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, 1996
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OR
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
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Commission File Number 1-11978
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The Manitowoc Company, Inc.
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(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
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(Address of principal executive offices) (Zip Code)
(414) 684-4410
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(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 July 31, 1996, the most recent practicable date, was
11,511,357.
PART I. FINANCIAL INFORMATION
--------------------------------------
Item 1. Financial Statements
- -----------------------------
<TABLE>
<CAPTION>
THE MANITOWOC COMPANY, INC.
Consolidated Statements of Earnings
For the Quarter and Six Months Ended June 30, 1996 and 1995
(Unaudited)
(In thousands, except per-share and average shares data)
QUARTER ENDED YEAR-TO-DATE
June 30, June 30, June 30, June 30,
1996 1995 1996 1995
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Net Sales $ 139,219 $ 82,287 $ 253,318 $ 151,388
Costs And Expenses:
Cost of goods sold 101,328 61,083 186,790 114,265
Engineering, selling and
administrative expenses 20,839 12,099 40,272 24,999
-------- -------- -------- --------
Total 122,167 73,182 227,062 139,264
Earnings From Operations 17,052 9,105 26,256 12,124
Other Income (Expense):
Interest expense (2,557) (496) (5,019) (719)
Interest & dividend income 67 31 118 47
Other income (expense) 98 (23) 165 (6)
-------- -------- --------- --------
Total (2,392) (488) (4,736) (678)
-------- -------- --------- --------
Earnings Before Taxes
On Income 14,660 8,617 21,520 11,446
Provision For Taxes On Income 5,862 3,231 8,608 4,292
-------- -------- -------- --------
Net Earnings $ 8,798 $ 5,386 $ 12,912 $ 71,54
-------- -------- -------- --------
Net Earnings Per Share $ .76 $ .47 $ 1.12 $ .62
Dividends Per Share $ .16 $ .16 $ .33 $ .33
Average Shares Outstanding 11,511,357 11,511,357 11,511,357 11,511,357
<FN>
See accompanying notes which are an integral part of these statements.
</TABLE>
<TABLE>
<CAPTION>
THE MANITOWOC COMPANY, INC.
Consolidated Balance Sheets
As of June 30, 1996 and December 31, 1995
(Unaudited)
(In thousands, except share data)
-ASSETS-
June 30, 1996 Dec. 31, 1995
------------- ------------
<S> <C> <C>
Current Assets:
Cash and cash equivalents $ 18,546 $ 15,077
Marketable securities 1,607 1,558
Accounts receivable 55,760 51,011
Inventories 48,934 52,928
Prepaid expenses and other 1,681 3,451
Future income tax benefits 11,120 11,120
-------- ---------
Total current assets 137,648 135,145
Intangible assets 90,773 92,433
Other assets 10,101 9,663
Property, plant and equipment:
At cost 189,843 188,755
Less accumulated depreciation (103,872) (101,081)
--------- ---------
Property, plant and equipment-net 85,971 87,674
--------- ---------
TOTAL $ 324,493 $ 324,915
--------- ---------
-LIABILITIES AND STOCKHOLDERS' EQUITY-
Current Liabilities:
Accounts payable and accrued expenses $ 70,830 $ 66,028
Current portion of long-term debt 12,589 10,089
Short term borrowings 0 26,807
Income taxes payable 3,770 1,503
Product warranties 8,272 6,496
--------- ---------
Total current liabilities 95,461 110,923
Non-Current Liabilities:
Long-term debt less current portion 108,634 101,180
Product warranties 3,428 4,199
Post-retirement health benefits obligations 19,387 19,190
Other 6,856 7,762
--------- ---------
Total non-current liabilities 138,305 132,331
--------- ---------
Stockholders' Equity:
Common stock (16,331,770 and 10,887,847
shares issued) 163 109
Additional paid-in capital 31,061 31,115
Cumulative foreign currency translation
adjustments (488) (479)
Retained earnings 141,493 132,418
Treasury stock at cost (4,820,413
and 3,213,379 shares) (81,502) (81,502)
--------- ---------
Total stockholders' equity 90,727 81,661
--------- ---------
TOTAL $ 324,493 $ 324,915
--------- ---------
<FN>
See accompanying notes which are an integral part of these statements.
</TABLE>
<TABLE>
<CAPTION>
THE MANITOWOC COMPANY, INC.
