The Daily Magic Formula Stock for 07/14/2008 is Manitowoc Company Inc. (The). According to the Magic Formula Investing Web Site, the ebit yield is 16% and the EBIT ROIC is 50-75 %.
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Founded in 1902, we are a diversified industrial manufacturer in three principal markets: Cranes and Related Products (Crane); Foodservice Equipment (Foodservice) and Marine. We have over a 100-year tradition of providing high-quality, customer-focused products and support services to our markets worldwide. For the year ended December 31, 2007 we had net sales of approximately $4.0 billion.
Our Crane business is a global provider of engineered lift solutions, offering one of the broadest lines of lifting equipment in our industry. We design, manufacture, market, and support a comprehensive line of crawler cranes, mobile telescopic cranes, tower cranes, and boom trucks. Our Crane products are marketed under the Manitowoc, Grove, Potain, National, and Crane CARE brand names and are used in a wide variety of applications, including energy, petrochemical and industrial projects, infrastructure development such as road, bridge and airport construction, commercial and high-rise residential construction, mining and dredging.
On July 19, 2007, we acquired Shirke Construction Equipments Pvt. Ltd (Shirke). Headquartered in Pune, India, Shirke is a market leader in the Indian tower crane industry and has been Potainâs Indian manufacturing partner and distributor since 1982. On January 3, 2007, we acquired the Carrydeck line of mobile industrial cranes from Marine Travelift, Inc. of Sturgeon Bay, Wisconsin. The acquisition of the carrydeck line adds six new models to the companyâs product offering of mobile industrial cranes.
Our Foodservice business is a leading broad-line manufacturer of âcold sideâ commercial foodservice products. We design, manufacture and market full product lines of ice making machines, walk-in and reach-in refrigerators and freezers, fountain beverage delivery systems and other foodservice refrigeration products for the lodging, restaurant, healthcare, convenience store, soft-drink bottling, and institutional foodservice markets. Our Foodservice products are marketed under the Manitowoc, SerVend, Multiplex, Kolpak, Harford-Duracool, McCall, McCannâs, Koolaire, Flomatic, Kyees, RDI, and other brand names.
Our Marine segment provides new construction (commercial/government), ship repair and maintenance services for freshwater and saltwater vessels from two shipyards and one top-side repair yard on the U.S. Great Lakes. Our Marine segment serves the Great Lakes maritime market consisting of U.S. and Canadian fleets, inland waterway operators, and ocean going vessels that transit the Great Lakes and St. Lawrence Seaways.
Our principal executive offices are located at 2400 South 44 th Street, Manitowoc, Wisconsin 54220.
FINANCIAL INFORMATION ABOUT BUSINESS SEGMENTS
The following is financial information about the Crane, Foodservice and Marine segments for the years ended December 31, 2007, 2006 and 2005. The accounting policies of the segments are the same as those described in the summary of significant accounting policies of the Notes to the Consolidated Financial Statements included in Item 8 of this Form 10-K, except that certain expenses are not allocated to the segments. These unallocated expenses are corporate overhead, amortization expense of intangible assets with definite lives, interest expense, and income tax expense. The company evaluates segment performance based upon profit and loss before the aforementioned expenses. Restructuring costs separately identified in the Consolidated Statements of Operations are included as reductions to the respective segmentâs operating earnings for each year below. Amounts are shown in millions of dollars.
Cranes and Related Products
Our Crane segment designs, manufactures and distributes a diversified line of crawler and truck mounted lattice-boom cranes, which we sell under the âManitowocâ name. Our Crane segment also designs and manufactures a diversified line of top slewing and self erecting tower cranes, which we sell under the âPotainâ name. We design and manufacture mobile telescopic cranes which we sell under the âGroveâ name and design and manufacture a comprehensive line of hydraulically powered telescopic and articulated boom trucks, which we sell under the âNational Craneâ brand name. We also provide crane product parts and services, and crane rebuilding and remanufacturing services which are delivered under the âCrane CAREâ brand name. In some cases our products are manufactured for us or distributed for us under strategic alliances. Our crane products are used in a wide variety of applications throughout the world, including energy and utilities, petrochemical and industrial projects, infrastructure development such as road, bridge and airport construction, commercial and high-rise residential construction, mining and dredging. Many of our customers purchase one or more crane(s) together with several attachments to permit use of the crane in a broader range of lifting applications and other operations. Our largest crane model combined with available options has a lifting capacity up to 1,433 U.S. tons.
Lattice-boom Cranes. Under the Manitowoc brand name we design, manufacture and distribute lattice-boom crawler cranes. Lattice-boom cranes consist of a lattice-boom, which is a fabricated, high-strength steel structure that has four chords and tubular lacings, mounted on a base which is either crawler or truck mounted. Lattice-boom cranes weigh less and provide higher lifting capacities than a telescopic boom of similar length. The lattice-boom cranes are the only category of crane that can pick and move simultaneously. The lattice-boom sections, together with the crane base, are transported to and erected at a project site.
We currently offer models of lattice-boom cranes with lifting capacities up to 1,433 U.S. tons, which are used to lift material and equipment in a wide variety of applications and end markets, including heavy construction, bridge and highway, duty cycle and infrastructure and energy related projects. These cranes are also used by the crane rental industry, which serves all of the above end markets.
Lattice-boom crawler cranes may be classified according to their lift capacityâlow capacity and high capacity. Low capacity crawler cranes with 150-U.S. ton capacity or less are often utilized for general construction and duty cycle applications. High capacity crawler cranes with greater than 150-ton capacity are utilized to lift materials in a wide variety of applications and are often utilized in heavy construction, energy-related, stadium construction, petrochemical work, and dockside applications. We offer six low-capacity models and eight high-capacity models.
