrowings | - | - | - | - | - | ||||||
Product warranties | - | 14,201 | 2,151 | - | 16,352 | ||||||
Total current liabilities | 77,343 | 167,928 | 102,544 | - | 347,815 | ||||||
Non-Current Liabilities: | |||||||||||
Long-term debt, less current portion | 450,919 | - | 11,767 | - | 462,686 | ||||||
Postretirement health benefits obligation | 1,054 | 19,781 | 3,029 | - | 23,864 | ||||||
Intercompany payable/(receivable) - net | 206,391 | (219,072 | ) | 12,681 | - | - | |||||
Other non-current liabilities | 6,016 | 5,047 | 27,981 | - | 39,044 | ||||||
Total non-current liabilities | 664,380 | (194,244 | ) | 55,458 | - | 525,594 | |||||
Stockholders' Equity | 265,596 | 625,431 | 302,937 | (928,368 | ) | 265,596 | |||||
Total liabilities and |
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The Manitowoc Company, Inc.
Condensed Consolidating Statement of Cash Flows
For the Nine Months Ended September 30, 2001
(Unaudited)
(In thousands)
Non- | |||||||||||
Guarantor | Guarantor | ||||||||||
Parent | Subsidiaries | Subsidiaries | Consolidated | ||||||||
Net cash provided by (used in) operations | $ | 72,739 | $ | 2,331 | $ | 10,411 | $ | 85,481 | |||
Cash Flows from Investing: | |||||||||||
Business acquisitions - net of cash acquired | -- | (955 | ) | (283,804 | ) | (284,759 | ) | ||||
Capital expenditures | (1,318 | ) | (8,863 | ) | (7,236 | ) | (17,417 | ) | |||
Proceeds from sale of property, |
| 487 |
| 487 | |||||||
Purchase of temporary investments - net | (81 | ) | -- | -- | (81 | ) | |||||
Intercompany investments | (287,271 | ) | -- | 287,271 | -- | ||||||
Net cash provided by (used for) investing | (288,670 | ) | (9,331 | ) | (3,769 | ) | (301,770 | ) | |||
Cash Flows from Financing: | |||||||||||
Proceeds from long-term borrowings | 345,116 | -- | -- | 345,116 | |||||||
Proceeds from senior subordinated notes | 156,118 | -- | -- | 156,118 | |||||||
Payments on long-term borrowings | (156,117 | ) | -- | (1,372 | ) | (157,489 | ) | ||||
Proceeds (payments) on short-term borrowings - net | (83,788 | ) | -- | 4,406 | (79,382 | ) | |||||
Debt issuance costs | (21,023 | ) | -- | -- | (21,023 | ) | |||||
Dividends paid | (1,893 | ) | -- | -- | (1,893 | ) | |||||
Options exercised | 148 | -- | -- | 148 | |||||||
Net cash provided by (used for) financing | 238,561 | -- | 3,034 | 241,595 | |||||||
Effect of exchange rate changes on cash | -- | -- | 45 | 45 | |||||||
Net increase (decrease) in cash | |||||||||||
and cash equivalents | 22,630 | (7,000 | ) | 9,721 | 25,351 | ||||||
Balance at beginning of period | 3,279 | 4,740 | 5,964 | 13,983 | |||||||
Balance at end of period | $ | 25,874 | $ | (2,260 | ) | $ | 15,720 | $ | 39,334 |
8. Recent Accounting Pronouncements
In July 2001, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards (SFAS) No. 141, "Business Combinations" and No. 142, "Goodwill and Other Intangible Assets" to establish accounting and reporting standards for business combinations, goodwill and intangible assets. Under SFAS No. 142, effective January 1, 2002, amortization of goodwill recorded on the company's books will cease (goodwill for the first nine months of 2001 was $8,943). After January 1, 2002, goodwill will be subject to an annual assessment for impairment, using a fair value based test. An impairment loss would be reported as a reduction to goodwill and a charge to operating expense, except at the transition date. The company is in the process of evaluating the impact of SFAS No. 141 and SFAS No. 142 on its financial statements.
In July 2001, the FASB issued SFAS No. 143, "Accounting for Asset Retirement Obligations," which addresses the accounting and reporting for obligations associated with the retirement of tangible long-lived assets and the associated asset retirement costs. SFAS No. 143 requires that the fair value of a liability for an asset retirement obligation be recognized in the period in which it is incurred if a reasonable estimate of fair value can be made. SFAS No. 143 is effective for financial statements issued for fiscal years beginning after June 15, 2002. The company does not expect SFAS No. 143 to have a material effect on its consolidated financial position or cash flows.