Consolidated Statements of Cash Flows
For the Six Months Ended June 30, 1996 and 1995
(In thousands)
(Unaudited)
June 30, 1996 June 30, 1995
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<S> <C> <C>
Cash Flows From Operations:
Net earnings $ 12,912 $ 7,154
Non-cash adjustments to income:
Depreciation and amortization 5,616 3,090
Deferred financing fees 150 --
Deferred income taxes -- (510)
(Gain) loss on sale of fixed assets 57 --
Changes in operating assets and liabilities:
Accounts receivable (4,749) (12,349)
Inventories 3,994 (7,057)
Other current assets 1,770 1,559
Current liabilities 8,841 10,350
Non-current liabilities (1,021) 1,537
Deferred income (460) (1,921)
Non-current assets (438) 227
--------- ---------
Net cash provided by operations 26,672 2,080
Cash Flows From Investing:
Purchase of temporary investments (49) 2,165
Proceeds from sale of property,
plant, and equipment 1,001 --
Capital expenditures (3,461) (13,005)
--------- ---------
Net cash used for investing (2,509) (10,840)
Cash Flows From Financing:
Dividends paid (3,837) (3,837)
Proceeds from long-term borrowings 15,000 --
Payments on long-term borrowings (5,046) --
Change in short-term borrowings - net (26,807) 15,401
--------- ---------
Net cash provided by
(used for) financing (20,690) 11,564
Effect of exchange rate changes on cash (4) 55
--------- ---------
Net increase in cash
and cash equivalents 3,469 2,859
Balance at beginning of year 15,077 4,118
--------- ---------
Balance at end of period $ 18,546 $ 6,977
--------- ---------
Supplemental cash flow information:
Interest paid $ 2,526 $ 694
Income taxes paid 5,081 2,066
<FN>
See accompanying notes which are an integral part of these statements.
</TABLE>
THE MANITOWOC COMPANY, INC.
Notes to Unaudited Consolidated Financial Statements
For the Six Months Ended June 30, 1996 and 1995
(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 quarter and six months ended June 30, 1996 and
1995, the financial position at June 30, 1996 and the changes in the
cash flows for the six months ended June 30, 1996 and 1995. 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, 1995.
Note 2.
<TABLE>
<CAPTION>
The components of inventory at June 30, 1996 and December 31, 1995
are summarized as follows (dollars in thousands):
June 30, December 31,
1996 1995
----------- ---------
<S> <C> <C>
Components:
Raw materials $ 27,130 $ 22,809
Work-in-process 15,031 18,868
Finished goods 27,707 31,711
--------- ---------
Total inventories at FIFO costs 69,868 73,388
Excess of FIFO costs
over LIFO value (20,934) (20,460)
--------- ---------
Total inventories $ 48,934 $ 52,928
</TABLE>
Inventory is carried at lower of cost or market using the first-in,
first-out (FIFO) method for 62% and 60% of total inventory for June
30, 1996 and December 31, 1995, 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.
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 Wisconsin Department of
Natural Resources to settle the potential liability at the Site and
fund the cleanup. Approximately 150 PRP's have been identified as
having shipped substances to the Site.
Recent estimates indicate that the total cost to clean up the Site
could be as high as $30 million, however, the ultimate remediation
methods and appropriate 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.
In connection with this matter, the Company expensed $0.2 million,
$1.6 million, $0.5 million, and $.9 million for the year ended
December 31, 1995, and fiscal years 1994, 1993, and 1992
respectively, for its estimated portion of the cleanup costs. There
were no expenses incurred during the six months ended June 30, 1996.
As of June 30, 1996, 35 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 $16.0 million limit on the
insurer's contribution.
Product liability reserves at June 30, 1996 are $6.4 million; $3.1
million reserved specifically for the 37 cases referenced above, and
$3.3 million for incurred but not reported claims. These reserves
were estimated using actuarial methods. 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.
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.
In the transition period ended December 31, 1994, resulting from
the Company's change in fiscal years, the Company's decision to
consolidate the large-crane manufacturing to a single site
resulted in a $14 million charge to earnings in the cranes and
related products segment. The charge included a $9.4 million
write-down of the facility being abandoned and estimated holding
costs of $4.6 million while the plant is being marketed. It is
reasonably possible that the estimate for future holding costs of
the facility may change in the future.
The 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, determined through independent appraisals,
is approximately $3 million and is included in intangibles and
other. 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. Future
holding costs also include estimates for various environmental
studies on the Peninsula location. To date, $1.5 million has been
paid and charged against these reserves, including $.2 million and
$.9 million during the second quarter and six months ended June
30, 1996, respectively.
Note 5.
On December 1, 1995, the Company completed the purchase of the
outstanding common stock of The Shannon Group, Inc. ("Shannon").
Shannon is a manufacturer of commercial refrigerators, freezers
and related products, ranging from small under-counter units to
300,000 square foot refrigerated warehouses. Among its wide range
of products, Shannon is best known for its foamed-in-place walk-in
refrigeration units, wood rail walk-in units, refrigerated food-prep
tables, reach-in refrigerator/freezers and modular refrigeration
systems.
The aggregate consideration paid by the Company for Shannon was
$127.0 million, which is net of cash acquired of $.7 million, and
which includes an amount due to a seller of $19.8 million which
was paid in January, 1996, direct acquisition costs of $2.7
million, and other assumed liabilities of $1.3 million. The
transaction was financed through credit facilities provided under
a Credit Agreement dated December 1, 1995.
The acquisition has been recorded using the purchase method of
accounting. The cost of the acquisition has been allocated on the
basis of the estimated fair value of the assets acquired and the
liabilities assumed. The preliminary estimate of the excess of
the cost over the fair value of net assets acquired is $88.3
million, and is being amortized over 32 years. The results of
operations since the date of acquisition are included in the
Consolidated Statements of Earnings.
Note 6.
