MTW

Business Context and Reporting Period

Company: The Manitowoc Company, Inc.
Filing Type: Form 10-Q (Quarterly Report)
Period Ended: June 30, 2003
Business Overview: Manitowoc operates in three segments: Cranes and Related Products, Foodservice Equipment, and Marine. The reporting period reflects the integration of the Grove Investors, Inc. acquisition (completed August 2002) and the divestiture of non-core assets (Manitowoc Boom Trucks and Femco Machine Company), which are reported as discontinued operations.

Key Financial Metrics

Note: Debt figures represent the sum of Current portion of long-term debt ($32,531), Short-term borrowings ($7,485), and Long-term debt ($622,896) as of June 30, 2003.

Material Changes vs. Prior Period

• Revenue Growth: Net sales increased 32.1% for the quarter and 33.0% for the six-month period compared to 2002. This growth is entirely attributable to the inclusion of Grove Investors, Inc. sales ($151.2M for the quarter; $283.4M for six months).
• Operating Earnings Decline: Despite revenue growth, operating earnings fell 59.6% for the quarter and 48.8% for the six-month period. This was driven by a $4.9 million goodwill impairment charge, $4.8 million in restructuring costs, and lower margins in the Crane and Marine segments.
• Segment Performance:
  • Cranes: Reported an operating loss of $1.1 million for the quarter (vs. $20.4M profit in 2002) due to impairment charges, restructuring, and a slowdown in crawler crane sales.
  • Foodservice: Operating earnings remained flat for the quarter ($21.2M) but increased 25.6% for the six-month period ($33.5M vs. $26.6M) due to cost improvements.
  • Marine: Operating earnings dropped 50.7% for the quarter and 70.3% for the six-month period due to a strike at Marinette Marine and customer project deferrals.
• Discontinued Operations: The company recorded a $0.6 million charge related to the final post-closing adjustment for the sale of Manitowoc Boom Trucks. The sale of Femco generated a $0.4 million gain.

Guidance, Outlook, Risks, and Unusual Items

• Debt Covenant Waiver: As of June 30, 2003, the company was not in compliance with certain financial covenants (minimum EBITDA and debt-to-EBITDA ratios) in its Senior Credit Facility. On July 23, 2003, the company received an amendment and waiver curing these violations and eliminating the minimum EBITDA covenant.
• Restructuring and Impairment: Significant non-cash charges included a $4.9 million goodwill impairment (Aerial Work Platform unit) and $4.8 million in restructuring costs (facility write-downs and severance) in the Crane segment.
• Liquidity: The company had $100.7 million of unused availability under its Revolving Credit Facility. Cash and equivalents decreased $3.7 million during the six-month period to $24.3 million.
• Outlook Risks: Management cites risks including cyclicality of the construction industry, foreign exchange fluctuations, competitive pricing pressures, and the ability to successfully integrate acquisitions. Standard & Poor's lowered the company's credit rating to "BB-" in July 2003.

Investor Verification Checklist

• Covenant Compliance: Verify the terms of the July 23, 2003 amendment to the Senior Credit Facility and the company's ability to meet the revised covenants.
• Restructuring Costs: Monitor the utilization of the remaining $4.7 million restructuring reserve and the estimated additional $2.8 million in charges expected for the remainder of 2003.
• Discontinued Operations: Confirm the timing and final amount of the $4.7 million payment to Quantum Heavy Equipment regarding the Manitowoc Boom Trucks sale.
• Segment Margins: Assess the impact of the shift in product mix (towards smaller mobile hydraulic cranes) and lost absorption in crawler cranes on future profitability.
• Debt Service: Review the weighted-average interest rate (6.95%) and the impact of high-interest Senior Subordinated Notes (10 3/8% and 10 1/2%) on future cash flows.