We also offer our lattice-boom crawler crane customers various attachments that provide our cranes with greater capacity in terms of height, movement and lifting. Our principal attachments are: MAX-ERâ˘ attachment, luffing jibs, and RINGERâ˘ attachments. The MAX-ER is a trailing, counterweight, heavy-lift attachment that dramatically improves the reach, capacity and lift dynamics of the basic crane to which it is mounted. It can be transferred between cranes of the same model for maximum economy and occupies less space than competitive heavy-lift systems. A luffing jib is a fabricated structure similar to, but smaller than, a lattice-boom. Mounted at the tip of a lattice-boom, a luffing jib easily adjusts its angle of operation permitting one crane with a luffing jib to make lifts at additional locations on the project site. It can be transferred between cranes of the same model to maximize utilization. A RINGER attachment is a high-capacity lift attachment that distributes load reactions over a large area to minimize ground-bearing pressure. It can also be more economical than transporting and setting up a larger crane.
Tower Cranes. Under the Potain brand name we design and manufacture tower cranes utilized primarily in the building and construction industry. Tower cranes offer the ability to lift and distribute material at the point of use more quickly and accurately than other types of lifting machinery without utilizing substantial square footage on the ground. Tower cranes include a stationary vertical tower and a horizontal jib with a counterweight, which is placed near the vertical tower. A cable runs through a trolley which is on the jib, enabling the load to move along the jib. The jib rotates 360 degrees, thus increasing the craneâs work area. Unless using a remote control device, operators occupy a cabin, located where the jib and tower meet, which provides superior visibility above the worksite. We offer a complete line of tower crane products, including top slewing, luffing jib, topless, self-erecting, and special cranes for dams, harbors and other large building projects. Top slewing cranes are the most traditional form of tower cranes. Self-erecting cranes are bottom slewing cranes which have counterweight located at the bottom of the tower and are able to be erected, used and dismantled on job sites without assist cranes.
Top slewing tower cranes have a tower and multi-sectioned horizontal jib. These cranes rotate from the top of their mast and can increase in height with the project. Top slewing cranes are transported in separate pieces and assembled at the construction site in one to three days depending on the height. We offer 37 models of top slewing tower cranes with maximum jib lengths of 85 meters and lifting capabilities ranging between 40 and 3,600 meter-tons. These cranes are generally sold to medium to large building and construction groups, as well as rental companies.
Topless tower cranes are a type of top slewing crane and, unlike all others, have no cathead or jib tie-bars on the top of the mast. The cranes are utilized primarily when overhead height is constrained or in situations where several cranes are installed close together. We currently offer 7 models of topless tower cranes with maximum jib lengths of 75 meters and lifting capabilities ranging between 90 and 300 meter-tons.
Luffing jib tower cranes, which are a type of top slewing crane, have an angled rather than horizontal jib. Unlike other tower cranes which have a trolley that controls the lateral movement of the load, luffing jib cranes move their load by changing the angle of the jib. The cranes are utilized primarily in urban areas where space is constrained or in situations where several cranes are installed close together. We currently offer 7 models of luffing jib tower cranes with maximum jib lengths of 60 meters and lifting capabilities ranging between 90 and 600 meter-tons.
Self-erecting tower cranes are mounted on axles or transported on a trailer. The lower segment of the range (Igo cranes up to Igo36) unfolds in four sections, two for the tower and two for the jib. The smallest of our models unfolds in less than 8 minutes; larger models erect in a few hours. Self erecting cranes rotate from the bottom of their mast. We offer 25 models of self erecting cranes with maximum jib lengths of 50 meters and lifting capacities ranging between 10 and 120 meter-tons which are utilized primarily in low to medium rise construction and residential applications.
Mobile Telescopic Cranes. Under the Grove brand name we design and manufacture 35 models of mobile telescopic cranes utilized primarily in industrial, commercial and construction applications, as well as in maintenance applications to lift and move material at job sites. Mobile telescopic cranes consist of a telescopic boom mounted on a wheeled carrier. Mobile telescopic cranes are similar to lattice-boom cranes in that they are designed to lift heavy loads using a mobile carrier as a platform, enabling the crane to move on and around a job site without typically having to re-erect the crane for each particular job. Additionally, many mobile telescopic cranes have the ability to drive between sites, and some are permitted on public roadways. We currently offer the following four types of mobile telescopic cranes capable of reaching tip heights of 427 feet with lifting capacities up to 550 tons: (i) rough terrain, (ii) all-terrain, (iii) truck mounted, and (iv) industrial.
Rough terrain cranes are designed to lift materials and equipment on rough or uneven terrain. These cranes cannot be driven on public roadways, and, accordingly, must be transported by truck to a work site. We produce, under the Grove brand name, 10 models of rough terrain cranes capable of tip heights of up to 279 feet and maximum load capacities of up to 130 U.S. tons.
All-terrain cranes are versatile cranes designed to lift materials and equipment on rough or uneven terrain and yet are highly maneuverable and capable of highway speeds. We produce, under the Grove brand name, 14 models of all-terrain cranes capable of tip heights of up to 427 feet and maximum load capacities of up to 550 tons.
Truck mounted cranes are designed to provide simple set-up and long reach high capacity booms and are capable of traveling from site to site at highway speeds. These cranes are suitable for urban and suburban uses. We produce, under the Grove brand name, 4 models of truck mounted cranes capable of tip heights of up to 237 feet and maximum load capacities of up to 90 U.S. tons.
Industrial cranes are designed primarily for plant maintenance, storage yard and material handling jobs. We distribute, under the Grove brand name, 8 models of industrial cranes capable of tip heights of up to 92 feet and maximum load capacities of up to 22 tons.
High Reach Telescopic Hydraulic Cranes. We launched a new crane concept in 2007 for heavy lifts that require a high reach, but with minimal ground space and greatly reduced erection time. The GTK 1100 is a high reach telescopic hydraulic crane that can lift a 77 ton load up to 394 feet, only requires about six hours to erect and is based on a combination of mobile crane and tower crane technology.