On June 14, 1996, the company announced a three-for-two stock
split in the form of a 50-percent stock dividend which was
effective July 2 to shareholders of record on June 25. Adjusting
for the split, the company now has 11.5 million shares
outstanding. As a result of the stock split, all earnings and
dividend per share amounts and average shares outstanding,
appearing herein, have been retroactively adjusted to give effect
of the stock split.
Note 7.
Certain reclassifications have been made to the financial
statements of prior years to conform to the presentation for 1996.
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, 1996
and 1995.
- --------------------------------------------------------------------------
<TABLE>
<CAPTION>
Net sales and earnings from operations by business segment for the quarter
and six months ended June 30, 1996 and 1995 are shown below (in thousands):
QUARTER ENDED YEAR-TO-DATE
June 30, June 30, June 30, June 30,
1996 1995 1996 1995
-------- -------- -------- --------
<S> <C> <C> <C> <C>
NET SALES:
Foodservice products $ 67,526 $ 30,625 $ 120,126 $ 55,514
Cranes & related products 52,368 37,395 102,502 74,286
Marine 19,325 14,267 30,690 21,588
--------- ------- --------- --------
Total $ 139,219 $ 82,287 $ 253,318 $ 151,388
EARNINGS (LOSS) FROM OPERATIONS:
Foodservice products 11,260 7,349 18,264 12,087
Cranes & related products 4,850 (297) 8,403 (1,874)
Marine 3,616 3,655 4,801 5,074
General corporate expense (1,924) (1,602) (3,712) (3,163)
Amortization (750) 0 (1,500) 0
--------- ------- -------- -------
Total $ 17,052 $ 9,105 $ 26,256 $ 12,124
</TABLE>
Net sales for the quarter ended June 30, 1996, were $139.2 million, up 69
percent compared with the second quarter of 1995. Operating earnings nearly
doubled to $17.1 million, while net earnings grew to $8.8 million, or 76 cents
per share, a 63 percent increase from the $5.4 million, and 47 cents per share,
earned in the second quarter of 1995.
For the first six months of 1996, net sales totaled $253.3 million, up 67
percent from $151.4 million in the first half of last year. Net earnings rose
80 percent from those of the first six months in 1995. Net earnings for the
1996 period were $12.9 million, equal to $1.12 per share, compared with $7.2
million, and 62 cents per share, for 1995. The improvements continue to be
sparked by strong sales and a sharp turnaround in operating earnings by the
crane segment.
Sales and operating earnings for the foodservice products segment were $67.5
million and $11.3 million, respectively, for the second quarter of 1996,
compared to $30.6 million and $7.3 million for 1995. The gain in sales was due
largely to the addition of refrigeration equipment sales by the Kolpak, Tonka
and McCall units. Comparable ice machine and reach-in sales by Manitowoc
Equipment Works (MEW) were 11% higher than those of the second quarter in 1995.
Year to date sales and earnings were $120.1 million and $18.3 million,
respectively.
Cranes and related products sales for the second quarter increased 40% over the
same period last year. Operating earnings were $4.9 million and $8.4 million
for the second quarter and first six months of 1996, respectively, compared to
losses of $.3 million and $1.9 million for the same periods last year. Manitex
continues to see improved earnings and West-Manitowoc contributed its first
profitable quarter. Orders for cranes and related products continue to be
strong from both domestic and international sources. As of June 30, 1996, the
backlog of unfilled orders stood at $91.3 million, despite an increased level
of shipments.
Second quarter sales in the Marine segment rose to $19.3 million, a 35%
increase over the $14.3 million recorded during the second quarter last year.
The increase was due to a busy winter repair season and the ongoing
construction of a new self-unloading cement barge. Earnings for the quarter
stood at $3.6 million compared earnings of $3.7 million during the same period
last year. Marine operating margin was down slightly, due to a shift in repair
and service mix.
Management expects continued gains in the second half of 1996. However, the
level of improvement will probably not equal that of the first half, due to the
lower level of profitability expected in the fourth quarter. Last year's
fourth quarter included shipment of an M-1200 RINGER that added significantly
to the crane segment's sales and operating margin.
The company continues to generate strong positive cash flow. At the end of the
quarter, the company had no borrowings under its revolving credit lines.
Indebtedness under the six-year term loan facility stood at $121 million,
including the current portion. During the quarter, the total indebtedness
decreased by $24 million.
Financial Condition at June 30, 1996
- --------------------------------------
The Company's financial condition remains strong. Cash and marketable
securities of $20 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, costs associated with the plant consolidation, and
capital expenditures.
This Management's Discussion and Analysis, as well as certain other parts of
this Report on Form 10-Q, contain forward looking statements that involve a
number of risks and uncertainties. Such statements are based on management's
current expectations. The company cautions that such statements are further
qualified by important factors that could cause actual results to differ
materially from those in the forward looking statements.
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 7, 1996, pursuant to
Proposal 1, management's nominees named below were elected as directors, of the
class whose term expires in 1999, by the indicated votes cast for and withheld
with respect to each nominee. Of the 6,930,690 shares of Common Stock which
were represented at the meeting, at least 90.3% of the shares voting were voted
for the election of each of management's nominees, as follows:
Name of Nominee For Withheld
- --------------- ---- ---------
Dean H. Anderson 6,860,128 70,562
James P. McCann 6,875,166 55,524
Robert S. Throop 6,875,791 54,899
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 Gilbert F. Rankin, Fred M. Butler, George T. McCoy,
and Guido R. Rahr, Jr.
