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| MNTX > SEC Filings for MNTX > Form 10-Q on 13-Nov-2008 | All Recent SEC Filings |
13-Nov-2008
Quarterly Report
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
This quarterly report on Form 10-Q contains forward-looking statements relating
to future events and the future performance of the Company within the meaning of
Section 27A of the Securities Act of 1933 and Section 21E of the Securities
Exchange Act of 1934, including, without limitation, statements regarding the
Company's expectations, beliefs, intentions or future strategies that are
signified by the words "expects," "anticipates," "intends," "believes" or
similar language. Our actual results may differ materially from information
contained in these forward looking-statements for many reasons, including those
described below and in our 2007 Annual Report on Form 10-K in the section
entitled "Item 1A. Risk Factors,"
(1) difficulties in implementing new systems, integrating acquired businesses, managing anticipated growth, and responding to technological change;
(2) our ability to negotiate extensions of our current credit agreements and to obtain additional debt or equity financing when needed;
(3) the cyclical nature of the markets we operate in;
(5) government spending, fluctuations in the construction industry, and capital expenditures in the oil and gas industry;
(6) Some of our customers rely on financing with third party to purchase our products.
(7) the performance of our competitors;
(8) shortages in supplies and raw materials or increases in costs of materials;
(9) our level of indebtedness and ability to meet financial covenants required by our debt agreements;
(10) product liability claims, intellectual property claims, and other liabilities;
(11) the volatility of our stock price;
(12) the willingness of our stockholders and directors to approve mergers, acquisitions, and other business transactions;
(13) currency transaction (foreign exchange) risk and the risks related to forward currency contracts; and
(14) certain provisions of the Michigan Business Corporation Act and the Company's Articles of Incorporation, amended, and Amended and Restated Bylaws, and The Company's Rights Agreement may discourage or prevent a change in control of the Company.
The risks described in our Annual Report on Form 10-K are not the only risks facing our Company. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also may materially adversely affect our business, financial condition or operating results. We do not undertake, and expressly disclaim, any obligation to update this forward-looking information, except as required under applicable law.
OVERVIEW
The Company is a leading provider of engineered lifting solutions. The Company designs, manufactures and distributes a diverse group of products that serve different functions and are used in a variety of industries. Through its Manitex subsidiary, the Company markets a comprehensive line of boom trucks and sign cranes. Manitex's boom trucks and crane products are primarily used for industrial projects, energy exploration and infrastructure development, including, roads, bridges and commercial construction. The Manitex Liftking subsidiary sells a complete line of rough terrain forklifts and special mission oriented vehicles, as well as other specialized carriers, heavy material handling transporters and steel mill equipment. Manitex Liftking's rough terrain forklifts are used in both commercial and military applications. Specialty mission oriented vehicles and specialized carriers are designed and built to meet the Company's unique customer needs and requirements. The Company's specialized lifting equipment has met the particular needs of customers in various industries that include utility, ship building and steel mill industries. All financial data is in millions, except for share data and where otherwise indicated.
Discontinued Operations
Historically, the Company also designed, developed, and built specialty testing and assembly equipment for the automotive and heavy equipment industries that identifies defects through the use of signature analysis and in-process verification. Against the background of the operating losses generated in recent history by this segment, the Company conducted a strategic review of these operations. On March 29, 2007, our Board of Directors approved a plan to sell our Testing and Assembly Equipment segment's operating assets, which were based in Wixom, Michigan, including its inventory, machinery, equipments and patents. As a result, our Testing and Assembly Equipment segment has been accounted for as a discontinued operation starting with the first quarter of 2007 until its disposition.
On August 1, 2007, the assets used in connection with the Company's diesel engine testing equipment were sold to EuroMaint Industry, Inc., a Delaware corporation ("EuroMaint"). Under the terms of the Asset Purchase Agreement, the Company received $1.1 million plus EuroMaint assumed certain of the Company's liabilities. As of August 31, 2007, all operations of the former Testing and Assembly Equipment segment had ceased. As a result of discontinuing our former Testing and Assembly Equipment segment, the Company again operates in only a single business segment, Lifting Equipment.
