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 EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1998
--------------------
OR
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
------------- ---------------
Commission File Number 1-11978
--------
The Manitowoc Company, Inc.
-------------------------------------------------------
(Exact name of registrant as specified in its charter)
Wisconsin 39-0448110
-------------- ---------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
500 So. 16th Street, Manitowoc, Wisconsin 54220
----------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
(920) 684-4410
--------------------------------------------------
(Registrant's telephone number, including area code)
(Former name, former address and former fiscal year, if changed since
last report.)
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 March 31, 1998, the most recent
practicable date, was 17,278,878.
PART I. FINANCIAL INFORMATION
-------------------------------------------------
Item 1. Financial Statements
- ------------------------------
THE MANITOWOC COMPANY, INC.
Consolidated Statements of Earnings
For the First Quarter of Calendar Years 1998 and 1997
(Unaudited)
(In thousands, except per-share and average shares data)
March 31, 1998 March 31, 1997
------------- ------------
Net Sales $ 154,139 $ 116,041
Costs And Expenses:
Cost of goods sold 110,667 84,033
Engineering, selling and
administrative expenses 25,887 20,707
--------- ---------
Total 136,554 104,740
Earnings From Operations 17,585 11,301
Other Income (Expense):
Interest expense (2,408) (1,124)
Interest and dividend income (9) 68
Other income (expense) (348) 37
--------- ---------
Total (2,765) (1,019)
--------- ---------
Earnings Before Taxes
On Income 14,820 10,282
Provision For Taxes On Income 5,483 3,804
--------- ---------
Net Earnings $ 9,337 $ 6,478
--------- ---------
Net Earnings Per Share - Basic $ .54 $ .38
Net Earnings Per Share - Diluted $ .54 $ .37
Dividends Per Share $ .11 $ .11
Average Shares Outstanding - Basic 17,274,565 17,267,035
Average Shares Outstanding - Diluted 17,450,534 17,358,717
<FN>
See accompanying notes which are an integral part of these statements.
</FN>
THE MANITOWOC COMPANY, INC.
Consolidated Balance Sheets
As of March 31, 1998 and December 31, 1997
(Unaudited)
(In thousands, except share data)
-ASSETS-
March 31, 1998 Dec. 31, 1997
Current Assets: ------------- -----------
Cash and cash equivalents $ 10,722 $ 11,888
Marketable securities 1,755 1,741
Accounts receivable 82,098 59,237
Inventories 72,987 54,701
Prepaid expenses and other 1,717 2,662
Future income tax benefits 15,287 15,287
--------- ---------
Total current assets 184,566 145,516
Intangibles assets-net 146,194 146,983
Other assets 12,994 12,678
Property, plant and equipment:
At cost 206,620 202,831
Less accumulated depreciation (113,710) (111,640)
--------- ---------
Property, plant and equipment-net 92,910 91,191
--------- ---------
TOTAL $436,664 $396,368
--------- ---------
-LIABILITIES AND STOCKHOLDERS' EQUITY-
Current Liabilities:
Current portion of long-term debt $ 16,384 $ 15,400
Accounts payable and accrued expenses 102,455 96,540
Short term borrowings 19,000 49,100
Product warranties 10,642 9,772
--------- ---------
Total current liabilities 148,481 170,812
Non-Current Liabilities:
Long-term debt, less current portion 121,377 66,359
Product warranties 4,979 4,955
Postretirement health benefits obligations 19,776 19,699
Other 5,637 5,925
--------- ---------
Total non-current liabilities 151,769 96,938
--------- ---------
Stockholders' Equity:
Common stock (24,497,655 shares
issued at both dates) 245 245
Additional paid-in capital 30,985 30,980
Cumulative foreign currency
translation adjustments 110 (192)
Retained earnings 186,480 179,088
Treasury stock at cost (7,218,777
and 7,228,480 shares) (81,406) (81,503)
--------- ---------
Total stockholders' equity 136,414 128,618
--------- ---------
TOTAL $436,664 $396,368
--------- ---------
<FN>
See accompanying notes which are an integral part of these statements.
</FN>
THE MANITOWOC COMPANY, INC.