In addition, shareholders voted to approve two other proposals. Under Proposal
2, shareholders approved the Company's 1995 Stock Plan. Under Proposal 3,
shareholders approved an amendment to increase by 100,000 the number of shares
that may be issued under the Company's Deferred Compensation Plan. The votes
on those two proposals were as follows:
Broker
Proposal For Against Abstain Non-Votes
- -------- ---- ------- -------- ---------
#2 (1995 Stock Plan) 4,442,234 1,826,753 172,431 489,272
#3 (Number of Shares) 6,106,593 208,740 126,085 489,272
Further information concerning the matters voted upon at the 1996 Annual
Meeting of Shareholders is contained in the Company's proxy statement dated
April 27, 1996 with respect to the 1996 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: During the second quarter ended June 30, 1996, a
report on Form 8-K dated as of June 14, 1996 was filed stating that the
Board of Directors of The Manitowoc Company, Inc. declared a three-for-two
stock split of the company's common shares in the form of a 50 percent
stock dividend.
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/ Fred M. Butler
------------------------
Fred M. Butler
Chief Executive Officer
/s/ Robert R. Friedl
-------------------------
Robert R. Friedl
Chief Financial Officer
/s/ E. Dean Flynn
------------------------
E. Dean Flynn
Secretary
August 13, 1996
THE MANITOWOC COMPANY, INC.
EXHIBIT INDEX
TO FORM 10-Q
FOR QUARTERLY PERIOD ENDED
June 30, 1996
Exhibit Filed
No Description Herewith
- ------- ----------- --------
10 The Manitowoc Company, Inc. Management
Incentive Compensation Plan, as
amended May 7, 1996 X
27 Financial Data Schedule X
MANAGEMENT INCENTIVE COMPENSATION PLAN
Economic Value Added (EVA) Bonus Plan
As Amended May 7, 1996
ARTICLE I
Statement of Purpose
----------------------
1.1 The purpose of the Plan is to provide a system of incentive
compensation which will promote the maximization of
shareholder value over the long term. In order to align
management incentives with shareholder interests, incentive
compensation will reward the creation of value. This Plan
will tie incentive compensation to Economic Value Added
("EVA") and, thereby, reward management for creating value and
penalize management for destroying value.
1.2 EVA is the performance measure of value creation. EVA
reflects the benefits and costs of capital employment.
Managers create value when they employ capital in an endeavor
that generates a return that exceeds the cost of the capital
employed. Managers destroy value when they employ capital in
an endeavor that generates a return that is less than the cost
of capital employed. By imputing the cost of capital upon the
operating profits generated by a business group, EVA measures
the total value created (or destroyed) by management.
EVA = (Net Operating Profit After Tax - Capital Charge)
1.3 Each Plan Participant is placed in a classification. Each
classification has a prescribed target bonus. The bonus
earned in any one year is the result of multiplying the Actual
Bonus Percentage times the Participant's base pay. Bonuses
that fall within a pre-specified range will be fully paid out.
Positive and negative bonuses falling outside this range are
banked forward in the Participant's Bonus Bank, with one-third
of the net positive balance paid out each year in cash.
ARTICLE II
Definition of EVA and the Components of EVA
--------------------------------------------
Unless the context provides a different meaning, the following
terms shall have the following meanings.
2.1 "Participating Group" means a business division or group of
business divisions which are uniquely identified for the
purpose of calculating EVA and EVA based bonus awards. Some
Participants' awards may be a mixture of two different
Participating Groups.
For the purpose of this plan, the Participating Groups are listed
on Exhibit C.
2.2 "Capital" means the net investment employed in the operations
of each Participating Group. The components of Capital are as
follows:
Gross Accounts Receivable (including trade A/R from
another Manitowoc unit)
Plus: FIFO Inventory
Plus: Other Current Assets
Less: Non-Interest Bearing Current Liabilities (NIBCL's -
See Note 1)
Plus: Net PP&E
Plus: Present Value of Non - Capitalized Lease Commitments
(See Note 2)
Plus: Other Operating Assets
Plus: Capitalized Research & Development
Plus: Goodwill acquired after July 3, 1993
Plus: Accumulated Amortization on Goodwill acquired after
July 3, 1993
Plus (Less): Special Items (one-time)
--------------------------------------
Equals: Capital
Notes: (1) NIBCL's include trade A/P to another Manitowoc unit,
but do not include the contingent liability associated
with Bonus Banks.
(2) A firm's decision to finance an asset with an Operating
Lease should not exclude the asset from the firm's capital.
The Present Value of Non -Capitalized Leases can be estimated
by discounting the future minimum lease payments (usually only
5 years is available) by a 10% discount rate. Includes only
new leases (not renewals of existing leases or those incurred
as part of the G.E. Capital lease fleet) with a NPV greater
than $50,000 entered into subsequent to July 3, 1993.
2.3 Each component of Capital will be measured by computing an
average balance based on the ending monthly balance for the
twelve months of the Fiscal Year.
