THE MANITOWOC COMPANY, INC.

Notes to Unaudited Consolidated Financial Statements

For the Three and Nine Months Ended September 30,March 31, 2006 and 2005 and 2004

1. Accounting Policies

In the opinion of management, the accompanying unaudited consolidated financial statements contain all adjustments necessary to present fairly state the results of operations, cash flows and comprehensive income (loss) for the three and nine months ended September 30,March 31, 2006 and 2005 and 2004 and the financial position at September 30, 2005March 31, 2006, and except as otherwise discussed such adjustments consist of only those of a normal recurring nature. The interim results are not necessarily indicative of results for a full year and do not contain information included in the company’s annual consolidated financial statements and notes for the year ended December 31, 2004.2005. The consolidated balance sheet as of December 31, 20042005 was derived from audited financial statements, but does not include all disclosures required by accounting principles generally accepted in the United States of America. It is suggested that these financial statements be read in conjunction with the financial statements and the notes thereto included in the company’s latest annual report.

All dollar amounts, except share and per share amounts, are in thousandsmillions of dollars throughout the tables included in these notes unless otherwise indicated.

Certain prior period amounts have been reclassified to conform to the current period presentation. See Note 2,3, “Discontinued Operations,” and Note 6, “Stock Split,” for further details.

2. Acquisition

On January 3, 2006, the company acquired certain assets, rights and properties of ExacTech, Inc., a supplier of fabrication, machining, welding, and other services to various parties. Located in Port Washington, Wisconsin, ExacTech, Inc. will provide these services to the company’s U.S. based crane manufacturing facilities. The aggregate consideration paid for the acquisition resulted in approximately $6.5 million of goodwill being recognized by the company’s Crane segment.

2.3. Discontinued Operations

During the third quarter of 2005, the company decided to close Toledo Ship Repair Company (Toledo Ship Repair), a division of the company’s wholly-owned subsidiary, Manitowoc Marine Group, LLC. Located in Toledo, Ohio, Toledo Ship Repair performed ship repair and industrial repair services. As a resultDuring the third quarter of the closure,2005, the company recorded a $5.2 million pre-tax ($3.43.8 million after tax) charge for costs related to the closure of the business. This charge included $0.2 million related to severance agreements; $1.0 million for future lease payments; $0.3 million for the write-off of goodwill related to this business; $2.2 million for the write-down of certain assets (primarily property, plant and equipment and inventory) to estimated salvage value; and $1.5 million for closing and other related costs. This charge iswas recorded in lossgain (loss) on sale or closure of discontinued operations, net of income taxes in the Consolidated Statements of Operations.Operations during the third quarter of 2005. The closure of Toledo Ship Repair represents a discontinued operation under Statement of Financial Accounting Standards (SFAS) No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets.”  Results of Toledo Ship Repair in current and prior periods have been classified as discontinued in the Consolidated Financial Statements to exclude the results from continuing operations.

The closure of Toledo was completed during the first quarter of 2006.

The following selected financial data of Toledo Ship Repair for the three and nine months ended September 30,March 31, 2006 and 2005 and 2004 is presented for informational purposes only and does not necessarily reflect what the results of operations would have been had the business operated as a stand-alone entity. There was no general corporate expense or interest expense allocated to discontinued operations for this business during the periods presented.

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During the third quarter ofOn December 30, 2005, the company decided that it would divest itselfcompleted the sale of itsDiversified Refrigeration, LLC, (f/k/a Diversified Refrigeration, Inc.) (DRI) to Monogram Refrigeration, LLC, a wholly-owned subsidiary Diversified Refrigeration, Inc. (DRI).of the General Electric Company.  DRI iswas the company’s private-label Foodservice contract manufacturing operation.  ForNet proceeds from the third quartersale of 2005DRI were approximately $28.4 million and resulted in a pre-tax gain of $17.6 million ($9.6 million after tax). This gain was recorded in gain (loss) on sale or closure of discontinued operations, net of income taxes in the company has classifiedConsolidated Statements of Operations for the year ended December 31, 2005. The sale of DRI as available for sale in accordance withrepresents a discontinued operation under SFAS No. 144. Results of DRI in current and prior periods have been classified as discontinued in the Consolidated Financial Statements to exclude the results from continuing operations.