Consolidated Statements of Cash Flows
For the Three Months Ended March 31, 1998 and 1997
(In thousands)
(Unaudited)
March 31, 1998 March 31, 1997
------------- -------------
Cash Flows From Operations:
Net earnings $ 9,337 $ 6,478
Non-cash adjustments to income:
Depreciation and amortization 3,436 2,793
Deferred financing fees 88 75
Loss on sale of fixed assets 27 31
Changes in operating assets & liabilities:
Accounts receivable (22,861) (2,404)
Inventories (18,286) (9,371)
Other current assets 945 185
Current liabilities 7,107 (6,494)
Non-current liabilities (211) (707)
Non-current assets (791) (10)
---------- ----------
Net cash used for operations (21,209) (9,424)
Cash Flows From Investing:
Purchase of temporary investments - net (14) (11)
Proceeds from sale of property, plant,
and equipment 218 0
Capital expenditures (4,224) (3,213)
---------- ----------
Net cash used for investing (4,020) (3,224)
Cash Flows From Financing:
Dividends paid (1,944) (1,919)
Treasury stock issued 97 0
Payments on long-term borrowings (3,998) (2,759)
Change in short-term borrowings-net 29,900 11,500
---------- ----------
Net cash provided by financing 24,055 6,822
Effect of exchange rate changes on cash 8 (46)
---------- ----------
Net decrease in cash
and cash equivalents (1,166) (5,872)
Balance at beginning of period 11,888 14,364
---------- ----------
Balance at end of period $ 10,722 $ 8,492
---------- ----------
Supplemental cash flow information:
Interest paid $ 2,291 $ 1,904
Income taxes paid $ 3,766 $ 663
<FN>
See accompanying notes which are an integral part of these statements.
</FN>
THE MANITOWOC COMPANY, INC.
Notes to Unaudited Consolidated Financial Statements
For the Three Months Ended March 31, 1998 and March 31, 1997
(Unaudited)
Note 1. In the opinion of management, the accompanying unaudited
condensed financial statements contain all adjustments,
representing normal recurring accruals, necessary to present
fairly the results of operations for the quarters ended
March 31, 1998 and 1997, the financial position at March 31,
1998 and the changes in the cash flows for the quarters
ended March 31, 1998 and 1997. 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, 1997.
Note 2. The components of inventory at March 31, 1998 and December
31, 1997 are summarized as follows (dollars in thousands):
March 31, Dec. 31,
1998 1997
-------- --------
Components:
Raw materials $22,919 $25,881
Work-in-process 33,974 22,331
Finished goods 37,761 27,972
------- ------
Total inventories at FIFO costs 94,654 76,184
Excess of FIFO costs
over LIFO value (21,667) (21,483)
------- -------
Total inventories $72,987 $54,701
Inventory is carried at lower of cost or market using the
first-in, first-out (FIFO) method for 58% and 60% of total
inventory at March 31, 1998 and December 31, 1997,
respectively. The remainder of the inventory is costed
using the last-in, first-out (LIFO) method.
Note 3. 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 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 total cost to clean up
the Site could be as high as $30 million, however, the
ultimate allocation of costs for the Site are 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. To date, the company has expensed $3.3
million in connection with this matter. There were no
expenses incurred for the quarter ended March 31, 1998 and
1997. There were no expenses incurred for the year ended
December 31, 1997. The company expensed $0.2 million for
each of the years ended December 31, 1996 and 1995.
Remediation work at the Site has been 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 noncurrent
liabilities at March 31, 1998, is $1.1. million.
As of March 31, 1998, 27 product-related lawsuits were
pending. Of these, two occurred between 1985 and 1990 when
the company was completely self-insured. The remaining
lawsuits occurred subsequent to June 1, 1990, at which time
the company has insurance coverages ranging from a $5.5
million self-insured retention with a $10.0 million limit on
the insurer's contribution in 1990, to the current $1.0
million self-insured retention and $25.0 million limit on
the insurer's contribution.
Product liability reserves at March 31, 1998 are $8.6
million; $4.4 million reserved specifically for the 27 cases
referenced above, and $4.2 million for incurred but not
reported claims. These reserves were estimated using
actuarial methods. The highest current reserve for a non-
insured claim is $0.6 million, and $0.5 million for an
insured claim. 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. 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 which
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.
Note 4. During the fourth quarter of 1996, the company's decision to
consolidate and close walk-in refrigeration plants located
in Iowa and Tennessee resulted in a $1.2 million charge to
earnings in the Foodservice segment. The charge includes a
write-down to the estimated net realizable values of the
assets being abandoned and takes into consideration future
holding costs and costs related to the sale of the
properties. During 1997, $.1 million was charged against
the reserve. For the first quarter of 1998, $.1million was
charged against the reserve. During the first quarter of
1997, no costs were charged against the reserve.