Boom Trucks. We offer our hydraulic and articulated boom truck products under the National Crane product line. A boom truck is a hydraulically powered telescopic crane or articulated crane mounted on a truck chassis. Telescopic boom trucks are used primarily for lifting material on a job site, while articulated boom trucks are utilized primarily to load and unload truck beds at a job site. We currently offer, under the National Crane brand name 15 models of telescoping cranes and 8 models of articulating cranes. The largest capacity cranes of these types are capable of reaching maximum heights of 176 feet and have lifting capacity up to 40 U.S. tons.
Backlog . The year-end backlog of crane products includes accepted orders that have been placed on a production schedule that we expect to be shipped and billed during the next year. Manitowocâs backlog of unfilled orders for the Crane segment at December 31, 2007 was $2,877.2 million, as compared with $1,534.3 million at December 31, 2006.
Our Foodservice segment designs, manufactures and markets ice-cube and flaker machines and storage bins; walk-in refrigerators and freezers; reach-in refrigerators and freezers; refrigerated undercounter and food preparation tables; ice/beverage dispensers; post-mix beverage dispensing valves; cast aluminum cold plates; carbonator tanks; long-draw beer dispensing systems; compressor racks and modular refrigeration systems; and backroom beverage equipment distribution services. Products are sold under the brand names Manitowoc, SerVend, Multiplex, Kolpak, Harford-Duracool, McCall, McCannâs, Koolaire, Flomatic, Kyees, RDI, and other brand names.
Ice-Cube Machines, Ice Flaker Machines and Storage Bins. Ice machines are classified as either self-contained or modular machines and can be further classified by size, capacity and the type of ice they produce. There are two basic types of ice made by ice machines: cubes and flakes. Machines that make ice cubes, the most popular type of machine, are used by the foodservice industry for drinks, ice displays and salad bars. Flake ice is used to a great extent in processing applications, such as keeping meats and seafood fresh, as well as in medical facilities for use in ice packs.
We manufacture 26 models of ice machines under the Manitowoc brand name, serving the foodservice, convenience store, healthcare, restaurant and lodging markets. Our ice machines make ice in cube and flake form, and range in daily production capacities from 45 to over 2000 pounds. The ice-cube machines are either self-contained units, which make and store ice, or modular units, which make, but do not store ice. We offer the worldâs only commercial ice making machines with patented cleaning and sanitizing technology. This feature eliminates the downtime and labor costs associated with periodic cleaning of the water distribution system. All units feature patented technology with environmentally friendly hydrofluorocarbon refrigerants and foam insulation. We also manufacture the patented QuietQube ice-cube machines, which feature CVD, or cool vapor defrost, technology, operate heat-free, are 75% quieter than non-CVD units and produce more ice in a smaller footprint. These QuietQube machines are ideally suited for use in new restaurants, which often feature more open designs, and for use with the self-service beverage systems increasingly found in quick service restaurants and convenience stores. Our ice machines are sold throughout North America, Europe and Asia.
Walk-in Refrigerators and Freezers. We manufacture under the brand names Kolpak and Harford-Duracool. Products include modular and fully assembled walk-in refrigerators, coolers and freezers for restaurants, institutions, commissaries and convenience stores. Walk-in refrigerators and freezers are large, insulated storage spaces fitted with refrigeration systems. Most walk-ins are custom-made from modular insulated panels constructed with steel or aluminum exteriors and foamed-in-place urethane insulation. Refrigerator/blower units are installed in order to maintain an even temperature throughout the refrigerated space. Walk-ins come in many models with various types of doors, interior shelving, and viewing windows. We also produce a complete line of express or pre-assembled walk-ins.
Reach-in Refrigerators and Freezers. Reach-in refrigerators and freezers are typically constructed from stainless steel and have a thick layer of insulation in the walls, doors and floor. The cabinets have one to three doors, made of either glass or steel, and come in a variety of sizes with storage capabilities up to 72 cubic feet. Although reach-ins resemble household refrigerators, commercial versions utilize few plastic parts, incorporate larger compressor units and do not usually combine refrigerator and freezer compartments in the same unit. These design features stem from the heavy duty usage needs of most reach-ins by customers. For example, in contrast to the typical household refrigerator, commercial reach-ins may be opened and closed hundreds of times per day, placing mechanical strain on the structure and greatly increasing the cooling load on the refrigeration system. We market these products under our McCall, Kolpak, and Koolaire brand names. We offer over 100 self-contained upright and under-counter refrigeration equipment units, including a full line of reach-ins and refrigerated food preparation equipment for restaurants, institutions and commissaries. We also manufacture custom-built units for select national chain restaurants.
Beverage Dispensers and Other Products. We produce beverage dispensers, ice/beverage dispensers, post-mix dispensing valves and cast aluminum cold plates and related equipment for use by quick service restaurants, convenience stores, bottling operations, movie theaters, and the soft-drink industry. Ice/beverage dispensers include traditional combination ice/beverage dispensers, drop-in dispensers and electric countertop units. Dispensing systems are manufactured for the dispensing of soda, juice, water, beer and other specialty drinks. Soda systems include remote systems that produce cold carbonated water and chill incoming water and syrup prior to delivery to dispensing towers. Beer systems offer technically advanced remote beer delivery systems which are superior by design, allow increased yields, provide better under-bar space utilization and allow multiple stations to operate from one central unit.
We are also a systems integrator with nationwide distribution of beverage dispensing and backroom equipment and support system components. MBS serves the needs of major beverage and bottler customers, restaurants, convenience stores and other outlets and provides our customers with one point of contact for their beverage dispenser and backroom equipment needs. It operates throughout the United States, with distribution facilities in California and Virginia.
Our subsidiary McCannâs Engineering & Mfg. Co. (McCannâs) is engaged in the design, manufacture and sale of beverage dispensing equipment primarily used in fast food restaurants, stadiums, cafeterias and convenience stores. McCannâs primary products are backroom beverage equipment such as carbonators, water boosters and racks. McCannâs also produces accessory components for beverage dispensers including specialty valves, stands and other stainless steel components.