In August 2001, the FASB issued SFAS No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets," which addresses financial accounting and reporting for the impairment or disposal of long-lived assets. SFAS No. 144 generally establishes a standard frame work from which to measure impairment of long-lived assets and expands the APB 30 discontinued operations income statement presentation to include a component of the entity (rather than a segment of the business). SFAS No. 144 is effective for financial statements issued for fiscal years beginning after December 15, 2001. The company does not expect SFAS 144 to have a material effect on its consolidated financial position or cash flows.
9. Business Segments
The company determines its segments based upon the internal organization that is used by management to make operating decisions and assess performance. Based upon this approach, the company has three reportable segments: Foodservice Equipment (Foodservice), Cranes and Related Products (Cranes), and Marine Operations (Marine).
Information about reportable segments and a reconciliation of total segment sales and profits to the consolidated totals for the quarters and first nine months ending September 30, 2001 and 2000 are summarized in Item 2, "Management's Discussion and Analysis of Financial Condition and Results of Operations", to this report on Form 10-Q. As of September 30, 2001 and December 31, 2000, the total assets by segment were as follows:
September 30, 2001 | December 31, 2000 | |||
Foodservice | $ | 376,098 | $ | 359,196 |
Cranes | 597,116 | 171,867 | ||
Marine | 86,842 | 75,757 | ||
General corporate | 78,949 | 35,710 | ||
Total | $ | 1,139,005 | $ | 642,530 |
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Results of Operations for the Quarter and Nine Months Ended September 30, 2001 and 2000
Net sales and earnings from operations by business segment for the quarter and first nine months ended September 30, 2001 and 2000 are shown below (in thousands):
Quarter Ended | Nine Months Ended | ||||||||
2001 | 2000 | 2001 | 2000 | ||||||
Net Sales: | |||||||||
Foodservice products | $ | 103,781 | $ | 115,778 | $ | 321,480 | $ | 330,654 | |
Cranes and related products | 152,443 | 87,190 | 369,847 | 290,731 | |||||
Marine | 44,787 | 11,563 | 137,269 | 42,565 | |||||
Total | $ | 301,011 | $ | 214,531 | $ | 828,596 | $ | 663,950 | |
Earnings (Loss) From Operations: | |||||||||
Foodservice products | $ | 15,788 | $ | 15,746 | $ | 46,683 | $ | 50,215 | |
Cranes and related products | 19,371 | 12,847 | 48,697 | 50,314 | |||||
Marine | 4,976 | 809 | 15,399 | 6,050 | |||||
General corporate expense | (2,888 | ) | (3,034 | ) | (9,033 | ) | (8,987 | ) | |
Amortization | (3,476 | ) | (2,087 | ) | (8,943 | ) | (6,074 | ) | |
Total | 33,771 | 24,281 | 92,803 | 91,518 | |||||
Other Income (Expense) - Net | (13,039 | ) | (4,604 | ) | (26,519 | ) | (11,810 | ) | |
Earnings Before Taxes on Income |
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Net sales increased 40.3 % to $301.0 million for the third quarter of 2001, from $214.5 million for the same period in 2000. The increase in revenues was due to the Marinette Marine Corporation ("Marinette") and Potain acquisitions. Internal sales growth was down 5.9% compared to the third quarter of last year. Earnings for the quarter were $12.4 million, or $0.51 per diluted share, compared with $12.3 million, or $0.50 per diluted share in the third quarter of 2000. Excluding the acquisitions, earnings dropped 4.6%. EVA totaled $5.1 million for the third quarter, compared with $6.6 million for the same period a year ago.
For the first nine months of 2001, net sales increased 24.8% to $828.6 million from $664.0 million for the same period in 2000. Earnings, excluding the extraordinary loss of $3.3 million (net of income tax benefit) for prepayment of the company's then existing credit facilities related to its long term debt restructuring in connection with Potain, were $40.2 million, or $1.64 per diluted share, compared with $49.8 million, or $1.98 per diluted share, for the comparable period in 2000. Including the extraordinary loss of $3.3 million, net earnings for the first nine months of 2001 were $36.9 million or $1.51 per diluted share. EVA was $17.9 million for the first nine months of 2001, compared with $30.8 million for the same period one year ago.
For the third quarter ended September 30, 2001 the Foodservice segment reported sales of $103.8 million, a 10.4% decline from the same period last year. The decline in revenues is due to the continued softness in the Foodservice market and the immediate economic effects of the events on September 11. Despite the drop in sales, operating earnings were flat at $15.8 million. This is the result of the operational improvements and cost cutting strategies that were previously implemented. Operating margins improved to 15.2%, up more than 1.5 points when compared to the third quarter of 2000. For the first nine months of 2001 sales and operating earnings were $321.5 million and $46.7 million, respectively. This compares to sales and operating earnings of $330.7 million and $50.2 million for the first nine months of 2000.
