UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10Q [X]	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 	For the quarterly period ended		June 30, 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 June 30, 1998, the most recent practicable date, was 17,291,154. PART I. FINANCIAL INFORMATION - ------------------------------------ Item 1. Financial Statements - ------------------------------------- THE MANITOWOC COMPANY, INC. Consolidated Statements of Earnings For the Quarter and Six Months Ended June 30, 1998 and 1997 (Unaudited) (In thousands, except per-share and average shares data) QUARTER ENDED YEAR-TO-DATE --------------------- ---------------------- June 30, June 30, June 30, June 30, 1998 1997 1998 1997 ------------ ----------- ------------ ----------- Net Sales $ 188,899 $ 144,985 $ 343,038 $ 261,026 Costs And Expenses: Cost of goods sold 135,805 103,156 246,472 187,189 Engineering, selling and administrative expenses 25,501 21,108 51,388 41,815 ------- --------- -------- -------- Total 161,306 124,264 297,860 229,004 Earnings From Operations 27,593 20,721 45,178 32,022 Other Income (Expense): Interest expense (2,858) (1,608) (5,266) (2,732) Interest and dividend income 48 13 39 81 Other expense (481) (190) (829) (153) ------- -------- -------- -------- Total (3,291) (1,785) (6,056) (2,804) -------- -------- -------- -------- Earnings Before Taxes On Income 24,302 18,936 39,122 29,218 Provision For Taxes On Income 8,894 7,007 14,377 10,811 -------- -------- -------- -------- Net Earnings $ 15,408 $ 11,929 $ 24,745 $ 18,407 -------- -------- -------- -------- Net Earnings Per Share - Basic $ .89 $ .69 $ 1.43 $ 1.07 Net Earnings Per Share - Diluted $ .88 $ .69 $ 1.42 $ 1.06 Dividends Per Share $ .11 $ .11 $ .22 $ .22 Average Shares Outstanding - Basic 17,285,236 17,267,035 17,279,930 17,267,035 Average Shares Outstanding - Diluted 17,478,751 17,391,174 17,460,963 17,359,417 See accompanying notes which are an integral part of these statements. THE MANITOWOC COMPANY, INC. Consolidated Balance Sheets As of June 30, 1998 and December 31, 1997 (In thousands, except share data) -ASSETS- June 30, 1998 Dec. 31, 1997 -------------- -------------- (Unaudited) Current Assets: Cash and cash equivalents $ 15,579 $ 11,888 Marketable securities 1,787 1,741 Accounts receivable 84,932 59,237 Inventories 64,303 54,701 Prepaid expenses and other 1,684 2,662 Future income tax benefits 15,287 15,287 ----------- ----------- Total current assets 183,572 145,516 Intangible assets - net 144,918 146,983 Other assets 13,472 12,678 Property, plant and equipment: At cost 209,923 202,831 Less accumulated depreciation (114,952) (111,640) ----------- ------------ Property, plant and equipment-net 94,971 91,191 ----------- ------------ TOTAL $ 436,933 $ 396,368 ----------- ------------ -LIABILITIES AND STOCKHOLDERS' EQUITY- Current Liabilities: Current portion of long-term debt $ 17,368 $ 15,400 Accounts payable and accrued expenses 108,563 96,540 Short-term borrowings 12,000 49,100 Product Warranties 11,981 9,772 ---------- ----------- Total current liabilities 149,912 170,812 Non-Current Liabilities: Long-term debt less current portion 106,557 66,359 Product warranties 5,003 4,955 Post-retirement health benefits obligations 19,853 19,699 Other 5,737 5,925 ---------- ----------- Total non-current liabilities 137,150 96,938 ---------- ----------- Stockholders' Equity: 	Common stock (24,497,655 shares issued at both dates) 245 245 Additional paid-in capital 31,014 30,980 	Cumulative foreign currency translation	 adjustments (29) (192) Retained earnings 199,943 179,088 	Treasury stock at cost (7,206,501 and 7,228,480 shares) (81,302) (81,503) ----------- ----------- Total stockholders' equity 149,871 128,618 ----------- ----------- TOTAL $ 436,933 $ 396,368 ----------- ----------- See accompanying notes which are an integral part of these statements. THE MANITOWOC COMPANY, INC. Consolidated Statements of Cash Flows For the Six Months Ended June 30, 1998 and 1997 (In thousands) (Unaudited) June 30, 1998 June 30, 1997 --------------- ------------- Cash Flows From Operations: Net earnings $ 24,745 $ 18,407 	Non-cash adjustments to income: Depreciation and amortization 6,945 5,493 Deferred financing fees 193 150 Loss on sale of fixed assets 148 143 	Changes in operating assets and liabilities: Accounts receivable (25,695) (6,454) Inventories (9,602) (9,078) Other current assets 978 114 Current liabilities 14,578 (1,737) Non-current liabilities (188) (874) Non-current assets (1,251) 185 ---------- ---------- Net cash provided by operations 10,851 6,349 Cash Flows From Investing: Purchase of temporary investments (46) (29) 	Proceeds from sale of property, plant, and equipment 237 12 Capital expenditures (8,768) (5,886) ---------- ---------- Net cash used for investing (8,577) (5,903) Cash Flows From Financing: Dividends paid (3,889) (3,837) Treasury stock issued 234 0 Proceeds from long-term borrowings 50,000 0 Payments on long-term borrowings (57,834) (5,519) Change in short-term borrowings - net 12,900 2,200 ---------- ---------- Net cash provided by (used for) financing 1,411 (7,156) Effect of exchange rate changes on cash 