The following selected financial data of DRI for the three and nine months ended September 30, 2005 and 2004 is presented for informational purposes only and does not necessarily reflect what the results of operations would have been had the business operated as a stand-alone entity. There were no operating results from DRI for the quarter ended March 31, 2006. There was no general corporate expense or interest expense allocated to discontinued operations for this business during the periodsperiod presented.

During the second quarter of 2004, the company completed the sale of its wholly-owned subsidiary, Delta Manlift SAS (Delta), to JLG Industries, Inc.  Headquartered in Tonneins, France, Delta manufactures the Toucan brand of vertical mast lifts, a line of aerial work platforms distributed throughout Europe for use principally in industrial and maintenance operations.  The company received $9.0 million for Delta and certain other assets of the company’s Aerial Work Platform (AWP) businesses.  As a result of the sale and additional reserves for the closures of the other AWP businesses, the company recorded a $1.0 million pre-tax gain ($0.7 million net of taxes).  This gain was recorded in gain on sale or closure of discontinued operations, net of income taxes in the Consolidated Statements of Operations in the second quarter of 2004.  Delta was acquired in August 2002 as part of the acquisition of Grove Investors, Inc. (Grove).  During December 2003, the company completed plans to restructure its AWP businesses.  The restructuring included the closure of the Potain GmbH (Liftlux) facility in Dillingen, Germany and discontinuation of U.S. Manlift production at the Shady Grove, Pennsylvania facility.  With the sale of Delta and the closure of the Liftlux and U.S. Manlift operations, the company no longer participates in the aerial work platform market, other than providing aftermarket parts and service support.  The sale of Delta, the closure of Liftlux and the discontinuation of the U.S. Manlift production represent discontinued operations under SFAS No. 144.  Results of these companies have been classified as discontinued to exclude the results from continuing operations.

The following selected financial data of the AWP businesses for the three and nine months ended September 30, 2004 is presented for informational purposes only and does not necessarily reflect what the results of operations would have been had the business operated as a stand-alone entity.  There was no activity related to the AWP business during the three and nine months ended September 30, 2005.  There were no general corporate expenses or interest expense allocated to discontinued operations for this business during the periods presented.

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During the fourth quarter of 2003 the company terminated its distributor agreement with North Central Crane & Excavator Sales Corporation (North Central Crane), a wholly-owned crane distributor.  The company entered into a new distributor agreement with an independent third party for the area previously covered by North Central Crane.  The termination of North Central Crane represents a discontinued operation under SFAS No. 144, as this was the company’s only wholly-owned domestic crane distributor. The results of this company have been classified as discontinued to exclude the results from continuing operations.

The following selected financial data of North Central Crane for the three and nine months ended September 30, 2004 is presented for informational purposes only and does not necessarily reflect what the results of operations would have been had the business operated as a stand-alone entity.  There was no activity related to North Central Crane during the three and nine months ended September 30, 2005.  There were no general corporate expenses or interest expense allocated to discontinued operations for this business during the periods presented.

3.4. Inventories

The components of inventory at September 30, 2005March 31, 2006 and December 31, 20042005 are summarized as follows:

Inventory is carried at lower of cost or market using the first-in, first-out (FIFO) method for 86%84% and 90%85% of total inventory at September 30, 2005March 31, 2006 and December 31, 2004,2005, respectively. The remainder of the inventory cost is determined using the last-in, first-out (LIFO) method.