2.4 "Cost of Capital" or "C*" means the weighted average of the
after tax cost of debt and equity for the year in question.
The Cost of Capital will be reviewed annually and revised if it has
changed significantly. Calculations will be carried to one
decimal point.
The cost of capital for the initial year is 12.6%. See Exhibit A.
In subsequent plan years the methodology for the calculation
of the Cost of Capital will be:
a) Cost of Equity = Risk Free Rate + (Beta x Market Risk Premium)
b) Debt Cost of Capital = Debt Yield x (1 - Tax Rate)
c) The weighted average of the Cost of Equity and the Debt Cost of
Capital is determined by reference to the actual debt to
capital ratio where the Risk Free Rate is the average daily
closing yield rate on 30 year U.S. Government Bonds for the
month of October immediately preceding the Plan Year, the BETA
is determined by reference to the most recently available
Value Line report on the Company closest to, but before
October 31, the Market Risk Premium is 6%, the Debt Yield is
the weighted average yield on the Company's long term
obligations for the trailing 12 month period ending October 31
of the year immediately preceding the Plan Year, and the tax
rate is 39% for U.S. Companies, and the full statutory rate of
the country where a foreign division or subsidiary is based.
d) Short-term debt is to be treated as long-term for purposes
of computing the cost of capital.
2.5 "Capital Charge" means the deemed opportunity cost of
employing Capital in the business of each Participating Group.
The Capital Charge is computed as follows:
Capital Charge = Capital x Cost of Capital (C*)
2.6 "Net Operating Profit After Tax" or "NOPAT"
-------------------------------------------
"NOPAT" means the after tax cash earnings attributable to the
capital employed in the Participating Group for the year in
question. The components of NOPAT are as follows:
Operating Earnings
Plus: Interest Expense on Non-Capitalized Lease
Commitments (See Note 1)
Plus: Increase (Decrease) in Capitalized R & D (See
Note 2)
Plus: Increase (Decrease) in Bad Debt Reserve
Plus: Increase (Decrease) in Inventory Reserves
Plus: Amortization of Goodwill acquired after July 3, 1993
Less: Other Expense (Excluding interest on debt)
Plus: Other Income (Excluding investment income)
Equals: Net Operating Profit Before Tax
Less: Taxes (See Note 3)
------------------------------
Equals: Net Operating Profit After Tax
Note: (1) For consistency with the treatment of capitalized
leases in capital, the interest portion of the lease
payments should be reclassified from operating expense
to interest expense.
(2) Since R & D is Capitalized, the difference in the balance
is the expensed amount for that year.
(3) Taxes is assumed to be 39% of Net Operating Profit Before
Tax. (For exceptions see 2.4(c)).
2.7 "Economic Value Added" or "EVA" means the NOPAT that remains
after subtracting the Capital Charge, expressed as follows:
NOPAT
Less: Capital Charge
-------------------------
Equals: EVA
EVA may be positive or negative.
ARTICLE III
Definition and Computation of Target Bonus Value
-------------------------------------------------
3.1 "Actual EVA" means the EVA as calculated for each
Participating Group for the year in question.
3.2 "Target EVA" means the level of EVA that is expected in order
for the Participating Group to receive the Target Bonus Value.
The Target EVA for the first year is set at the expected EVA for
the year prior to the first year of the plan after adjusting
for inventory write-offs, Manitex relocation, FAS 106 and 109
and the $5 million product liability settlement (except for
$1.2 million). After the first year, the Base-Line EVA is
revised according to the following formula:
Last Year's Actual EVA + Last Year's Target EVA
-----------------------------------------------
Target EVA = 2 + Expected Improvement in EVA
"Expected Improvement in EVA" means the constant EVA improvement
that is added to shift the target up each year. This is
determined by the expected growth in EVA per year.
See Exhibit B for the Expected Improvement for each Participating
Group.
3.3 "Target Bonus Value" means the "Target Bonus Percentage"
times a Participant's base pay.
3.4 "Target Bonus Percentage" is determined by a Participant's
classification as shown on Exhibit B.
3.5 "Actual Bonus Value" means the bonus earned * by a Participant
and is computed as the Actual Bonus Percentage times a
Participant's base pay.
3.6 "Actual Bonus Percentage" is determined by multiplying the
Target Bonus Percentage by the Bonus Performance Value.
3.7 "Bonus Performance Value" means the difference between the
Actual EVA and the Target EVA divided by the Leverage Factor
plus 1.0.
(Actual EVA - Target EVA)
-------------------------
Bonus Performance Value = ( Leverage Factor ) + 1
3.8 "Leverage Factor" is the negative (positive) deviation from
Target EVA necessary before a zero (two times Target) bonus is
earned. See Exhibit C for the Leverage Factor of each
Participating Group.
3.9 A Participant's classification is determined by each business
unit manager. They shall generally be direct reports and are
subject to approval by the CEO and the Compensation Committee
of the Board of Directors.
* Note: A portion of the Actual Bonus Value may be placed in the
Participants' Bonus Bank. See Article IV for details on the
Bonus Bank.