Summary of Recent Acquisitions
Effective July 3, 2006, the Company completed the purchase of Manitex, Inc. ("Manitex") via an acquisition of all of the membership interests in Quantum Value Management, LLC (an entity owned by certain stockholders of the
Company). On November 30, 2006, the Company, through its wholly owned subsidiary, Manitex Liftking, ULC, an Alberta unlimited liability corporation ("Manitex Liftking"), completed the acquisition (the "Liftking Acquisition") of all of the operating assets of Liftking Industries, Inc., an Ontario, Canada corporation ("Liftking"). As the result of these two acquisitions, the Company is a leading provider of engineered lifting solutions including boom truck cranes, rough terrain forklifts and special mission oriented vehicles. Through the Company's Manitex subsidiary, it markets a comprehensive line of boom trucks and sign cranes. The Company's boom trucks and crane products are primarily used for industrial projects, energy exploration and infrastructure development, including roads, bridges and commercial construction. Through the Company's Manitex Liftking subsidiary, it sells a complete line of rough terrain forklifts and special mission oriented vehicles, as well as other specialized carriers, heavy material handling transporters and steel mill equipment. Manitex Liftking's rough terrain forklifts are used in both commercial and military applications. On July 31, 2007, the Company completed the purchase of all the Noble Forklift Product Line assets (the "Product Line") from GT Distribution, LLC ("GT Distribution"), a related party. The Noble product line, which is comprised of four rough terrain forklifts in several configurations, is being produced in our two current production facilities located in Woodbridge, Ontario and Georgetown, Texas. (See Note 4 to the Company's consolidated financial statements for further details regarding the Noble Product Line acquisition)
The financial results for these acquisitions are included in the accompanying consolidated statement of operations from the date of the respective acquisition.
Factors Affecting Revenues and Gross Profit
The Company derives most of its revenue from purchase orders from dealers and distributors. The demand for the Company's products depends upon the general economic conditions of the markets in which the Company competes. The Company's sales depend in part upon its customers' replacement or repair cycles. Adverse economic conditions, including a decrease in commodity prices, may cause customers to forego or postpone new purchases in favor of repairing existing machinery. Additionally, our Manitex Liftking subsidiary revenues are impacted by the timing of orders received for military forklifts and residential housing starts.
Gross profit varies from period to period. Factors that affect gross profit include product mix, production levels and cost of raw materials, including the price of steel. Material prices have been increasing recently. Margins tend to increase when production is skewed towards larger capacity cranes, special mission oriented vehicles, specialized carriers and heavy material transporters.
A significant portion of our sales are financed by financial institutions 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. Given the current economic conditions and the lack of liquidity in the global credit markets, there can be no assurance that finance companies will continue to extend credit to our customers or their customers as they have in the past. Given the lack of liquidity, our customers may have difficulty selling units that they may have in their inventory. Historically, our customers have placed significant orders in the fourth quarter of the year. There is currently significant uncertainty as to future orders or what our backlog will be going into the new year. This uncertainty is likely to remain until the current liquidity crisis has resolved itself and there is more information on the general state of the economy.
Recent Developments
On October 6, 2008, the Company completed the acquisition of substantially all of the assets of Schaeff Lift Truck Inc. ("Schaeff") and Crane & Machinery, Inc. ("Crane," together with Schaeff, the "Sellers") pursuant to an Asset Purchase Agreement (the "Purchase Agreement") with the Sellers and their parent company, GT Distribution, LLC. Results for Crane and Schaeff will be included in the company's financial statement starting on the date of acquisition, October 6, 2008. As such, Crane and Schaeff results are not included in September 30, 2008 financial statements.
Results of Operations
The following discussion considers:
• Net income for the three and nine month periods ended September 30, 2008 and 2007.
• Results of the continuing operations for the three and nine month periods ended September 30, 2008 and 2007.
• Results of the discontinued operations for the nine month periods ended September 30, 2008 and 2007.
Three Months Ended September 30, 2008 Compared to Three Months Ended September 30, 2007
Net Income for the three month periods ended September 30, 2008 and 2007
The Company reported net income and net income from continuing operations of $0.3 million for the three months ended September 30, 2008.
The Company reported a net income of $0.9 million for the three months ended September 30, 2007, consisting of a net income from continuing operations of $0.9 million, a loss from discontinued operations of $(0.2) million and income of $0.2 million on the sale and closure of our Testing and Assembly Equipment segment.