Backlog. The backlog for unfilled orders for our Foodservice segment at December 31, 2007 and 2006 was not significant because orders are generally filled within 24 to 48 hours.
We operate two shipyards located in Marinette, Wisconsin and Sturgeon Bay, Wisconsin; and one top-side repair yard located in Cleveland, Ohio.
Marinette, Wisconsin. Marinette Marine Corporation (Marinette) was founded along the Menominee River in Marinette, Wisconsin in 1942 to meet Americaâs growing need for naval construction. Since its first contract to build five wooden barges, Marinette has built more than 1,300 vessels. Marinette is a full service shipyard with in-house capabilities to design and construct the most complex military and commercial vessels. The Marinette facility has 300,000 square feet of heated indoor production area, 53,000 square feet of secure indoor warehouse and receiving area, a 4,500 long ton certified ship launch ways and a 1,600 ton ship transport system. These features of the Marinette facility allow the vessels to be constructed and outfitted completely indoors. When ready for launching, they are moved outdoors. Typically, vessels are significantly material and labor complete when launched which allows for high quality of finished product and greater manufacturing efficiency.
Sturgeon Bay, Wisconsin . Located in Sturgeon Bay, Wisconsin, Bay Shipbuilding Co. (Sturgeon Bay) is an industry leader in the construction of Oil Pollution Act (OPA) â90 double-hulled tank vessels, articulated tug and barge (AT/B) units, dredges, and dredging support equipment, along with bulk cargo self unloading solutions. This shipyard specializes in large ship construction projects and repair work. Our Sturgeon Bay shipyard consists of approximately 55 acres of waterfront property, approximately 295,000 square feet of enclosed manufacturing and office space, a 140-foot by 1,158-foot graving dock, a 250-foot graving dock, and a 600-foot, 7,000-ton, floating dry-dock.
Cleveland, Ohio . Cleveland Shiprepair Company specializes in all types of voyage and topside marine repair.
Backlog. The year-end backlog for our Marine segment includes new project work to be completed over a series of years and repair and maintenance work presently scheduled which will be completed in the next year. At December 31, 2007, the backlog for our Marine segment approximated $333.1 million, compared to $421.6 million one year ago. The backlog is primarily made up of new vessel construction projects and does not include options for additional vessels, yet to be awarded.
Dean H. Anderson , 67, President and Owner (2001 to present) of Dynamic Specialties Inc. (privately held), specializing in the sale of equipment and systems to the factory and process automation markets located in Houston, TX. Previously (retired) Senior Vice President Strategic Development (7/97-3/01) and Vice President â Strategic Development (2/95-7/97) of ABB Vetco Gray Inc., an oilfield equipment manufacturer headquartered in Houston, TX. A director of Array Holdings, Inc., Muskeego, OK (privately held). A member of The Manitowoc Company, Inc.âs Board of Directors since 1992. (1)(3)
Keith D. Nosbusch , 57, Chairman (02/05 to present), President and Chief Executive Officer of Rockwell Automation, Inc. (2/04 to present). Rockwell Automation is a leading global provider of industrial automation power, control and information solutions. Also a director of Rockwell Automation, Inc. (2/04 to present). Previously President, Control Systems, a business unit of Rockwell Automation, Inc., and Senior Vice President of Rockwell Automation, Inc. (11/98-2/04). A member of The Manitowoc Company, Inc.âs Board of Directors since 2003. (3)
Glen E. Tellock, 47, President and Chief Executive Officer of The Manitowoc Company, Inc. (May 2007 to present). Previously the Senior Vice President of The Manitowoc Company, Inc. (1999-2007), President of the Manitowoc Crane Group (2002-2007) and Chief Financial Officer (1999-2002). Mr. Tellock also serves as an Emeritus Board member of the University of Wisconsin-Madison School of Business Deanâs Advisory Board, Board member and Chairman of the Association of Equipment Manufacturers (AEM), and a Board member of Astec Industries, Inc. A member of The Manitowoc Company, Inc.âs Board of Directors since 2007.
MANAGEMENT DISCUSSION FROM LATEST 10K
Overview The Manitowoc Company, Inc. (referred to as the company, MTW, we, our, and us) is a leading, diversified, multi-industry manufacturer of engineered capital goods and support services for selected market segments, which today include Cranes and Related Products (Crane), Foodservice Equipment (Foodservice), and Marine. The centerpiece of our effort is and will continue to be to provide customer-focused, quality products and services to the markets we serve, with the goal to continuously improve economic value for our shareholders.
The following discussion and analysis covers key drivers behind our results for 2005 through 2007 and is broken down into three major sections. First, we provide an overview of our results of operations for the years 2005 through 2007 on a consolidated basis and by business segment. Next we discuss our market conditions, liquidity and capital resources, off balance sheet arrangements, and obligations and commitments. Finally, we provide a discussion of risk management techniques, contingent liability issues, critical accounting policies, impacts of future accounting changes, and cautionary statements.
All dollar amounts, except per share amounts, are in millions of dollars throughout the tables included in this Managementâs Discussion and Analysis of Financial Conditions and Results of Operations unless otherwise indicated.
Results of Consolidated Operations
During the third quarter of 2005, we decided to close Toledo Ship Repair Company (Toledo Ship Repair), a division of the companyâs wholly-owned subsidiary, Manitowoc Marine Group, LLC. Located in Toledo, Ohio, Toledo Ship Repair performed ship repair and industrial repair services. In addition, during the third quarter of 2005, we decided we would divest of our wholly-owned subsidiary, Diversified Refrigeration LLC (f/k/a Diversified Refrigeration, Inc.) (DRI). DRI was a private-label contract manufacturing operation. On December 30, 2005, we completed the sale of DRI to Monogram Refrigeration, LLC, a wholly-owned subsidiary of the General Electric Company. We have reported the results of these operations as discontinued and have restated prior year amounts in accordance with Statement of Financial Accounting Standards (SFAS) No. 144, âAccounting for the Impairment of Long-Lived Assets.â Prior year amounts throughout this Management Discussion and Analysis of Financial Condition and Results of Operations have been restated to reflect the reporting of these operations as discontinued.