Assets currently held for sale include land and
improvements, buildings, and certain machinery and equipment
at the "Peninsula facility" located in Manitowoc,
Wisconsin. The current carrying value of these assets, and
the assets mentioned above, determined through independent
appraisals, is approximately $3.8 million and is included in
other assets. The future holding costs, included in
accounts payable and accrued expenses and in other non-
current liabilities, consist primarily of utilities,
security, maintenance, property taxes, insurance, and
demolition costs for various buildings. These reserves also
include estimates for potential environmental liabilities on
the Peninsula location. During the years ended December 31,
1997, 1996, and 1995, $.3 million, $1.1 million, and $.6
million was charged against these reserves, respectively.
For the first quarter of 1998 and 1997, $40,000 and
$100,000, respectively, was charged against the reserve.
Note 5. On May 19, 1997, the company`s board of directors authorized
a three-for-two stock split of the company's common stock in
the form of a 50-percent stock dividend payable on June 30,
1997 to shareholders of record on June 2, 1997. As a result
of the stock split, a total of 5,755,679 shares were issued.
All references in the financial statements to average number
of common shares outstanding and related earnings per share
amounts, market prices per share of common stock, and stock
option plan data have been restated to reflect the split.
The company also split its common stock on a 3-for-2 basis
on July 2, 1996.
Note 6. The following is a reconciliation of the average shares
outstanding used to compute basic and diluted earnings per
share. There is no earnings impact for the assumed
conversions of the stock options in each of the quarters.
Quarter Ended March 31
------------------------------------------
1998 1997
--------------- -----------------
Per Share Per Share
Shares Amount Shares Amount
------ -------- ------ --------
Basic EPS 17,274,565 $.54 17,267,035 $.38
Effect of Dilutive
Securities Stock Options 175,969 91,682
Diluted EPS 17,450,534 $.54 17,358,717 $.37
Note 7. During February 1998, the FASB issued SFAS No. 132,
"Employers' Disclosures about Pensions and Other
Postretirement Benefit," which revises disclosures about
pension and other postretirement benefits plans. This
Statement is effective for the Company's 1998 financial
statements and restatement of disclosures for earlier years
provided for comparative purposes will be required unless
the information is not readily available. The company is
currently evaluating the extent to which its financial
statements will be affected by SFAS No. 132.
In March 1998, the AICPA issued SOP 98-1, "Accounting For
the Costs of Computer Software Developed or Obtained for
Internal Use," which specifies the accounting treatment
provided to computer software costs depending upon the type
of costs incurred. This Statement is effective for the
company's 1999 financial statements and restatement of prior
years will not be required. The company does not believe
that the adoption of this Statement will have a significant
impact on its financial position or results of operations.
Note 8. On April 2, 1998, the company privately placed, with
Prudential Insurance Company, $50 million principal amount
of the company's Series A Senior Notes. The company used
the proceeds from the sale of the Notes to pay down
borrowings under the current term loan.
The Notes are unsecured and bear interest at the fixed
annual rate of 6.54%. The Notes mature in 12 years, and
require principal payments beginning in the eighth year
after issuance, resulting in an average life of ten years.
The agreement between the company and Prudential Insurance
Company pursuant to which the Notes were issued (the "Note
Agreement") includes covenants which require the company to
maintain certain debt ratios and certain levels of net
worth. These covenants are no more restrictive than
covenants made by the company in connection with certain
other credit facilities. Under the terms of the Note
Agreement, the company may offer additional senior notes to
Prudential Insurance Company up to a maximum principal
amount of $25 million, although Prudential Insurance Company
is not obligated to purchase any additional notes.
Note 9. Certain reclassifications have been made to the financial
statements of prior years to conform to the presentation for
1998.
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations
Results of Operations for the Quarters Ended March 31, 1998
and March 31, 1997
- -----------------------------------------------------------
Net sales and earnings from operations by business segment for the
quarter ended March 31, 1997 and 1996 are shown below (in thousands):
March 31, March 31,
1998 1997
------------ -------------
NET SALES:
Foodservice products $ 67,007 $ 52,509
Cranes and related products 76,192 56,343
Marine 10,940 7,189
--------- --------
Total $154,139 $116,041
EARNINGS (LOSS) FROM OPERATIONS:
Foodservice products 9,316 6,176
Cranes and related products 9,762 6,937
Marine 2,305 1,027
General corporate expense (2,626) (2,059)
Amortization (1,172) (780)
--------- --------
Total $ 17,585 $ 11,301
First quarter net earnings were $9.3 million, equal to 54 cents per
share ( basic and diluted), up 44% from the prior-year quarter when
the company earned $6.5 million, or 38 cents per share (37 cents
diluted). Net sales for the first three months of 1998 totaled $154.1
million, compared with $116.0 million during the same period the year
before. Each of the company's three business segments contributed to
the improved results with higher sales, operating earnings, and
margins for the quarter. Most of the improvement was volume related,
but the company also benefited from productivity gains in the large-
crane operation and an improved mix in the marine business. The sale
of the Tonka walk-in refrigerator business, completed on December 30,
1997, eliminated a unit that was dilutive to the foodservice equipment
earnings.