Results of the continuing operations for the three month periods ended September 30, 2008 and 2007
For the three months ended September 30, 2008, net income from continuing operations was $0.3 million, which consists of revenue of $28.5 million, cost of sales of $24.3 million, research and development costs of $0.2 million, SG&A costs (excluding corporate expenses and restructuring expense) of $2.3 million, corporate SG&A expenses of $0.6 million, restructuring expenses of $0.2 million, net interest expense of $0.5 million, foreign currency loss of $0.1 million and income tax expense of $0.03 million.
For the three months ended September 30, 2007, net income from continuing operations was $0.9 million, which consists of revenue of $26.6 million, cost of sales of $21.6 million, research and development costs of $0.2 million, SG&A costs (excluding corporate expenses) of $2.1 million, Corporate SG&A expenses of $0.8 million, a foreign currency transaction loss of $0.2 million, interest expense of $0.9, and income tax benefit of $0.1 million.
Net Revenues and Gross Profit - For the three months ended September 30, 2008, net revenues and gross profit were $28.5 million and $4.2 million, respectively. Gross profit as a percentage of net revenue was 14.7% for the three months ended September 30, 2008. For the three months ended September 30, 2007 net revenues and gross profit were $26.6 million and $5.0 million, respectively. Gross profit as a percentage of revenue was 18.8% for the three months ended September 30, 2007.
Net revenues increased $1.9 million to $28.5 million for the three months ended September 30, 2008 from $26.6 million for the comparable three month period in 2007. The increase in net revenue is due to an increase in crane sales of $2.7 million which was offset by a decrease of $0.8 million in forklift/specialized carrier revenues. Approximately 60% of increase in crane revenues is attributed to an increase in chassis sales. The remaining increase is the result of an increase in both part sales and crane revenues (excluding chassis). The Company builds cranes on chassis supplied by the customer or by the Company. The increase in chassis sales is the result of a substantial sales increase to a particular distributor, who has elected to have Manitex supply the chassis. The decrease in forklift/specialized carrier revenue is due to a significant drop in demand for rough terrain commercial forklift. The decrease in demand for rough terrain forklifts is the result of the slowing North American economy.
Crane sales have remained strong as the decrease in sales of cranes with lower lifting capacity have been more than offset by sales of cranes with higher lifting capacity, particularly cranes with lifting capacity above 40 tons. The sales of the higher capacity cranes have remained strong because they are being employed in sectors which have been thriving, principally oil and gas exploration and mining. To date our 45 and 50 ton cranes have faced competition from truck cranes but no significant competition from other boom truck manufactures. The boom truck has both an initial price advantage and a lower cost of operation.
Our gross profit as a percent of net sales decreased, declining 4.1% to 14.7% for the three months ended September 30, 2008 from 18.8% for the comparable 2007 period. An improvement in margins for forklift/specialized carriers had the effect of increasing total Company gross profit percent by approximately 1%. This positive effect was more than offset by a decrease in gross profit percent for our crane products. The improvement in forklift/specialized carrier gross profit percent is the result of recent restructuring activities and the elimination of start-up inefficiencies for the Noble product line (acquired on July 31, 2007 ) which we incurred last year. A strengthening Canadian dollar in 2007 also had an adverse impact on the prior year margin percent for U.S. dollar sales.
The decrease in gross margin percent for crane product is primarily the result of increased material costs, which were not offset by sourcing materials from lower cost countries or by increases in the sale of cranes with higher lifting capacity (which have higher gross margins). Additionally, the increase in sale of chassis, which only have a small mark-up, had the impact of decreasing overall gross profit percent by 0.5%. The Company has instituted a 4 to 5% surcharge on cranes shipped starting in late October to offset the recent increase in material price.
Restructuring expenses - The Company is currently evaluating the manufacturing processes at its Manitex Liftking facility. Our objective is to improve production efficiencies and to lower our costs. The review initiative, however, is still in the early stages and substantive benefits that may be derived are still in the future. An evaluation of the
current staffing has been completed. As result, the workforce was reduced by 26 employees to align the size of our workforce to our current production requirements. In connections with the reduction in force, the Company was required to pay terminated employees $0.2 million in severance, which has been included in operating expense and is shown in the income statement on a line entitled "restructuring expenses".
Selling, general and administrative expense - Selling, general and administrative expense was $2.9 million for both the three months ended September 30, 2008 and 2007. Selling, general and administrative expense for the three months ended September 30, 2008 are comprised of corporate expense of $0.6 million and $2.3 million related to operating companies. Selling, general and administrative expense for the three months ended September 30, 2007 are comprised of corporate expense of $0.8 million and $2.1 million related to operating companies.