Year Ended December 31, 2007 Compared to 2006
Consolidated net sales increased 36.5% in 2007 to $4.0 billion from $2.9 billion in 2006. This increase was the result of higher year-over-year sales in all three of our business segments. Sales in our Crane, Foodservice and Marine segments increased 45.2%, 5.5% and 13.6%, respectively, for the year ended December 31, 2007 compared to 2006. Changes in currency exchange rates resulted in an increase in sales of $122.8 million or 3.1% for the year ended December 31, 2007 compared to the year ended December 31, 2006. Further analysis of the increases in sales by segment is presented in the Sales and Operating Earnings by Segment section below.
Gross profit increased significantly for the year ended December 31, 2007 to $911.7 million compared to $647.3 million for the year ended December 31, 2006 - an increase of 40.9%. Gross margin increased in 2007 to 22.8% from 22.1% in 2006. The increase in consolidated gross profit and margin was driven by all three segments as a result of higher sales volumes and increased productivity. Crane segment gross profit increased in 2007 to $729.2 million from $488.7 million in 2006, while gross margin increased to 22.5% from 21.9% over the same period. The Foodservice segmentâs gross profit and gross margin increased from $122.7 million and 29.5% in 2006 to $131.6 million and 30.0% in 2007, respectively. Marine segment gross profit increased in 2007 to $50.2 million from $36.0 million in 2006, while gross margin increased to 15.6% from 12.7% over the same period.
Engineering, selling and administrative (ES&A) expenses for the year ended December 31, 2007 increased approximately $60.3 million to $401.9 million compared to $341.6 million for the year ended December 31, 2006. This increase was primarily driven by the Crane and Foodservice segments and corporate expenses. Crane segment ES&A expense increased due to higher engineering and selling expenses, increased employee related costs and expenses related to the initiation of an ERP implementation project. Foodservice segment ES&A expenses increased due to higher employee and commission costs. Corporate expenses increased primarily due to increased employee related costs. ES&A expenses of the Marine segment decreased slightly, primarily as a result of lower bid costs and professional fees.
Interest expense for the year ended December 31, 2007 was $36.2 million versus $46.3 million for the year ended December 31, 2006. The decrease resulted from the companyâs redemption of the 10 Â˝% senior subordinated notes due 2012. This decrease was partially offset by an increase in the average borrowings outstanding under our revolving credit facility and higher accounts receivable securitization interest costs.
We redeemed our 10 Â˝% senior subordinated notes due 2012 in August 2007. Pursuant to the terms of the indenture, we paid the note holders 105.25 percent of the principal amount plus accrued and unpaid interest up to the redemption date. As a result of this redemption, we incurred a charge of $12.5 million ($8.6 million net of income taxes) related to the call premium, the write-off of unamortized debt issuance costs and other expenses. The charge was recorded in loss on debt extinguishment in the Consolidated Statements of Operations.
The effective tax rate for the year ended December 31, 2007 was 28.0% compared to 32.0% for the year ended December 31. 2006. The lower effective tax rate in 2007 was a result of a foreign tax credit carryforward which was recognized during the second quarter and an IRS audit settlement during the third quarter. In addition, all periods were favorably affected, as compared to the statutory rate, to varying degrees by certain global tax planning initiatives.
The earnings from discontinued operations, net of income taxes, for the year ended December 31, 2007 primarily reflects favorable product liability experience related to our discontinued Manlift business which was sold in 2004.
MANAGEMENT DISCUSSION FOR LATEST QUARTER
Results of Operations for the Three Months Ended March 31, 2008 and 2007
Consolidated net sales for the three months ended March 31, 2008 increased 24.9% to $1.1 billion, from $862.1 million for the same period in 2007. The increase in sales was driven by all three of our segments as each had higher sales in the first quarter of 2008 versus the same period in 2007.
Net sales from the Crane segment for the three months ended March 31, 2008 increased 29.5% to $884.4 million versus $682.8 million for the three months ended March 31, 2007. Net sales for the three months ended March 31, 2008 increased over the same period in the prior year in all major geographic regions. The Crane segment continues to benefit from strong crane end-market demand for its products as well as increasing production levels within its factories and an increase in sales due to currency translation. For the three months ended March 31, 2008 versus the same period in 2007, the stronger Euro currency compared to the U.S. Dollar had an approximate $54.6 million favorable impact on sales. As of March 31, 2008, total Crane segment backlog was $3.3 billion, a 13.1% increase over the December 31, 2007 backlog, which was $2.9 billion.
Net sales from the Foodservice segment increased 7.3% to $104.1 million in the three months ended March 31, 2008 versus the three months ended March 31, 2007. The increase in sales for the first quarter of 2008 over the same period in the prior year was driven by all regions and was primarily the result of both volume and pricing increases versus the prior year.
Net sales from our Marine segment increased 7.4% to $88.4 million in the first quarter of 2008 versus the first quarter of 2007. The increase in sales during the first quarter of 2008 was primarily the result of increased contributions on government projects as well as a strong winter repair season.
Analysis of Operating Earnings
Consolidated gross profit for the three months ended March 31, 2008 was $259.5 million, an increase of $64.2 million over the consolidated gross profit of $195.3 million for the same period in 2007. The increase in consolidated gross profit was driven by significantly higher gross profit in the Crane segment on increased volume, productivity gains and favorable mix. In addition, Marine segment gross profit was favorably impacted by a strong winter repair season and increased contributions on government and commercial projects. Foodservice gross margin was up slightly from the prior year primarily due to both volume and pricing increases versus the prior year.