ARTICLE IV
Description of Bonus Banks
--------------------------
4.1 Establishment of a Bonus Bank. To encourage a long-term
commitment by Participants to the Company, a portion of
exceptional bonuses (amounts above Target and negative
bonuses) shall be credited to "at risk" deferred accounts
("Bonus Banks"), with the level of payout contingent on
sustained high performance and improvements and continued
employment as provided herein.
4.2 Although a Bonus Bank may, as a result of negative EVA, have a
deficit, no Plan Participant shall be required, at any time,
to reimburse his/her Bonus Bank.
4.3 "Bonus Bank" means, with respect to each Participant, a
bookkeeping record of an account to which amounts are
credited, or debited as the case may be, from time to time
under the Plan and from which bonus payments to such
Participant are debited.
4.4 "Bank Balance" means, with respect to each Participant, a
bookkeeping record of the net balance of the amounts credited
to and debited against such Participant's Bonus Bank. A
Participant's Bank Balance shall initially be equal to zero.
4.5 Payout Rule: If the Bank Balance entering the Plan Year is
zero or positive, then
1) Pay any positive bonus earned up to the "Target Bonus
Value",
2) Add any unpaid portion of the bonus earned (including
negative bonuses) to the Bonus Bank,
3) Pay out 1/3 of any Positive Bank Balance
4) Carry the remaining Bank Balance forward to the next year.
If the Bank Balance entering the Plan Year is negative, then
1) Pay 1/3 of the positive bonus earned up to the "Target
Bonus Value",
2) Add any unpaid portion of the bonus earned (including
negative bonuses) to the Bonus Bank,
3) Pay out 1/3 of any Positive Bank Balance,
4) Carry the remaining Bank Balance forward to the next year.
4.6 A Participant may elect to withdraw, in cash, all or a portion
of the Bank Balance. The amount available for such withdrawal
is the lesser of the ending Bank Balance of the applica ble
year or the Bank Balance at the end of the third prior year.
ARTICLE V
Plan Participation, Transfers and Terminations
-----------------------------------------------
5.1 Participant Group. The Committee will have sole discretion in
determining who shall participate in the EVA Bonus Plan.
Employees designated for Plan participation by the Committee
shall be management or highly compensated employees.
5.2 Transfers. A Participant who transfers his employment from
one Participating Unit of the Company to another shall retain
his Bonus Bank and will be eligible to receive future EVA Plan
Awards in accordance with the provisions of the EVA Plan. Any
positive Bonus Bank balance would payout in full as soon as is
practical.
5.3 Retirement or Disability. A Participant who terminates
employment with the Company, at or after age fifty-five, for
any reason ("retirement"), or suffers a "disability," as such
term is defined in the Company's long-term disability benefits
program, while in the Company's employ shall be eligible to
receive the balance of their Bonus Bank. In the case of
retirement, the Participant will receive their balance over
three years subject to reduction if the Actual Bonus Value is
negative in any of the three years subsequent to the year of
retirement. In the case of disability while in the Company's
employ, the Participant will receive their balance as soon as
practical after qualifying for benefit payments under the
Company's long-term disability benefits program.
5.4 Involuntary Termination Without Cause or Death. A Participant
who is Terminated without cause or who dies shall receive any
positive Bonus Bank balance. Such payments will be made as
soon as is practical.
5.5 Voluntary Termination. In the event that a Participant
voluntarily terminates employment with the Company, the right
of the Participant to their Bonus Bank shall be forfeited
unless a different determination is made by the Committee.
5.6 Involuntary Termination for Cause. In the event of
termination of employment for cause, the right of the
Participant to the Bonus Bank shall be determined by the
Committee.
"Cause" shall mean:
(i) any act or acts of the Participant constituting a felony
under the laws of the United States, any state thereof or any
foreign jurisdiction;
(ii) any material breach by the Participant of any employment
agreement with the Company or the policies of the Company or
the willful and persistent (after written notice to the
Participant) failure or refusal of the Participant to comply
with any lawful directives of the Board;
(iii) a course of conduct amounting to gross neglect,
willful misconduct or dishonesty; or
(iv) any misappropriation of material property of the Company
by the Participant or any misappropriation of a corporate or
business opportunity of the Company by the Participant.
5.7 Breach of Agreement. Notwithstanding any other provision of
the Plan or any other agreement, in the event that a
Participant shall breach any non-competition agreement with
the Company or breach any agreement with respect to the post-
employment conduct of such Participant, the Bonus Bank held by
such Participant shall be forfeited.
5.8 No Guarantee. Participation in the Plan provides no guarantee
that a payment under the Plan will be paid. Selection as a
Participant is no guarantee that payments under the plan will
be paid or that selection as a Participant will be made in the
subsequent Calendar Year.
ARTICLE VI
General Provisions
------------------
6.1 Withholding of Taxes. The Company shall have the right to
withhold the amount of taxes, which in the determination of
the Company, are required to be withheld under law with
respect to any amount due or paid under the Plan.
6.2 Expenses. All expenses and costs in connection with the
adoption and administration of the plan shall be borne by the
Company.
6.3 No prior Right or Offer. Except and until expressly granted
pursuant to the Plan, nothing in the Plan shall be deemed to
give any employee any contractual or other right to
participate in the benefits of the Plan.