Selling, general and administrative expense, excluding corporate expenses, increased $0.2 million to $2.3 million for the three months ended September 30, 2008 from $2.1 million for the comparable three month period in 2007. The increase in selling, general and administrative expense is due to modest variances both favorable and unfavorable on numerous lines items that net to a $0.2 million increase.
Corporate expenses decreased $0.2 million to $0.6 million for the three months ended September 30, 2008 from the $0.8 million for the comparable 2007 three month period. The decrease is principally attributed to lower legal and consulting expenses. Legal expenses were higher in 2007 as they were incurred in conjunction with the SEC review of the S-3 Registration Statement, which was filed on December 21, 2006 and declared effective on September 7, 2007. Consulting expenses were higher in 2007 as a consultant was assisting the Company in meeting its initial year Sarbanes Oxley obligations.
Operating income - Operating income from continuing operations of $0.9 million for the three months ended September 30, 2008 was equivalent to 3.1% of net revenues compared to an operating income of $1.9 million for the three months ended September 30, 2007 or 7.0% of net revenues. The decrease in operating income as percent of net revenues is due principally to the decrease in the Company's gross profit percent.
Interest expense - Interest expense was $0.5 million and $0.9 million for the three months ended September 30, 2008 and 2007, respectively. The decrease in interest is due to a decrease in average outstanding debt for the three months ended September 30, 2008 versus the three months ended September 30, 2007 and lower interest rates. Although outstanding debt was $26.2 million at both September 30, 2008 and 2007, the average for the three months ended September 30, 2007 was considerable higher. On September 10, 2007, the Company closed a $9.0 million private placement of its common stock. The Company's net cash proceeds after fees and expenses were $8.2 million and were used to reduce the Company's outstanding debt. As indicated the Company also benefited from lower interest rates as a significant portion of our debt is indexed to the prime rate. The prime rate decreased from 7.75% at September 30, 2007 to 5.00% at September 30, 2008. Due to the improved financial strength of the Company our bank has agreed to further lower the interest rate on our domestic line of credit from prime plus 0.75% to prime plus 0.25%. and on our the Canadian line from Canadian prime plus 2.0% to Canadian prime plus 1.5% for Canadian dollar borrowings.
Foreign currency transaction loss - As a result of the currency losses incurred in the second quarter 2007, the Company investigated ways to mitigate future foreign currency risk. As a result, the Company began purchasing forward exchange contracts beginning in September of 2007. The Company endeavors to purchase forward currency exchange contracts such that the exchange gains and losses on the assets and liabilities denominated in other than the reporting units' functional currency will be offset by the changes in the market value of the forward currency exchange contracts it holds. In accordance with FAS No. 52, the Company records at the balance sheet date the forward currency exchange contracts at their market value with any associated gain or loss being recorded in current earnings as a currency gain or loss. For the three months ended September 30, 2008, the Company had a foreign currency transaction loss of $0.1 million which is net of forward currency exchange contracts gains and losses.
The foreign currency transaction loss for the three months ended September 30 2007 was $0.2 million. The foreign currency loss was driven by the continuing unusual strengthening of the Canadian dollar during the three months ended September 30, 2007, when the U.S. to Canadian dollar exchange rate changed from .9404 to 1.0037. The Company issued a note payable for $2.6 million to the former owner of Liftking Industries in connection with its acquisition, which is denominated in Canadian dollars. The Company recorded a foreign exchange loss of $0.2 million for the three months ended September 30, 2007 related to this note. Additionally during the three months ended September 30, 2007, Manitex Liftking, our Canadian subsidiary, had significant sales which were denominated in US dollars and which on settlement generated or will generate a transaction loss of $0.2 million. A gain of $0.2 million on the forward currency exchange contracts held by the Company offsets the aforementioned transaction losses.
The exchange losses were principally incurred before the Company entered into the forward currency exchange contracts in early September 2007. The decision to enter into forward currency exchange contracts was the result of an investigation into methods that could be used to reduce foreign currency risk and was in response to the currency losses incurred in the second quarter 2007. Historically the USD / CDN$ exchange rate has not seen such volatility in a short time period and therefore, the Company had not previously taken any action to mitigate its foreign exchange exposures.