Engineering, selling and administrative (ES&A) expenses for the first quarter of 2008 increased approximately $21.2 million to $115.0 million versus $93.8 million for the first quarter of 2007. For the three months ended March 31, 2008, $4.6 million of this increase related to changes in foreign currency exchange rates. In addition, corporate expenses were $1.6 million higher in the current quarter versus the prior yearâs quarter. The remainder of the increase in ES&A expenses resulted from increased research and development expenses, higher selling costs due to the increase in sales, and higher employee related costs. For the quarter ended March 31, 2008, ES&A as a percentage of sales was 10.7% versus 10.9% for the first quarter of 2007.
For the three months ended March 31, 2008, the Crane segment reported operating earnings of $133.0 million compared to $95.4 million for the three months ended March 31, 2007. Operating earnings of the Crane segment for the three months ended March 31, 2007 were favorably affected by increased volume across all regions, favorable product mix, and continued productivity gains from our factories. Operating margin for the three months ended March 31, 2008 was 15.0% versus 14.0% for the three months ended March 31, 2007. Favorable pricing levels, strong factory performance and controlled spending in all our regions contributed to the gains in margin. For the three months ended March 31, 2008, operating earnings were positively affected by approximately $6.6 million due to changes in foreign currency exchange rates.
First quarter 2008 Foodservice segment operating earnings were $12.2 million, an increase of $1.4 million versus the first quarter of 2007. First quarter operating earnings were favorably impacted by a pricing increase, increased sales volume, favorable mix of product sold, and product cost reductions. Partially offsetting these favorable items were higher raw material costs.
Marine segment operating earnings increased $4.7 million to $10.2 million for the first quarter of 2008 versus the first quarter of 2007. First quarter 2008 operating earnings were favorably affected by improved manufacturing performance on longer-term government contracts and a strong winter repair season. First quarter 2008 winter repair operating earnings increased approximately $1.9 million versus the first quarter of 2007. The first quarter 2007 operating margin of the Marine segment was adversely impacted by the fact that a significant percentage of the Marine segment results were from a relatively low margin military vessel contract which is a first-run prototype vessel that is structured as a cost plus contract.
Corporate expenses increased $1.6 million during the first quarter of 2008 versus the first quarter of 2007. This increase was primarily the result higher employee-related costs and higher professional service fees.
Analysis of Non-Operating Income Statement Items
Interest expense for the three months ended March 31, 2008 was $6.7 million compared to $9.1 million for the three months ended March 31, 2007. The decrease resulted from the redemption of the 10 1/2% senior subordinated notes due 2012 during August of 2007. This decrease was slightly offset by an increase in the borrowings outstanding under our revolving credit facility.
The effective tax rate for the three months ended March 31, 2008 and 2007 was 28.4% and 30.0%, respectively.
Earnings from operations were $102.7 million for the three months ended March 31, 2008 compared to $64.1 million for the three months ended March 31, 2007.
First Quarter of 2008
Cash and cash equivalents balance as of March 31, 2008 was $350.2 million, which was a reduction of $16.2 million from the December 31, 2007 balance of $366.4 million. Cash flow from operations for the first three months of 2008 was $11.8 million compared to a use of cash of $40.3 million for the first quarter of 2007. Cash flow for the first three months of 2008 was driven by $102.7 million of net earnings, an increase of $38.6 million over the same period for 2007. Cash flow from operations was negatively impacted by an increase in inventory of $156.1 million and an increase in accounts receivable of $34.5 million. The increase in inventory was due to higher order backlog and an increase in sales volumes, both in the Crane segment. The increase in accounts receivable was driven primarily by an increase in sales volumes. Accounts payable, accrued expenses, other assets and liabilities, and non-cash items positively impacted cash flow from operations by $99.7 million. This increase was driven primarily by an increase in accounts payable related to the increase in inventory in the Crane segment.
On March 6, 2008, the company formed a 50% joint venture with the shareholders of TaiAn Dongyue Heavy Machinery Co., Ltd. (TaiAn Dongyue) for the production of mobile and truck-mounted hydraulic cranes. The cash flow impact of this acquisition is included in business acquisition, net of cash acquired, within the cash flow from investing section of the Consolidated Statement of Cash Flows.
Capital expenditures during the first quarter of 2008 were $28.1 million versus $10.6 million during the first quarter of 2007. A majority of the capital expenditures are related to general factory improvements, machinery and tooling purchases, and costs related to the implementation of an ERP system in our Crane segment
Steven C. Khail - Director of Investor Relations & Corporate Communications
Good morning everyone and thank you for joining our first quarter earnings conference call. Participating in today's call will be Glen Tellock, our President and Chief Executive Officer, and Carl Laurino, Senior Vice President and Chief Financial Officer. Joining Glen and Carl on today's call will be Eric Etchart, President of Manitowoc Cranes.
Glen will open with commentary on our market. Carl will discuss the financial results for the quarter and Eric will discuss the recent operations and future outlook for the Crane segment. We will then conclude with a question-and-answer session following our prepared remarks. Mike Kachmer, President of Manitowoc Foodservice and Bob Herre President of Manitowoc Marine, will also be available to address questions at that time.
For any of you who are not able to stay on the line for today's entire call, you can hear a replay beginning at 12 noon Central Time today, until 12 midnight Central Time on May 6. The number to dial for the replay is area code 719-457-0820. Please use confirmation code 7403292. You may also access an archive version of this call by visiting the Investor Relations section of our corporate website, at www.manitowoc.com.
Before Glen begins his commentary, I would like to review our Safe Harbor statement. This call is taking place on April 29, 2008. During the course of today's call, forward-looking statements as defined under the Private Securities Litigation Reform Act of 1995 may be made during speakers' remarks and during our question-and-answer session. Such comments are based on the company's current assessment of its markets and other factors that affect our business. Actual results could differ materially from any implied projections due to one or more of the factors explained in Manitowoc's filings with the Securities and Exchange Commission, including but not limited to the company's Annual Report on Form 10-K for the year ended December 31, 2007.
