| MANITOWOC CO INC Item 1A Risk Factors The following are risk factors identified by management that if any events contemplated by the following risks actually occur, then our business, financial condition or results of operations could be materially adversely affected |
| A downturn or weakness in overall economic activity or fluctuations in those other factors can have a material adverse effect on us |
| Historically, sales of products that we manufacture and sell have been subject to cyclical variations caused by changes in general economic conditions and other factors |
| In particular, the demand for our crane products is cyclical and is impacted by the strength of the economy generally, interest rates and other factors that may have an effect on the level of construction activity on an international, national or regional basis |
| During periods of expansion in construction activity, we generally have benefited from increased demand for our products |
| Conversely, during recessionary periods, we have been adversely affected by reduced demand for our products |
| In addition, the strength of the economy generally may affect the rates of expansion, consolidation, renovation and equipment replacement within the restaurant, lodging, convenience store and healthcare industries, which may affect the performance of our Foodservice segment |
| Furthermore, an economic recession may impact leveraged companies, such as Manitowoc, more than competing companies with less leverage and may have a material adverse effect on our financial condition, results of operations and cash flows |
| Products in our Crane and Marine segments depend in part on federal, state, local and foreign governmental spending and appropriations, including infrastructure, security and defense outlays |
| Reductions in governmental spending can affect demand for our products, which in turn can affect our performance |
| Weather conditions can substantially affect our Foodservice segment, as relatively cool summer weather and cooler-than-normal weather in hot climates tend to decrease sales of ice and beverage dispensers |
| In addition, weather conditions can affect our Marine segment |
| A mild winter can keep the fleet sailing through the winter repair season rather than being coming in for repair |
| Our sales depend in part upon our customers’ replacement or repair cycles |
| Adverse economic conditions may cause customers to forego or postpone new purchases in favor of repairing existing machinery |
| 10 ______________________________________________________________________ A substantial portion of our growth has come through acquisitions |
| We may not be able to identify or complete future acquisitions, which could adversely affect our future growth |
| Our growth strategy historically has been based in part upon acquisitions |
| Our successful growth through acquisitions depends upon our ability to identify and successfully negotiate suitable acquisitions, obtain financing for future acquisitions on satisfactory terms or otherwise complete acquisitions in the future |
| In addition, our level of indebtedness may increase in the future if we finance other acquisitions with debt |
| This would cause us to incur additional interest expense and could increase our vulnerability to general adverse economic and industry conditions and limit our ability to service our debt or obtain additional financing |
| We cannot assure you that future acquisitions will not have a material adverse effect on our financial condition, results of operations and cash flows |
| Our future success depends on our ability to effectively integrate acquired companies and manage growth |
| Our growth has placed, and will continue to place, significant demands on our management and operational and financial resources |
| We have made three significant acquisitions since November 2000 |
| Future acquisitions will require integration of the acquired companies’ sales and marketing, distribution, manufacturing, engineering, purchasing, finance and administrative organizations |
| Experience has taught us that the successful integration of acquired businesses requires substantial attention from our senior management and the management of the acquired companies, which tends to reduce the time that they have to manage the ongoing business |
| While we believe we have successfully integrated our acquisitions to date, we cannot assure you that we will be able to integrate any future acquisitions successfully, that these acquired companies will operate profitably or that the intended beneficial effect from these acquisitions will be realized |
| Our financial condition, results of operations and cash flows could be materially and adversely affected if we do not successfully integrate any future companies that we may acquire or if we do not manage our growth effectively |
| Because we participate in industries that are intensely competitive, our net sales and profits could decline as we respond to competition |
| We sell most of our products in highly competitive industries |
| We compete in each of those industries based on product design, quality of products, quality and responsiveness of product support services, product performance, maintenance costs and price |
| Some of our competitors have greater financial, marketing, manufacturing and distribution resources than we do |