Income tax - The income tax expense for the three months ended September 30, 2008 was $0.03 million. The Company recorded an income tax benefit for the three months ended September 30, 2007 of $0.07 million. The provision for income tax for the three months ended September 30, 2008 consisted primarily of anticipated federal alternative minimum tax, current year state and local tax and foreign taxes. For the three months ended September 30, 2007, the Company recorded a tax benefit of which consisted primarily of anticipated federal alternative minimum tax, current year state and local tax and foreign taxes. A benefit was recorded for the three months ended September 30, 2007 as the impact of lowering the effective tax rate from 27.4% to 9.3% more than offset the provision for income taxes on the quarter's earnings.
Net income from continuing operations - Net income from continuing operations decreased $0.6 million to $0.3 million for the three months ended September 30, 2008 from $0.9 million for the three months ended September 30, 2007 for the reasons described above.
Discontinued operations of the Testing and Assembly Equipment segment for the three month periods ended September 30, 2007
The net loss from discontinued operations for the three months ended September 30, 2007 of $0.2 million is comprised of costs of sales of $0.2 million, operating expenses of $0.2 million offset by revenue of $0.2 million.
During the three month period ended September 30, 2007, the Company recorded a gain of $0.2 million related to closure or discontinuation of operations, which is principally related to gain on the sale of asset.
There was no activity related to discontinued operations for the three months ended September 30, 2008.
Nine Months Ended September 30, 2008 Compared to Nine Months Ended September 30, 2007
Net Income for the nine month periods ended September 30, 2008 and 2007
The net income of $1.9 million reported for the nine month period ended September 30, 2008 consists of net income from continuing operations of $1.5 million, income from discontinued operations of $0.2 million and a gain on sale of discontinued operations of $0.2 million The Company reported a net income of $0.2 million for the nine months ended September 30, 2007, consisting of a net income from continuing operations of $1.4 million and a loss from discontinued operations of $(1.2) million and an expected loss on sale of discontinued operations of $(0.05) million.
Results of the continuing operations for the nine month periods ended September 30, 2008 and 2007
For the nine months ended September 30, 2008, net income from continuing operations was $1.5 million, which consists of revenue of $78.5 million, cost of sales of $65.6 million, research and development costs of $0.7 million, SG&A costs excluding corporate expenses of $7.1 million, Corporate SG&A expenses of $2.3 million,, restructuring expenses of $0.2 million, net interest expense of $1.5 million, and an income tax benefit of $(0.4) million.
For the nine months ended September 30, 2007, net income from continuing operations was $1.4 million, which consists of revenue of $79.7 million, cost of sales of $64.7 million, research and development costs of $0.6 million, SG&A costs excluding corporate expenses of $6.8 million, Corporate SG&A expenses of $2.7 million, net interest expense of $2.8 million , a foreign currency transaction loss of $0.7 million, other income of $0.1 million and income tax expense of $0.1 million.
Net Revenues and Gross Profit - For the nine months ended September 30, 2008, net revenues and gross profit were $78.5 million and $12.9 million, respectively. Gross profit as a percent of net revenues was 16.5% for the nine months ended September 30, 2008. For the nine months ended September 30, 2007, net revenues and gross profit were $79.7 million and $15.0 million, respectively. Gross profit as a percent of net revenues was 18.9% for the nine months ended September 30, 2007.
Net revenues decreased $1.1 million to $78.5 million for the nine months ended September 30, 2008 from $79.7 million for the comparable nine month period in 2007. The decrease in revenues is entirely due to a decrease in rough terrain forklift/specialized carrier product line revenues. The decrease in forklift/specialized carrier revenue is attributed to a decrease in military forklift and specialized carrier (transporter) sales offset by an increase in
commercial forklift sales. The increase in commercial sales is largely driven by the introduction of Noble rough terrain forklift product line. The Noble rough terrain product line was acquired on July 31, 2007. The decrease in military and specialized carrier sales is attributable to timing of orders, which have historically fluctuated from period to period. Crane sales for the nine months ended September 30, 2008 were up approximately 4% from the same period in the prior year. The increase in crane sales is attributed to a 15% increase in part sales and a modest increase in crane sales (excluding chassis).
Our gross profit as a percent of net revenues decreased, declining 2.4% to 16.5% for the nine months ended September 30, 2008 from 18.9% for the comparable 2007 . . .
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