4. Stock-Based5. Stock Based Compensation

TheEffective January 1, 2006, the company accountsadopted SFAS No. 123 (R), “Share-Based Payment: An Amendment of Financial Accounting Standards Board Statements No. 123” (SFAS No. 123(R)), which revised SFAS No. 123, “Accounting for its stock options under the recognitionStock-Based Compensation” and measurement provisions of Accounting Principles Boardsupersedes APB Opinion No. 25, “Accounting for Stock Issued to Employees,Employees.” and related Interpretations.  No stock-basedSFAS No. 123(R) requires all share-based payments to employees, including grants of employee compensation cost related to stock options, is reflectedto be measured at fair value and expensed in earnings.  The following table illustrates the effect on net earnings and earnings per share ifconsolidated statement of operations over the service period (generally the vesting period) of the grant. Upon adoption, the company had appliedtransitioned to SFAS No. 123(R) using the fair value recognition provisionsmodified prospective application, under which compensation expense is only recognized in the consolidated statements of operations beginning with the first period that SFAS 123, “Accounting for Stock-Based Compensation,”No. 123(R) is effective and continuing to be expensed thereafter. Prior periods’ stock-based compensation expense is still presented on a pro-forma basis.

The company maintains the following stock based employee compensationplans:

The Manitowoc Company, Inc. 1995 Stock Plan, provides for the threegranting of stock options, restricted stock and nine months ended September 30, 2005 and 2004.

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During May 2005, the company issued a total of 45 thousandlimited stock appreciation rights as an incentive to certain employees. Under this plan, stock options to acquire up to 5.0 million shares of restrictedcommon stock, with a fairin the aggregate, may be granted under the time-vesting formula at an exercise price equal to the market valueprice of $40.56the common stock at the close of business or the business day immediately preceding the date of grant. The options become exercisable in 25% increments beginning on the second anniversary of the grant date over a four-year period and expire ten years subsequent to certain employees and non-employee directors.  The restricted shares are shares of company stock that cannot be sold or otherwise transferred during a specified vesting period from the date of issuance.grant date. The restrictions on transferany restricted shares granted under the plan lapse in one-third increments on each anniversary of the grant date. Awards are no longer granted under this plan. Awards surrendered under this plan become available for granting under the 2003 Incentive Stock and Awards Plan.

The Manitowoc Company, Inc. 2003 Incentive Stock and Awards Plan (2003 Stock Plan) provides for both short-term and long-term incentive awards for employees. Stock-based awards may take the form of stock options, stock appreciation rights, restricted stock,performance share or performance unit awards. The total number of shares of the company’s common stock originally available for awards under the 2003 Stock Plan is 6.0 million shares subject to adjustments for stock splits, stock dividends and certain other transactions or events. Options under this plan are exercisable at such times and subject to such conditions as the compensation committee should determine. Options granted under the plan to date become exercisable in equal 25% increments beginning on the second anniversary of the grant date over a four-year period and expire ten years subsequent to the grant date. Restrictions on

restricted stock awarded under this plan lapse 100% on the third anniversary of the grant date. WhenThere have been no awards of stock appreciation rights, performance shares or performance units.

The Manitowoc Company, Inc. 1999 Non-Employee Director Stock Option Plan (1995 Stock Plan), provides for the restrictionsgranting of stock options to non-employee members of the board of directors. Under this plan, stock options to acquire up to 0.4 million shares of common stock, in the aggregate, may be granted under a time-vesting formula and at an exercise price equal to the market price of the common stock at the date of grant. For the 1999 Stock Plan, the options become exercisable in 25% increments beginning on the first anniversary of the grant date over a four-year period and expire ten years subsequent to the grant date. During 2004, this plan was frozen and replaced with the 2004 Director Stock Plan.

The 2004 Non-Employee Director Stock and Awards Plan (2004 Stock Plan) was approved by the shareholders of the company during the 2004 annual meeting and it replaces The Manitowoc Company, Inc. 1999 Non-Employee Director Stock Option Plan. Stock-based awards may take the form of stock options, restricted stock, or restricted stock units. The total number of shares of the company’s common stock originally available for awards under the 2004 Stock Plan is 0.5 million, subject to adjustments for stock splits, stock dividends, and certain other transactions and events. Stock options awarded under the plan vest immediately and expire ten years subsequent to the grant date. Restrictions on restricted stock awarded to date under the plan lapse on the employee or directorthird anniversary of the award date.