| We cannot assure you that our products and services will continue to compete successfully with those of our competitors or that we will be able to retain our customer base or improve or maintain our profit margins on sales to our customers, all of which could materially and adversely affect our financial condition, results of operations and cash flows |
| If we fail to develop new and innovative products or if customers in our markets do not accept them, our results would be negatively affected |
| Our products, especially those in the Crane and Foodservice segments, must be kept current to meet our customers’ needs |
| To remain competitive, we therefore must develop new and innovative products on an on-going basis |
| If we fail to make innovations, or the market does not accept our new products, our sales and results would suffer |
| We invest significantly in the research and development of new products |
| These expenditures do not always result in products that will be accepted by the market |
| To the extent they do not, whether as a function of the product or the business cycle, we will have increased expenses without significant sales to benefit us |
| Failure to develop successful new products may also cause potential customers to choose to purchase used cranes or other equipment, or competitors’ products, rather than invest in new products manufactured by us |
| In our Marine segment, we must sometimes perform engineering services either at no cost or for limited margins, or build prototypes for little or no margin, in competing for contracts without any assurance that we will be awarded a contract for production models which would allow us to achieve an appropriate return on our investment |
| 11 ______________________________________________________________________ Price increases in some materials and sources of supply could affect our profitability |
| We use large amounts of steel, stainless steel, aluminum, copper and electronic controls among other items in the manufacture of our products |
| Recently, market prices of some of our key raw materials have increased significantly |
| In particular, we have experienced significant increases in steel, aluminum, foam, and copper prices in recent periods, which have increased our expenses |
| There have also been several changes in the surcharge base levels of nickel and chrome |
| These changes have the effect of increasing the overall market price for stainless steel, a significant raw material for our Foodservice segment |
| If we are not able to reduce product cost in other areas or pass future raw material price increases on to our customers, our margins could be adversely affected |
| In addition, because we maintain limited raw material and component inventories, even brief unanticipated delays in delivery by suppliers—including those due to capacity constraints, labor disputes, impaired financial condition of suppliers, weather emergencies or other natural disasters—may impair our ability to satisfy our customers and could adversely affect our financial performance |
| We increasingly manufacture and sell our products outside of the United States, which may present additional risks to our business |
| For the years ended December 31, 2005, 2004, and 2003, approximately 47dtta8prca, 46dtta8prca and 45dtta6prca, respectively, of our net sales were attributable to products sold outside of the United States |
| Expanding international sales is part of our growth strategy |
| We have several manufacturing facilities located in Europe and Asia and during 2005 constructed two new facilities in Asia |
| International operations generally are subject to various risks, including political, military, religious and economic instability, local labor market conditions, the imposition of foreign tariffs, the impact of foreign government regulations, the effects of income and withholding tax, governmental expropriation, and differences in business practices |
| We may incur increased costs and experience delays or disruptions in product deliveries and payments in connection with international manufacturing and the transfer to the new facilities and sales that could cause loss of revenue |
| Unfavorable changes in the political, regulatory and business climate and currency devaluations of various foreign jurisdictions could have a material adverse effect on our financial condition, results of operations and cash flows |
| We depend on our key personnel and the loss of these personnel could have an adverse affect on our business |
| Our success depends to a large extent upon the continued services of our key executives, managers and skilled personnel |
| Generally, these employees are not bound by employment or non-competition agreements, and we cannot assure you that we will be able to retain our key officers and employees |
| We could be seriously harmed by the loss of key personnel if it were to occur in the future |
| Our operations and profitability could suffer if we experience labor relations problems |
| In addition, a large majority of our European employees belong to European trade unions |
| These collective bargaining or similar agreements expire at various times in each of the next several years |
| We believe that we have satisfactory relations with our unions and, therefore, anticipate reaching new agreements on satisfactory terms as the existing agreements expire |
| However, we may not be able to reach new agreements without a work stoppage or strike and any new agreements that are reached may not be reached on terms satisfactory to us |