Foodservice equipment sales were $67.0 million for the quarter, up 28%
from the first quarter of 1997. Operating earnings increased 51% to
$9.3 million, from $6.2 million in 1997. Manitowoc Ice has completed
its introduction of the "Q" Series ice-cube machines, which continue
to receive enthusiastic response from customers. The integration of
SerVend continues exceptionally well, and its record results helped
the first-quarter comparison in the foodservice equipment segment.
First quarter sales for the Crane segment were $76.2 million, compared
to $56.3 million for 1997. Crane segment operating earnings were $9.8
million, up 41% from the first quarter last year. The backlog of
unfilled crane orders continues to grow despite heavy first-quarter
shipments. The backlog was $163 million at the end of March, up from
$149 million at year end. The majority of this backlog is destined
for the North American and European markets, with only one machine
order for an Asian customer. The backlog includes multiple orders for
Manitowoc's newest cranes - the 777 truck crane and the 2250
liftcrane.
Marine segment sales and operating earnings for the first quarter
were $10.9 million and $2.3 million, respectively, compared with $7.2
million and $1.0 million for the same period in 1997. Marine results
were buoyed by a record winter fleet, the completion of a tug/barge
conversion, and emergency repairs on a 635-foot self-unloading bulk
carrier. The Great Lakes shipping industry set a post-recession
hauling record last year, and the coming season looks even stronger.
This could lead to increased work for our shipyards.
The effective tax rate for the comparable quarters remained unchanged
at 37 percent.
Inventories and accounts receivable rose during the quarter in line
with volume increases and normal seasonal patterns.
Interest expense was up due to the increased debt following the
SerVend acquisition.
Financial Condition at March 31, 1998
- ---------------------------------------
The Company's financial condition remains strong. Cash and marketable
securities of $12.5 million and future cash flows from operations are
adequate to meet the Company's liquidity requirements for the
foreseeable future, including payments for long-term debt, line of
credit, costs associated with the plant opening and consolidations,
and anticipated capital expenditures of between $12-$15 million.
This report on Form 10-Q includes 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 "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: Foodservice Equipment - demographic
changes affecting the number of women in the workforce, general
population growth, and household income; serving large restaurant
chains as they expand their global operations; specialty foodservice
market growth; and the demand for equipment for small kiosk-type
locations. Cranes and Related Products - market acceptance of
innovative products; cyclicality in the construction industry; growth
in the world market for heavy cranes; demand for used equipment in
developing countries. Marine - shipping volume fluctuations based
on performance of the steel industry; five-year drydocking schedule;
reducing seasonality through non-marine repair work.
PART II. OTHER INFORMATION
------------------------------------
Item 2. Changes in Securities
----------------------
On April 2, 1998, the company privately placed, with
Prudential Insurance Company, $50 million principal amount
of the company's Series A Senior Notes. The company used
the proceeds from the sale of the Notes to pay down
borrowings under the current term loan.
The Notes are unsecured and bear interest at the fixed
annual rate of 6.54%. The Notes mature in 12 years, and
require principal payments beginning in the eighth year
after issuance, resulting in an average life of ten years.
The agreement between the company and Prudential Insurance
Company pursuant to which the Notes were issued (the "Note
Agreement") includes covenants which require the company to
maintain certain debt ratios and certain levels of net
worth. These covenants are no more restrictive than
covenants made by the company in connection with certain
other credit facilities. Under the terms of the Note
Agreement, the company may offer additional senior notes to
Prudential Insurance Company up to a maximum principal
amount of $25 million, although Prudential Insurance Company
is not obligated to purchase any additional notes.
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/ Robert R. Friedl
--------------------------------
Robert R. Friedl
Senior Vice President and
Chief Financial Officer
/s/ E. Dean Flynn
--------------------------------
E. Dean Flynn
Secretary
April 16, 1998
THE MANITOWOC COMPANY, INC.
EXHIBIT INDEX
TO FORM 10-Q
FOR QUARTERLY PERIOD ENDED
MARCH 31, 1998
Exhibit Filed
No Description Herewith
- ------- ----------- --------
4 * Credit Agreement, dated as of
April 2, 1998, among The
Manitowoc Company, Inc., as
Borrower, and Prudential
Insurance Company X
27 Financial Data Schedules 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.