6 (27) ---------- ---------- Net increase (decrease) in cash and cash equivalents 3,691 (6,737) Balance at beginning of period 11,888 14,364 ---------- ---------- Balance at end of period $ 15,579 $ 7,627 ---------- ---------- Supplemental cash flow information: Interest paid $ 4,379 $ 3,504 Income taxes paid 16,832 8,966 See accompanying notes which are an integral part of these statements. THE MANITOWOC COMPANY, INC Notes to Unaudited Consolidated Financial Statements For the Six Months Ended June 30, 1998 and 1997 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 quarter and six months ended June 30, 1998 and 1997, the financial position at June 30, 1998 and the changes in the cash flows for the six months ended June 30, 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 June 30, 1998 and December 31, 1997 are summarized as follows (dollars in thousands): June 30, December 31, 1998 1997 ----------- ------------- Components: Raw materials $ 23,279 $ 25,881 Work-in-process 28,468 22,331	 Finished goods 34,510 27,972 --------- --------- 	Total inventories at FIFO costs 86,257 76,184 		 Excess of FIFO costs over LIFO value (21,954) (21,483) --------- --------- Total inventories $ 64,303 $ 54,701 Inventory is carried at lower of cost or market using the first-in, first-out (FIFO) method for 54% and 60% of total inventory for June 30, 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 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 June 30, 1998, is $1.1 million. As of June 30, 1998, 22 product-related lawsuits were pending. Of these, one 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 had 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 June 30, 1998 are $8.5 million; $3.3 million reserved specifically for the 22 cases referenced above, and $5.2 million for incurred but not reported claims. These reserves were estimated using actuarial methods. The highest current reserve for a non-insured claim is $25,000, and $.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. 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. For the six months ended June 30, 1998, $.1 million was charged against the reserve, with no charges to the reserve during the second quarter of 1998. During the second quarter and first six months of 1997, $.1 million was 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 $3.6 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, $35,000, $1.1 million and $.6 million was paid and charged against these reserves, respectively. For the first six months of 1998 and 1997, $40,000 and $600,000 were charged against the reserve, respectively. For the second quarter of 1998 there were no charges against the reserve, compared with $10,000 charged in the second quarter of 1997. 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 June 30 Six Months Ended June 30 --------------------------------- ---------------------------------- 1998 1997 1998 1997 ---------- ------------ ----------- ------------- Per Share Per Share Per Share Per Share Shares Amount Shares Amount Shares Amount Shares Amount -------- ---------- -------- -------- --------- --------- -------- --------- Basic EPS 17,285,236 $.89 17,267,035 $.69 17,279,930 $1.43 17,267,035 $1.07 Effect of Dilutive Securities Stock Options 193,515 124,139 181,033 92,382 ---------- ---------- ---------- ---------- Diluted EPS 17,478,751 $.88 17,391,174 $.69 17,460,963 $1.42 17,359,417 $1.06 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. In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities," which requires that an entity recognize derivative instruments, including certain derivative instruments embedded in other contracts as either assets or liabilities and measure those instruments at fair value. This Statement is effective for the Company's fiscal year 2000 first quarter financial statements and restatement of prior years will not be required. The Company is currently evaluating the extent to which its financial statements will be affected by SFAS No. 133. 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 "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 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations Results of Operations for the Quarter and Six Months Ended June 30, 1998 and 1997 - ------------------------------------------------------------------------- Net sales and earnings from operations by business segment for the quarter and six months ended June 30, 1998 and 1997 are shown below (in thousands): QUARTER ENDED YEAR-TO-DATE ----------------- -------------- June 30, June 30, June 30, June 30, 1998 1997 1998 1997 -------- --------- --------- --------- NET SALES: Foodservice products $ 87,230 $ 65,941 $ 154,237 $ 118,450 Cranes and related products 86,145 63,866 162,337 120,209 Marine 15,524 15,178 26,464 22,367 --------- ---------- -------- ---------- Total $ 188,899 $144,985 $ 343,038 $ 261,026 EARNINGS (LOSS) FROM OPERATIONS: Foodservice products $ 15,627 $ 11,437 $ 24,943 $ 17,613 Cranes and related products 12,928 9,493 22,690 16,430 Marine 2,751 2,880 5,056 3,907 General corporate expense (2,542) (2,309) (5,168) (4,368) Amortization (1,171) (780) (2,343) (1,560) ------- -------- ------- --------- Total $ 27,593 $ 20,721 $ 45,178 $ 32,022 Net sales for the quarter ended June 30, 1998 were $188.9 million, up 30 percent compared with the second quarter of 1997. Net earnings grew to $15.4 million, or 89 cents per share (88 cents diluted), a 29 percent increase from the $11.9 million, and 69 cents per share (basic and diluted), earned in the second quarter of 1996. Operating earnings for the quarter were $27.6 million, up 33 percent from a year earlier. The improved operating margin resulted from higher profitability in the company's foodservice segment. For the first six months of 1998, net sales totaled $343.0 million, compared with sales of $261.0 million in the first half of last year. Net earnings through the end of June were $24.7 million, or $1.43 per share ($1.42 diluted). In the first half of 1997, net earnings were $18.4 million, or $1.07 per share ($1.06 diluted). Second quarter sales of foodservice equipment were $87.2 million, up 32 percent from a year ago, while the operating profit for this segment rose 37 percent to $15.6 million. Year to date sales and earnings were $154.2 million and $24.9 million, respectively, compared with $118.5 million and $17.6 million in 1997. Cranes and related products sales for the second quarter increased 35 percent over the same period last year. Operating earnings were $12.9 million and $22.7 million for the second quarter and first six months of 1998, respectively, compared with earnings of $9.5 million and $16.4 million for the same periods last year. The $172.4 million backlog of unfilled crane orders remains at an all-time high, reflecting the strength of the construction industry, and active replacement cycle, and broad market acceptance of its new crane platforms. Sales and earnings for the marine segment were relatively flat for the second quarter of 1998. However, both remain at historically high levels for this time of year. Year to date sales were $26.5 million, up 18 percent from a year earlier. Operating earnings were $5.0 million for the first half of 1998, compared with $3.9 million for the same period in 1997. Operations continue to generate significant cash flow. In the most recent quarter, the company had positive cash flow of $32.1 million, compared with a negative $21.2 million in the first three months of 1998 and positive $15.8 million in the second quarter last year. Interest expense in the quarter and for the first half of 1998 are significantly higher than in the corresponding 1997 periods due to increased debt resulting from the acquisition of SerVend in 1997 and greater working capital needs. Financial Condition at June 30, 1998 - ---------------------------------------- The Company's financial condition remains strong. Cash and marketable securities of $17.4 million and future cash flows from operations are expected to be 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. Item 3.		Quantitative and Qualitative Disclosure About Market Risk ------------------------------------------------------- There have been no material changes in market risks faced by the company as compared to those reported in its Annual Report on Form 10-K for the year ended December 31, 1997. PART II. OTHER INFORMATION ---------------------------------------- Item 4.		Submission of Matters to a Vote of Security Holders ------------------------------------------------------- At the annual meeting of the company's shareholders on May 5, 1998, pursuant to Proposal 1, management's nominees named below were elected as directors of the class whose term expires in 2001, by the indicated votes cast for and withheld with respect to each nominee. Of the 14,903,573 shares of Common Stock which were represented at the meeting, at least 97.8 percent of the shares voting were voted for the election of each of management's nominees, as follows: Name of Nominee For Withheld - --------------- --- -------- George E. Fischer 14,574,949 328,624 Gilbert F. Rankin, Jr. 14,579,657 323,916 There were no abstentions or broker non-votes with respect to the election of directors. In addition to the directors elected at the meeting, the company's continuing directors are Dean H. Anderson, James P. McCann, Guido R. Rahr, Jr. and Robert S. Throop. Proposal 2, amending the company's Articles of Incorporation to increase the company's authorized shares of Common Stock from 35,000,000 to 75,000,000, was approved as follows: 		Shares Voted For	 10,953,735 		Shares Voted Against	 3,795,972 		Shares Abstaining	 153,866 Further information concerning the matters voted upon at the 1998 Annual Meeting of Shareholders is contained in the company's proxy statement dated March 16, 1998 with respect to the 1998 Annual Meeting. 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/ Robert R. Friedl 	------------------------------- 	Robert R. Friedl 	Senior V.P. and Chief Financial Officer 	 	/s/ E. Dean Flynn 	------------------------------- 	E. Dean Flynn 	Secretary July 28, 1998 THE MANITOWOC COMPANY, INC. EXHIBIT INDEX TO FORM 10-Q FOR QUARTERLY PERIOD ENDED June 30, 1998 Exhibit Filed No Description Herewith - ------- --------------- ------------ 27 Financial Data Schedule X