| A prolonged work stoppage or strike at any one of our manufacturing facilities could have a material adverse effect on our financial condition, results of operations and cash flows |
| 12 ______________________________________________________________________ If we fail to protect our intellectual property rights or maintain our rights to use licensed intellectual property, our business could be adversely affected |
| Our patents, trademarks and licenses are important in the operation of our businesses |
| Although we intend to protect our intellectual property rights vigorously, we cannot assure you that we will be successful in doing so |
| Third parties may assert or prosecute infringement claims against us in connection with the services and products that we offer, and we may or may not be able to successfully defend these claims |
| Litigation, either to enforce our intellectual property rights or to defend against claimed infringement of the rights of others, could result in substantial costs and in a diversion of our resources |
| In addition, if a third party would prevail in an infringement claim against us, then we would likely need to obtain a license from the third party on commercial terms, which would likely increase our costs |
| Our failure to maintain or obtain necessary licenses or an adverse outcome in any litigation relating to patent infringement or other intellectual property matters could have a material adverse effect on our financial condition, results of operations and cash flows |
| Our results of operations may be negatively impacted by product liability lawsuits |
| Our business exposes us to potential product liability risks that are inherent in the design, manufacture and sales of our products |
| Certain of our businesses also have experienced claims relating to past asbestos exposure |
| Neither we nor our affiliates have to date incurred material costs related to these asbestos claims |
| A substantial increase in the number of claims that are made against us or the amounts of any judgments or settlements could, however, materially and adversely affect our reputation and our financial condition, results of operations and cash flows |
| We have been in negotiations with one of our Marine customers to recover certain cost overruns that resulted from change orders related to a particular contract |
| During the third quarter of 2005, due to the fact that these negotiations were not successful within a timeframe satisfactory to us, we filed a lawsuit seeking recovery of these cost overruns from the customer |
| The customer subsequently filed a counter suit against us in the fourth quarter of 2005 |
| During the fourth quarter of 2005, we established a reserve of dlra10dtta2 million to reflect the inherent uncertainties in litigation of this type |
| The dlra10dtta2 million reserve is recorded in cost of sales of the Marine segment in the Consolidated Statement of Operations for the year ended December 31, 2005 |
| Although we have established this reserve, we believe we are contractually entitled to these cost recoveries and we intend to continue to seek recovery of all amounts owed |
| If we are successful in our recovery of costs as a result of this lawsuit or negotiations, the favorable impact on our Consolidated Statements of Operations and Cash Flows in a future period could be material |
| Some of our products are built under fixed-price agreements; cost overruns therefore can hurt our results |
| Some of our work, particularly in the Marine segment, is done under agreements on a fixed-price basis |
| If we do not accurately estimate our costs, we may incur a loss under these contracts |
| Even if the agreements have provisions which allow reimbursement for cost overruns, we may not be able to recoup excess expenses |
| Strategic divestitures could negatively affect our results |
| We regularly review our business units and evaluate them against our core business strategies |
| As part of that process, we regularly consider the divestiture of non-core and non-strategic operations or facilities |
| Depending upon the circumstances and terms, the divestiture of a profitable operation or facility could negatively affect our earnings |
| 13 ______________________________________________________________________ Environmental liabilities that may arise in the future could be material to us |
| Our operations, facilities and properties are subject to extensive and evolving laws and regulations pertaining to air emissions, wastewater discharges, the handling and disposal of solid and hazardous materials and wastes, the remediation of contamination, and otherwise relating to health, safety and the protection of the environment |
| As a result, we are involved from time to time in administrative or legal proceedings relating to environmental and health and safety matters, and have in the past and will continue to incur capital costs and other expenditures relating to such matters |
| Based on current information, we believe that any costs we may incur relating to environmental matters will not be material, although we can give no assurance to that effect |
| We also cannot be certain that identification of presently unidentified environmental conditions, more vigorous enforcement by regulatory authorities, or other unanticipated events will not arise in the future and give rise to additional environmental liabilities, compliance costs or penalties which could be material |