With the acquisition of Grove, the company inherited the Grove Investors, Inc. 2001 Stock Incentive Plan. Outstanding Grove stock options under the Grove Investors, Inc. 2001 Stock Incentive Plan were converted into options to acquire Manitowoc Stock at the date of acquisition. No future stock options may be granted under this plan. Under this plan, after the conversion of Grove stock options to Manitowoc stock options, stock options to acquire 0.1 million shares of common stock of the company were outstanding. These options are fully vested and expire on September 25, 2011. No additional options may be granted under the Grove Investors, Inc. 2001 Stock Incentive Plan.

As a result of the adoption of SFAS No. 123(R), the company recognized $1.0 million of compensation expense associated with stock options for the three months ended March 31, 2006. The following presents pro-forma net income and per share data as if a fair-value-based method had been used to account for stock-based compensation for the three months ended March 31, 2005 (in millions, except per share amounts):

A summary of the company’s stock option activity is as follows (in millions, except weighted average exercise price and aggregate intrinsic value):

The outstanding stock options at March 31, 2006 have a range of exercise prices of $8.47 to $38.11 per option. The following table shows the options outstanding and exercisable by range of exercise prices at March 31, 2006 (in millions, except weighted average exercise price).

The company continues to use the Black-Scholes valuation model to value stock options. The company used its historical stock prices as the basis for its volatility assumption. The assumed risk-free rates were based on ten-year U.S. Treasury rates in effect at the time of grant. The expected option life represents the period of time that the options granted are expected to be outstanding and were based on historical experience.

As of March 31, 2006 the company has $8.0 million of unrecognized compensation expense which will ownbe recognized over the shares outright without any payment, exceptnext five years.

The weighted average fair value of options granted per share during the paymentfirst quarter of applicable, federal, state2006 and local withholding taxes.  At2005 is $15.48 and $8.15, respectively. The fair value of each option grant was estimated at the date of grant using the company recorded $1.8 million of unearned compensation in stockholders’ equity.  This amount is being recognized as compensation expense overBlack-Scholes option-pricing method with the three year vesting period.  During the three and nine months ended September 30, 2005, the company recognized approximately $0.2 million and $0.3 million , respectively, of compensation expense related to the restricted stock awards.  following assumptions:

For the three and nine months ended September 30, 2004,March 31, 2006, the total intrinsic value of stock options exercised was $7.9 million.

The company recognized approximately $0.1 million and $0.2 million, respectively, of compensation expense related to restricted stock which was issued during 2002.2002 for the three months ended March 31, 2005. In addition, during the three months ended March 31, 2006, the company

recognized approximately $0.2 million of compensation expense related to restricted stock which was issued during the second quarter of 2005.

5.6. Stock Split

On February 24, 2006, the board of directors authorized a two-for-one stock split of the company’s outstanding common stock. Record holders of Manitowoc’s common stock at the close of business on March 31, 2006, received on April 10, 2006 one additional share of common stock for every share of Manitowoc common stock they owned as of March 31, 2006. Manitowoc shares outstanding at the close of business on March 31, 2006 totaled 30,605,986. The company’s common stock began trading at its post-split price at the beginning of trading on April 11, 2006. Per share and stock option amounts within this quarterly report on Form 10-Q for both periods presented have been adjusted to reflect the stock split.