6.4 Claims for Benefits. In the event a Participant (a
"claimant") desires to make a claim with respect to any of the
benefits provided hereunder, the claimant shall submit
evidence satisfactory to the Committee of facts establishing
his entitlement to a payment under the Plan. Any claim with
respect to any of the benefits provided under the Plan shall
be made in writing within ninety (90) days of the event which
the claimant asserts entitles him to benefits. Failure by the
claimant to submit his claim within such ninety (90) day
period shall bar the claimant from any claim for benefits
under the Plan.
6.5 In the event that a claim which is made by a claimant is
wholly or partially denied, the claimant will receive from the
Committee a written explanation of the reason for denial and
the claimant or his duly authorized representative may appeal
the denial of the claim to the Committee at any time within
ninety (90) days after the receipt by the claimant of written
notice from the Committee of the denial of the claim. In
connection therewith, the claimant or his duly authorized
representative may request a review of the denied claim; may
review pertinent documents; and may submit issues and comments
in writing. Upon receipt of an appeal, the Committee shall
make a decision with respect to the appeal and, not later than
sixty (60) days after receipt of a request for review, shall
furnish the claimant with a decision on review in writing,
including the specific reasons for the decision written in a
manner calculated to be understood by the claimant, as well as
specific reference to the pertinent provisions of the Plan
upon which the decision is based. In reaching its decision,
the Committee shall have complete discretionary authority to
determine all questions arising in the interpretation and
administration of the Plan, and to construe the terms of the
Plan, including any doubtful or disputed terms and the
eligibility of a Participant for benefits.
6.6 Action Taken in Good Faith; Indemnification. The Committee
may employ attorneys, consultants, accountants or other
persons and the Company's directors and officers shall be
entitled to rely upon the advice, opinions or valuations of
any such persons. All actions taken and all interpretations
and determinations made by the Committee in good faith shall
be final and binding upon all employees who have received
awards, the Company and all other interested parties. No
member of the Committee, nor any officer, director, employee
or representative of the Company, or any of its affiliates
acting on behalf of or in conjunction with the Committee,
shall be personally liable for any action, determination, or
interpretation, whether of commission or omission, taken or
made with respect to the Plan, except in circumstances
involving actual bad faith or willful misconduct. In addition
to such other rights of indemnification as they may have as
members of the Board, as members of the Committee or as
officers or employees of the Company, all members of the
Committee and any officer, employee or representative of the
Company or any of its subsidiaries acting on their behalf
shall be fully indemnified and protected by the Company with
respect to any such action, determination or interpretation
against the reasonable expenses, including attorneys' fees
actually and necessarily incurred, in connection with the
defense of any civil or criminal action, suit or proceeding,
or in connection with any appeal therein, to which they or any
of them may be a party by reason of any action taken or
failure to act under or in connection with the Plan or an
award granted thereunder, and against all amounts paid by them
in settlement thereof (provided such settlement is approved by
independent legal counsel selected by Company ) or paid by
them in satisfaction of a judgment in any action, suit or
proceeding, except in relation to matters as to which it shall
be adjudged in such action, suit or proceeding that such
person claiming indemnification shall in writing offer the
Company the opportunity, at its own expense, to handle and
defend the same. Expenses (including attorneys' fees)
incurred in defending a civil or criminal action, suit or
proceeding shall be paid by the Company in advance of the
final disposition of such action, suit or proceeding if such
person claiming indemnification is entitled to be indemnified
as provided in this Section.
6.7 Rights Personal to Employee. Any rights provided to an
employee under the Plan shall be personal to such employee,
shall not be transferable (except by will or pursuant to the
laws of descent or distribution), and shall be exercisable,
during his lifetime, only by such employee.
6.8 Upon termination of the Plan or suspension for a period of
more than 90 days, the Bank Balance of each Participant shall
be distributed as soon as practicable but in no event later
than 90 days from such event. The Committee, in its sole
discretion, may accelerate distribution of the Bank Balance,
in whole or in part, at any time without penalty.
6.9 Non-Allocation of Award. In the event of a suspension of the
Plan in any Plan Year, as provided herein at Article VIII,
Section 8, the Current Bonus for the subject Plan year shall
be deemed forfeited and no portion thereof shall be allocated
to Participants. Any such forfeiture shall not affect the
calculation of EVA in any subsequent year.
ARTICLE VII
Limitations
-----------
7.1 No Continued Employment. Nothing contained herein shall
provide any employee with any right to continued employment or
in any way abridge the rights of the Company and its
Participating Units to determine the terms and conditions of
employment and whether to terminate employment of any
employee.
7.2 No Vested Rights. Except as otherwise provided herein, no
employee or other person shall have any claim of right (legal,
equitable, or otherwise)to any award, allocation, or
distribution or any right, title, or vested interest in any
amounts in his Bonus Bank and no officer or employee of the
Company or any Participating Group or any other person shall
have any authority to make representations or agreements to
the contrary. No interest conferred herein to a Participant
shall be assignable or subject to claim by a Participant's
creditors. The right of the Participant to receive a
distribution hereunder shall be an unsecured claim against the
general assets of the Company and the Participant shall have
no rights in or against any specific assets of the Company as
the result of participation hereunder.