| Further, environmental laws and regulations are constantly evolving and it is impossible to predict accurately the effect they may have upon our financial condition, results of operations or cash flows |
| We are exposed to the risk of foreign currency fluctuations |
| Some of our operations are or will be conducted by subsidiaries in foreign countries |
| The results of the operations and the financial position of these subsidiaries will be reported in the relevant foreign currencies and then translated into US dollars at the applicable exchange rates for inclusion in our consolidated financial statements, which are stated in US dollars |
| The exchange rates between many of these currencies and the US dollar have fluctuated significantly in recent years and may fluctuate significantly in the future |
| Such fluctuations may have a material effect on our results of operations and financial position and may significantly affect the comparability of our results between financial periods |
| In addition, we incur currency transaction risk whenever one of our operating subsidiaries enters into a transaction using a different currency than its functional currency |
| We attempt to reduce currency transaction risk whenever one of our operating subsidiaries enters into a transaction using a different currency than its functional currency by • matching cash flows and payments in the same currency; • direct foreign currency borrowing; and • entering into foreign exchange contracts for hedging purposes |
| However, we may not be able to hedge this risk completely or at an acceptable cost, which may adversely affect our results of operations, financial condition and cash flows in future periods |
| Increased or unexpected product warranty claims could adversely affect us |
| We provide our customers a warranty covering workmanship, and in some cases materials, on products we manufacture |
| Our warranty generally provides that products will be free from defects for periods ranging from 12 months to 60 months |
| Although we maintain warranty reserves in an amount based primarily on the number of units shipped and on historical and anticipated warranty claims, there can be no assurance that future warranty claims will follow historical patterns or that we can accurately anticipate the level of future warranty claims |
| An increase in the rate of warranty claims or the occurrence of unexpected warranty claims could materially and adversely affect our financial condition, results of operations and cash flows |
| We rely principally on sales of our products to generate cash from operations |
| A portion of our sales is financed by third-party finance companies on behalf of our customers |
| The availability of financing by third parties is affected by general economic conditions, the credit worthiness of our customers and the estimated residual value of our equipment |
| In certain transactions we provide residual value guarantees and buyback commitments to our customers or the third party financial institutions |
| Deterioration in the credit quality of our customers could negatively impact their ability to obtain the resources needed to make purchases of our equipment or their ability to obtain third-party financing |
| In addition, if the actual value of the equipment for which we have provided a residual value guaranty declines below the amount of our guaranty, we may incur additional costs, which may negatively impact our financial condition, results of operations and cash flows |
| Our leverage may impair our operations and financial condition |
| As of December 31, 2005, our total consolidated debt was dlra493dtta4 million |
| Our debt could have important consequences, including increasing our vulnerability to general adverse economic and industry conditions; requiring a substantial portion of our cash flows from operations be used for the payment of interest rather than to fund working capital, capital expenditures, acquisitions and general corporate requirements; limiting our ability to obtain additional financing; and limiting our flexibility in planning for, or reacting to, changes in our business and the industries in which we operate |
| The agreements governing our debt include covenants that restrict, among other things, our ability to incur additional debt; pay dividends on or repurchase our equity; make investments; and consolidate, merge or transfer all or substantially all of our assets |
| In addition, our senior credit facility requires us to maintain specified financial ratios and satisfy certain financial condition tests |
| Our ability to comply with these covenants may be affected by events beyond our control, including prevailing economic, financial and industry conditions |
| These covenants may also require that we take action to reduce our debt or to act in a manner contrary to our business objectives |
| We cannot assure you that we will meet any future financial tests or that the lenders will waive any failure to meet those tests |
| If we default under our debt agreements, our lenders could elect to declare all amounts outstanding under our debt agreements to be immediately due and payable and could proceed against any collateral securing the debt |
| Under those circumstances, in the absence of readily-available refinancing on favorable terms, we might elect or be compelled to enter bankruptcy proceedings, in which case our shareholders could lose the entire value of their investment in our common stock |