7. Contingencies and Significant Estimates

The company has been identified as a potentially responsible party under the Comprehensive Environmental Response, Compensation, and Liability Act (CERLA) in connection with the Lemberger Landfill Superfund Site near Manitowoc, Wisconsin. Approximately 150 potentially responsible parties have been identified as having shipped hazardous materials to this site. Eleven of those, including the company, have formed the Lemberger Site Remediation Group and have successfully negotiated with the United States Environmental Protection Agency and the Wisconsin Department of Natural Resources to fund the cleanup and settle their potential liability at this site. Estimates indicate that the total costs to clean up this site are approximately $30 million. However, the ultimate allocations of costs for this site are not yet final.  Although liability is joint and several, the company’s share of the liability is estimated to be 11% of the total cost. Prior to December 31, 1996, the company accrued $3.3 million in connection with this matter. Remediation work at the site has been substantially completed, with only long-term pumping and treating of groundwater and site maintenance remaining. The company’s remaining estimated liability for this matter, included in other current liabilities in the Consolidated Balance Sheet at September 30, 2005March 31, 2006 is $0.5$0.4 million. Based on the size of the company’s current allocation of liabilities at this site, the existence of other viable potential responsible parties and current reserve, the company does not believe that any liability imposed in connection with this site will have a material adverse effect on its financial condition, results of operations, or cash flows.

During the due diligence process for the sale of DRI certain contaminants in the soil and ground water associated with the facility were identified. As part of the sale agreement, the company agreed to be responsible for costs associated with further investigation and remediation of the issues identified. Estimates indicate that the costs to remediate this site are approximately $2.0 million. During December 2005, the company recorded a $2.0 million reserve for these estimated costs. This charge was recorded in discontinued operations in the Consolidated Statements of Operations for the year ended December 31, 2005. The company’s remaining estimated liability for this matter, included in other current liabilities in the Consolidated Balance Sheet at March 31, 2006 is $1.9 million. Based upon available information, the company does not expect the ultimate costs will have a material adverse effect on its financial condition, results of operations, or cash flows.

At certain of the company’s other facilities, the company has identified potential contaminants in soil and groundwater. The ultimate cost of any remediation required will depend upon the results of future investigation. Based upon available information, the company does not expect that the ultimate costs will have a material adverse effect on its financial condition, results of operations, or cash flows.

The company believes that it has obtained and is in substantial compliance with those material environmental permits and approvals necessary to conduct its various businesses. Based on the facts presently known, the company does not expect environmental compliance costs to have a material adverse effect on its financial condition, results of operations, or cash flows.

As of September 30, 2005,March 31, 2006, various product-related lawsuits were pending. To the extent permitted under applicable law, all of these are insured with self-insurance retention levels. The company’s self-insurance retention levels vary by business, and have fluctuated over the last five years. The range of the company’s self-insured retention levels is $0.1 million to $3.0 million per occurrence. The high-end of the company’s self-insurance retention level is a legacy product liability insurance

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program inherited in the Grove Investors, Inc. acquisition in 2002 for cranes manufactured in the United States for occurrences from January 2000 through October 2002. As of September 30, 2005,March 31, 2006, the largest self-insured retention level currently maintained by the company is $2.0 million per occurrence and applies to product liability claims for cranes manufactured in the United States.

Product liability reserves in the Consolidated Balance Sheet at September 30, 2005,March 31, 2006, were $29.6$31.5 million; $7.3$9.5 million reserved specifically for cases and $22.3$22.0 million for claims incurred but not reported which were estimated using actuarial methods. Based on the company’s experience in defending product liability claims, management believes the current reserves are adequate for estimated case resolutions on aggregate self-insured claims and insured claims. Any recoveries from insurance carriers are dependent upon the legal sufficiency of claims and solvency of insurance carriers.

At September 30, 2005March 31, 2006 and December 31, 2004,2005, the company had reserved $48.0$56.8 million and $46.5$55.4 million, respectively, for warranty claims included in product warranties and other non-current liabilities in the Consolidated Balance Sheets. Certain of these warranty and other related claims involve matters in dispute that ultimately are resolved by negotiations, arbitration, or litigation.

It is reasonably possible that the estimates for environmental remediation, product liability and warranty costs may change in the near future based upon new information that may arise or matters that are beyond the scope of the company’s historical experience. Presently, there are no reliable methods to estimate the amount of any such potential changes.

The company is involved in numerous lawsuits involving asbestos-related claims in which the company is one of numerous defendants. After taking into consideration legal counsel’s evaluation of such actions, the current political environment with respect to asbestos related claims, and the liabilities accrued with respect to such matters, in the opinion of management, ultimate resolution is not expected to have a material adverse effect on the financial condition, results of operations, or cash flows of the company.