With that, I will now turn the call over to Glen.
Glen E. Tellock - President and Chief Executive Officer
Thanks Steve. Good morning. We announced strong financial results yesterday, as all three of our business segments showed solid improvements in sales and earnings. Posting strong earnings is good, but doing it consistently is even better. We are able to consistently drive improvement, because of our success in executing our key growth strategies of product expansion and geographic penetration. This philosophy has fueled our success in Cranes and we expect to continue to utilize these two primary growth strategies in both Foodservice and Cranes.
The benefits of our growth strategy in Cranes are obvious today. The largest segment is growing at more than 20% per year with margins expanding at the same time. What makes those numbers possible wasn't the addition of new assets, it was the combination of businesses that added to each other.
We moved from a North American crawler crane company to a global provider of complex lift solutions. Today, we are largely a North American provider of ice machines and cold storage equipment. With the planned acquisition of Enodis, we will be a global provider of both hot and cold foodservice equipment capable of serving the world's largest customers in much broader product categories.
We are continuing to leverage our leadership position in cranes, in high growth markets like India, Eastern Europe, the Middle East, Latin America and China through advanced technology and customer support. All of the experience we are gaining in new markets and in product development can be applied to foodservice as well.
The opportunity to follow the same path in Foodservice that we have in Cranes is what makes this such a defining and pivotal time for Manitowoc. Before Eric describe the ongoing progress within the Crane segment, Carl will give some commentary on the financial results. Carl?
Carl J. Laurino - Senior Vice President and Chief Financial Officer
Thanks Glen and good morning everyone. Yesterday we reported first quarter 2008 net sales of $1.1 billion, a 25% increase over the first quarter of 2007. We also reported net earnings for the quarter of $102.7 million or $0.78 per diluted share, compared with net earnings of $64.1 million or $0.50 per diluted share for the same period last year. All per share amounts in our comments reflect a two-for-one stock split that became effective in mid-September 2007. There were no unusual items in either period, so the reported earnings also represent earnings from continuing operations.
Turning to the segments; Cranes segment sales for the quarter were $884 million, an increase of 30% from the first quarter of last year. Operating earnings were $134.6 million, up 40% resulting in an operating margin of 15.2% compared to14.1% a year ago. That solid operating margin for the quarter reflects our investments in operating efficiencies and an improving product mix toward our larger and more complex products.
We remain confident in our ability to achieve sales growth for the Cranes segment in excess of 20% in 2008 with margins in the mid-teens. We expect our ability to increase our incremental margins from the teens in the first half of the year to over 20% in the second half, to be dependent in part on our ability to minimize the impact of pronounced rising input costs. Our initiatives to minimize these costs... these cost increases include but are not limited to pricing actions and improving operational efficiencies.
Crane backlog at March 31st, totaled $3.3 billion up 72% from a year ago. Growth in backlog was strong across all of our geographic markets and in virtually all product categories. As we said for several quarters on these call, backlog is just one element of our performance and Eric will discuss some other indicators of market conditions in his comments.
Moving to Foodservice; sales increased 7% to $104 million from $97 million in the first quarter of 2007. Operating earnings rose 13% and margins improved to 11.9%. Mike Kachmer and his team are doing an outstanding job, driving improved performance through leaner operations and leveraging new products with new customers. Economic trends in our core North American market points to a little if any growth in consumer-driven spending, which makes the performance in Foodservice even more impressive. It also points out the importance of gaining better access to global customers, thereby lessening the dependence on any specific geographic regions.
Marine sales for the quarter were $88 million, up 7% from last year and operating earnings nearly doubled to $10.2 million. The high number of repeat projects in our backlog, both government and commercial, helps to increase operating efficiency and we are now ahead of schedule on several commercial projects. We also completed a very strong winter repair season and the 15 vessels service in our yard, are now back-sailing on the lakes.
The outlook for our Marine segment remains favorable at the Coast Guard's Response Boat-Medium Program is ramping up and our work on the Improved Naval Lighterage System and the Littoral Combat Ship are both proceeding at full manning levels.
Improved operating performance in all of our segments obviously translated to the bottom line. Compared to the first quarter of 2007, net income from continuing operations in the first quarter of 2008 increased more than 60%. We also generated positive cash from operations of $11.8 million in the quarter, when they are historically a user of cash. All of these factors impacted our EVA performance which increased more than 58% from last year. We continue to expect our full year EVA to increase by more than $90 million in 2008.
The main driver of our strong financial performance is the Cranes segment and we plan to deploy a significant portion of our free cash flow back into our businesses. Given the continued strength we see in most of the global crane markets, we expect to continue to make measured investments in our crane production capacity. Our CapEx target of $120 million in 2008 will provide additional capacity for crawler and mobile telescopic cranes here in the U.S and around the world.
Combined with our recent entry in India, Slovakia and China, we are making the right investments to be able to capitalize on continued strong global crane demand. We are also continuing to incorporate significant outsourced manufacturing into our plans, so that we can quickly respond to forecast changes for specific components.
I'll conclude my comments by affirming our EPS guidance of $3.20 to $3.40 per share, which excludes any unusual items and does not include any impact from the Enodis acquisition, which we expect to close in the fourth quarter. Our next speaker is Eric Etchart who will describe the progress at Cranes. Eric?
Eric Etchart - Senior Vice President, The Manitowoc Company, Inc. and President & General Manager, Manitowoc Crane Group
Thanks Carl. Good morning everyone. Yesterday's press release showed the continuing strength of our Crane business and I would like to share our views on where we think this business is headed. Our results last quarter were very good. Sales were up in all of our markets and operating margin is the highest since we made the Grove acquisition back in 2002.