Cranes and related products sales for the third quarter were $152.4 million, up from $87.2 million for the third quarter of 2000. Operating earnings were $19.4 million, compared to $12.8 million for the third quarter of 2000. The increase in sales was the result of the Potain acquisition completed during the second quarter. Without this acquisition, sales and operating earnings would have decreased by 4.1% and 11.5%, respectively, compared to the same quarter last year due to the continued softness in the crane market. The company's consolidation of its boom-truck operations is making progress against plan, and boom-truck inventory is expected to continue to decrease over the coming quarter as a result of the consolidation. Total Crane segment backlog stood at $94.2 million at the end of the third quarter of 2001, compared to $111 million at the end of the same period last year. For the first nine months of 2001, Cranes' sales were $369.8 million, compared to $290.7 million for the first nine months of 2000. Operating earnings were $48.7 million compared to $50.3 million for the same period in 2000.
Marine segment sales and operating earnings for the third quarter were $44.8 million and $5.0 million, respectively, compared with $11.6 million and $0.8 million for the same period in 2000. The company's acquisition of Marinette in the fourth quarter of 2000 accounted for most of the sales and earnings increase. Excluding Marinette's results, sales and operating earnings still increased by 26.0% and 10.8%, respectively due to an increase in repair work. The Marine segment's operating margin of 11.1% was up 4.1 points from the third quarter of 2000, even though Marinette's project work, which historically has lower margins, represents almost two-thirds of this segment's sales. For the first nine months of 2001, sales and operating earnings for this segment were $137.3 million and $15.4 million, respectively, compared with $42.6 million and $6.1 million for 2000. During the third quarter the company was awarded contracts to build two double-hull tug/barges for Vessel Management Services, Inc. as well as three state-of-the-art ferries for New York City's Staten Island.
Interest expense for the nine months ended September 30, 2001 was $25.3 million, compared to $10.5 million for the same period last year. The increase in interest expense is due to the additional debt incurred to fund the Potain and Marinette acquisitions and higher interest rates on the new credit facility.
The effective tax rate for the first nine months of 2001 is approximately 39%, compared with 37.5% for the first nine months of 2000. The increase is attributed to the higher foreign tax rates related to the Potain acquisition.
Financial Condition at September 30, 2001
Cash flow from operations was positive in the first nine months of 2001, totaling $85.5 million compared with cash from operations of $69.4 million in the first nine months of 2000. This increase was the result of changes in working capital amounts. Due to the strong levels of cash from operations, the company was able to pay down an additional $16.25 million in debt beyond required debt payment levels. Total funded debt was $506.7 million at September 30, 2001, representing a debt-to-capital ratio of 65.7% at September 30, 2001, as compared to 48.4% at December 31, 2000. This increase was primarily due to the additional debt incurred to fund the Potain acquisition.
For information regarding the company's financing arrangements entered into in connection with the Potain acquisition, see Note 6 of Notes to Unaudited Consolidated Financial Statements.
Acquisitions
As described in Note 6 of Notes to Unaudited Consolidated Financial Statements, on May 9, 2001, the company acquired from Legris Industries SA all of the outstanding capital stock of Potain.
Special Note Regarding Forward-Looking Statements
This Quarterly Report on Form 10-Q may include forward-looking statements based on management's current expectations. Reference is made in particular to the description of the company's plans and objectives for future operations, assumptions underlying such plans and objectives and other forward-looking statements in this report. Such forward-looking statements generally are identifiable by words such as "anticipates," "believes," "intends," "estimates," "expects" and similar expressions.
These statements involve a number of risks and uncertainties and must be qualified by factors that could cause results to be materially different from what is presented here. This includes the following factors for each business segment:
Foodservice- demographic information affecting two-income families and general population growth; household income; weather; diseases; consolidations within restaurant and foodservice equipment industries; global expansion of customers; actions of competitors; the commercial ice-machine replacement cycle in the United States; specialty foodservice market growth; future strength of the beverage industry; and the demand for quick-service restaurants and kiosks.
Cranes- market acceptance of new and innovative products; cyclicality of the construction industry; the effects of government spending on construction-related projects throughout the world; the ability of the company to effectively integrate Potain; growth in the world market for heavy cranes; actions of competitors; the replacement cycle of technologically obsolete cranes; demand for used equipment in developing countries; and foreign exchange rate risk.
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 - changes in laws and regulations; successful identification and integration of acquisitions; competitive pricing; domestic and international economic conditions; changes in the interest rate environment; impact of increased leverage with the Potain acquisition; and success in increasing manufacturing efficiencies.