7.3 Not Part of Other Benefits. The benefits provided in this
plan shall not be deemed a part of any other benefit provided
by the Company to its employees. The Company assumes no
obligation to plan Participants except as specified herein.
This is a complete statement, along with the Schedules and
Appendices attached hereto, of the terms and conditions of the
plan.
7.4 Other Plans. Nothing contained herein shall limit the Company
or the Compensation Committee's power to grant bonuses to
employees of the Company, whether or not Participants in this
plan.
7.5 Limitations. Neither the establishment of the plan or the
grant of an award hereunder shall be deemed to constitute an
express or implied contract of employment for any period of
time or in any way abridge the rights of the Company to
determine the terms and conditions of employment or to
terminate the employment of any employee with or without cause
at any time.
7.6 Unfunded Plan. This Plan is unfunded and is maintained by the
Company in part to provide deferred compensation to a select
group of management and highly compensated employees. Nothing
herein shall create or be construed to create a trust of any
kind, or a fiduciary relationship between the Company and any
Participant.
ARTICLE VIII
Authority
----------
8.1 Compensation Committee Authority. Except as otherwise
expressly provided herein, full power and authority to
interpret and administer this plan shall be vested in the
Compensation Committee. The Compensation Committee may from
time to time make such decisions and adopt such rules and
regulations for implementing the Plan as it deems appropriate
for any Participant under the Plan. Any decision taken by the
Compensation Committee arising out of or in connection with
the construction, administration, interpretation and effect of
the Plan shall be final, conclusive and binding upon all
Participants and any person claiming under or through them.
8.2 Board of Directors Authority. The Board shall be ultimately
responsible for administration of the plan. References made
herein to the "Compensation Committee" assume that the Board
of Directors has created a Compensation Committee to
administer the Plan. In the event a Compensation Committee is
not so designated, the Board shall administer the Plan. The
Board or its Compensation Committee, as appropriate, shall
work with the CEO of the Company in all aspects of the
administration of the Plan.
ARTICLE IX
Notice
-------
9.1 Any notice to be given pursuant to the provisions of the Plan
shall be in writing and directed to the appropriate recipient
thereof at his business address or office location.
ARTICLE X
Effective Date
--------------
10.1 This Plan shall be effective as of July 4, 1993.
ARTICLE XI
Amendments
-----------
11.1 This Plan may be amended, suspended or terminated at any time
at the sole discretion of the Board upon the recommendation of
the Compensation Committee. Provided, however, that no such
change in the Plan shall be effective to eliminate or diminish
the distribution of any Award that has been allocated to the
Bank of a Participant prior to the date of such amendment,
suspension or termination. Notice of any such amendment,
suspension or termination shall be given promptly to each
Participant.
ARTICLE XII
Applicable Law
---------------
12.1 This Plan shall be construed in accordance with the provisions
of the laws of the State of Wisconsin.
Exhibit A
Calculation of the Cost of Capital
Inputs Variables:
-----------------
Risk Free Rate = Average Daily closing yield on U.S. Government 30
Yr. Bonds (for the month of October preceding the Plan
Year)
Market Risk Premium = 6.0% (Fixed)
Beta = 0.80% (Value Line)
Debt/Capital Ratio = Debt as a % of Capital (computed using the monthly
average debt/capital ratio for the trailing 12
month period ending October 31 of the year
preceding the Plan Year)
b = Cost of Debt Capital (Weighted Average Yield on the
Company's Long Term Debt Obligations)
Marginal Tax Rate = 39.0% (Historical Average). However, for exceptions
see 2.4(C)
Calculations:
-------------
y = Cost of Equity Capital
= Risk Free Rate + (Beta x Market Risk Premium)
Weighted Average Cost of Capital =
(Cost of Equity Capital x (1 - Debt/Capital Ratio)) +
(Cost of Debt x (Debt/Capital Ratio) x (1 - Marginal Tax Rate))
c* = (y x (1 - Debt/Capital)) + (b x (Debt/Capital) x (1 - Marginal Tax Rate))
Exhibit B
Participant Target Bonus
Classification Percentage
-------------- -------------
I 60 %
II 50 %
III 35 %
IV 30 %
V 25 %
VI 20 %
VII 15 %
VIII 10 %
IX 7 %
X 5 %
XI 2 %
Exhibit C
Participating Expected Improvement
Groups in EVA Leverage Factor
------------- --------------------- ---------------
Manitowoc Equipment Works 500,000 2,000,000
*The Shannon Group 500,000 2,000,000
*Foodservice Group
(The Shannon Group &
Manitowoc Equipment Works 1,000,000 4,000,000
Manitowoc Engineering Co. 1,000,000 3,000,000
Femco 400,000 600,000
*Re-Manufacturing 50,000 150,000
Manitowoc Europe LTD 75,000 225,000
North Central Crane 40,000 120,000
*Manitowoc Engineering Co.
Group,(Manitowoc Engineering 1,500,000 4,000,000
Stores, Re-Manufacturing, and
Femco)
West Manitowoc 200,000 350,000
Manitex 500,000 1,000,000
Marine 150,000 750,000
Corporate 1,000,000 7,000,000
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