We were able to achieve these results because of a very good efficiency at our plants and a better mix of high capacity and more innovative cranes. We will see some pressure on our costs during 2008 as higher steel prices will offset some of the improvements we make in efficiencies. We will seek to offset these cost increases through the benefits of our capacity expansions as well as pricing actions and escalator clauses that product has against the higher steel prices.
Carl discussed how backlog has set another record at $3.3 billion. Many people try to gauge the strength of the crane market by analyzing backlog trends. This quarter backlog growth was good, but there are other factors that are equally helpful in understanding the crane market. This includes fleet utilization rates and the rental fees charged for the different classes of equipment. Two other important factors that we track are requests for delayed deliveries from existing customers and cancellations of large construction projects. Currently, the positive trend in all of these factors, strongly support our industry outlook to continuing growth at least through the end of the decade.
We saw this positive outlook at ConExpo last month. All of our employees agree that this was the most active ConExpo they have ever witnessed. We had more traffic through our booth than even the 2005 show, with visits from existing customers as well as new prospects in emerging markets like Latin America. One of the reasons we had such great interest is because Manitowoc had the biggest new product introduction of all at ConExpo.
We introduced the model 31,000, which will be our largest crawler cranes. With a lift capacity of more than 2500 tons, it will be the one of the world's largest crawler cranes and it has several features that make it much more advanced than the competitions. Along with the 31,000 we also introduced 11 other new models. So we had something new for everyone.
The model 31,000 is a huge crane and the first unit will be ready for delivery in 2010. We have initially planned to build three units and we have already sold the first two units to American customers. That says a lot about the state of the lifting market. With a decline in U.S housing constructions, demand for self-erecting tower cranes and boom truck is sparse in the U.S, but the demand for large complex cranes has not slowed.
The model 31,000 and our other large crawlers are well suited for large infrastructure and energy projects; a good example is the nuclear power industry. According to the world nuclear associations, there are 21 proposals for new or expanding nuclear power plants in the U.S alone and the global total of 228 reactors. Because of the size and weight of the components, these projects will require many cranes with high-lift highly and reach capabilities.
These complex cranes are in the sweet-spot for our Cranes segment and the demand forecast confirms our decision to expand production capacity in our U.S manufacturing sites. Outside of the United States, we see crane demand remaining very strong, especially in the emerging markets. Large infrastructure projects, energy facilities and refineries and commercial development to support the growing middle classes are driving broad demand for all our lift solutions.
Our investments in India and Slovakia show how we have been able to meet that demand quickly and at a reasonable cost. They also show our philosophy on how to succeed in new markets. We acquired India's largest Potain distributors, so we could be an Indian company in that market, not a western company exporting to India. We are now the largest tower crane manufacturer in one of the world's fastest growing construction markets. We have retained an Indian management team and they are driving good results.
We'll use the same model in China, where we acquired a joint venture interest in a local manufacturer. TaiAn Dongyue heavy machinery is one of the China's top producers of truck cranes. About 70% of all new truck cranes are sold in China, so this is another great growth market and an extension of our existing product line in China.
By operating as a joint venture, we get the experience of a local management team and we can provide them with access to our products. In time, we will share technology that improve their products and create the same customer advantage that Manitowoc enjoy in larger lifting products. That concludes my remark. I now turn the call over to Glen.
Glen E. Tellock - President and Chief Executive Officer
Thanks Eric for the update on the Cranes segment. Before we take your questions, I would like to review our strategic priorities with our continued record results and the Enodis announcement two weeks ago. It is possible to lose sight of how we got in this position and what we are doing to keep succeeding.
The Enodis acquisition addresses our top strategic priority of profitable growth. Foodservice has historically been a consistent high margin business with stable top line growth. Enodis lets us build a global platform that is uniquely positioned to serve the industry's largest and fastest growing customers. By further diversifying our product lines and expanding our geographic markets, we can deliver increases in sales and profit growth faster than we could have on a standalone basis.
Innovation is also a growth driver in both our Cranes and Foodservice segments have a strong commitment to innovation. The model 31,000 that Eric described joins the GTK 1100 as two of the most important new lifting products of the past several years. And our Foodservice group is working with global customers on some ground-breaking new products that take it into new categories. I am very confident that the new products and innovative technologies will be a hallmark of Manitowoc for many years.
Our products have to be more than innovative; they have to be what the customers wants. We asked our customers what features they value and we include their voice into our new products. That's how we develop, the most energy efficient line of foodservice equipment long before higher energy standards were issued. We operate in three very different businesses and we all pride ourselves on being very skilled manufacturers.
We share best practices across regions and across businesses and we constantly look for ways to take out cost and drive the efficiencies. We drive that culture of efficiency by training our people and giving them the tools to produce great results. They have multiple levels of internal training and in 2008, we will bring new skills to 100's of our employees. As we expand into emerging markets, we will develop more leaders who understand our business and our culture. The acquisition of Enodis will also provide an infusion of talent into our company. We've competed against Enodis for many years and we have a high opinion of their skills and capabilities. I think our teams have complementary cultures and are going to mesh together extremely well.
Another exciting aspect of the Enodis acquisition, is the ability to replicate the after market services offering we have created in the lifting industry. Crane care is one of the main reasons that customers choose our products over established competitors. We have made the investment in parts training and a global network of service centers and real0time support that no one can match. The needs of the Foodservice customer are similar and we are convinced that a crane care style offering would be a great competitive advantage. I will close with some comments on value creation, our businesses are providing excellent return whether measured by EPS, EVA or free cash flow. Our job as managers is to utilized those returns from projects that drive even greater value. It took time before our investments Grove and Potain began to reach their potential. At Enodis we expected to be EPS accretive in the first full year ownership and EVA positive by 2011. We would not have pursued to notice so persistently if you did not firmly believed it will provide an outstanding return to our shareholders. This concluded our prepared remarks and we will now open the call to your questions. Yolanda?