Recent Accounting Pronouncements
In July 2001, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards (SFAS) No. 141, "Business Combinations" and No. 142, "Goodwill and Other Intangible Assets" to establish accounting and reporting standards for business combinations, goodwill and intangible assets. Under SFAS No. 142, effective January 1, 2002, amortization of goodwill recorded on the company's books will cease (goodwill for the first nine months of 2001 was $8,943). After January 1, 2002, goodwill will be subject to an annual assessment for impairment, using a fair value based test. An impairment loss would be reported as a reduction to goodwill and a charge to operating expense, except at the transition date. The company is in the process of evaluating the impact of SFAS No. 141 and SFAS No. 142 on its financial statements.
In July 2001, the FASB issued SFAS No. 143, "Accounting for Asset Retirement Obligations," which addresses the accounting and reporting for obligations associated with the retirement of tangible long-lived assets and the associated asset retirement costs. SFAS No. 143 requires that the fair value of a liability for an asset retirement obligation be recognized in the period in which it is incurred if a reasonable estimate of fair value can be made. SFAS No. 143 is effective for financial statements issued for fiscal years beginning after June 15, 2002. The company does not expect SFAS No. 143 to have a material effect on its consolidated financial position or cash flows.
In August 2001, the FASB issued SFAS No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets," which addresses financial accounting and reporting for the impairment or disposal of long-lived assets. SFAS No. 144 generally establishes a standard frame work from which to measure impairment of long-lived assets and expands the APB 30 discontinued operations income statement presentation to include a component of the entity (rather than a segment of the business). SFAS No. 144 is effective for financial statements issued for fiscal years beginning after December 15, 2001. The company does not expect SFAS 144 to have a material effect on its consolidated financial position or cash flows.
Item 3. Quantitative and Qualitative Disclosure about Market Risk
The company's quantitative and qualitative disclosures about market risk for changes in interest rates and foreign exchange risk are incorporated by reference in Item 7A of the company's Annual Report on Form 10-K for the year ended December 31, 2000. Other than the foreign exchange risk and related financing associated with the Potain acquisition, the company's market risk disclosures have not materially changed since that report was filed. Potain has significant manufacturing operations and assets in France, Germany, Italy, Spain, Portugal and China. With the Potain acquisition, the company expects that less than 20% of its 2001 annual consolidated operating income will be impacted by movements in current exchange rates between the U.S. dollar and the Euro and, to a lesser extent, the French Franc, German Mark, Italian Lira, and Singapore Dollar.
Foreign Exchange Risk
The company is exposed to fluctuations in foreign currency cash flows related to third party purchases and sales, intercompany product shipments and intercompany loans. The company is also exposed to fluctuations in the value of foreign currency investments in subsidiaries and cash flows related to repatriation of these investments. Additionally, the company is exposed to volatility in the translation of foreign currency earnings to U.S. Dollars. Primary exposures include the U.S. Dollars versus functional currencies of the company's major markets which include the Euro, French Franc, German Mark, Italian Lira, British Pound, Japanese Yen and Singapore Dollar. At September 30, 2001, the company had outstanding various foreign exchange rate hedge contracts. The fair value of these, which represents the costs to settle these contracts, approximates a gain of $0.1 million at September 30, 2001.
Interest Rate Risk
The company is exposed to interest rate volatility with regard to future issuances of fixed rate debt and existing issuances of variable rate debt. Primary exposure includes movements in the U.S. prime rate and London Interbank Offer Rate ("LIBOR"). At September 30, 2001, the company had outstanding two interest rate swap agreements with a total notional principal amount of $187.5 million. The fair market value of these arrangements, which represents the costs to settle these contracts, approximates a loss of $1.8 million at September 30, 2001. Based on the nature of its exposure, the company believes a shift in interest rates will not have a material effect on its consolidated financial position or cash flows.
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits: See exhibit index following the signatures on this Report, which is incorporated herein by reference.
(b) Reports on Form 8-K: None.
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.
THE MANITOWOC COMPANY, INC. |
(Registrant) |
/s/ Terry D. Growcock |
Terry D. Growcock |
President and Chief Executive Officer |
/s/ Glen E. Tellock |
Glen E. Tellock |
Senior VP and Chief Financial Officer |
/s/ Maurice D. Jones |
Maurice D. Jones |
General Counsel and Secretary |
November 8, 2001
THE MANITOWOC COMPANY, INC.
EXHIBIT INDEX
TO FORM 10-Q
FOR QUARTERLY PERIOD ENDED
September 30, 2001
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| Filed |
10 | The Manitowoc Company, Inc. Management Incentive Compensation Plan (Economic Value Added (EVA) Bonus Plan) effective July 4, 1993, as amended October 22, 2001 | X |
* 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.