The company is also involved in various legal actions arising out of the normal course of business, which, taking into account the liabilities accrued and legal counsel’s evaluation of such actions, in the opinion of management, the ultimate resolution is not expected to have a material adverse effect on the company’s financial condition, results of operations, or cash flows.

The company has been in negotiations with one of its 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 the timeframe desired by the company, the company filed a lawsuit seeking recovery of these cost overruns from the customer.  The amount of recovery included in the company’s estimates of this long-term project’s revenues is $10.2 million as of September 30, 2005.  Although the damages portion of the lawsuit has not yet been formalized, the company intends to seek recovery in an amount in excess of the amount currently on the balance sheet.  If the company is unsuccessful in its recovery of costs as a result of this lawsuit, the impact on its Consolidated Statements of Operations in a future period could be material.  In addition, the company has $7.7 million of progress payment receivables outstanding with this customer as of September 30, 2005.  The customer continues to make regular payments on these outstanding receivables in the normal course of business and therefore the company has determined these amounts to be collectible at this time.

During the first quarter of 2004, the company reached a settlement agreement with a third party and recorded a $2.3 million gain, net of legal and settlement costs, in other income (expense) in the Consolidated Statements of Operations.

At September 30, 2005,March 31, 2006, the company is contingently liable under open standby letters of credit issued by the company’s bank in favor of third parties totaling $26.2$26.1 million.

6. Debt and Loss on Debt Extinguishment

In June 2005, the company entered into a five-year, $300 million, secured revolving credit facility, which replaced the company’s $125 million revolving credit facility that was due to expire in May 2006.  Borrowings under the secured revolving credit facility bear interest at a rate equal to the sum of a base rate or a Eurodollar rate plus an applicable margin, which is based on the company’s consolidated total leverage ratio as defined by the credit agreement.  The annual commitment fee in effect at September 30, 2005 on the unused portion of the secured revolving credit facility was 0.25%.  As of September 30, 2005, there was no amount outstanding under the secured revolving credit facility.  During June 2005, the company recorded a charge of $0.8 million ($0.6 million net of income taxes) for deferred financing costs related to the termination of the previous $125 million revolving credit facility.

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In December 2004, the company sold, pursuant to an underwritten public offering, approximately 3.0 million shares of its common stock at a price of $36.25 per share.   Net cash proceeds from this offering, after deducting underwriting discounts and commissions, were $104.9 million.  In addition to underwriting discounts and commissions, the company incurred approximately $0.6 million of accounting, legal and other expenses related to the offering that were charged to additional paid-in capital. The company used a portion of the proceeds to redeem approximately $61.3 million of the 10 ½% senior subordinated notes due 2012 and to pay the prepayment premium to the note holders of $6.4 million.  The company used the balance of the proceeds for general corporate purposes.

On January 10, 2005, the company completed the redemption of $61.3 million of the 10 ½% senior subordinated notes due 2012.  As a result of this redemption, the company incurred a charge of approximately $8.3 million ($5.4 million net of income taxes) for the early extinguishment of debt related to the prepayment premium paid to the note holders of $6.4 million, and the partial write-off of debt issuance costs of $1.9 million.  The charge was recorded in loss on debt extinguishment in the Consolidated Statements of Operations.

During the third quarter of 2004, the company recorded a charge of $0.5 million ($0.4 million net of income taxes) related to the prepayment of the term loan B portion of its senior credit facility.  The loss relates to the write-off of unamortized financing fees and unwinding of the company’s floating-to-fixed interest rate swap.  In addition, during the first quarter of 2004, the company recorded a charge of $0.6 million ($0.4 million net of income taxes) related to the partial prepayment of the term loan B portion of its senior credit facility.  The loss also relates to the write-off of unamortized financing fees and partial unwinding of the company’s floating-to-fixed interest rate swap.  The charge was recorded in loss on debt extinguishment in the Consolidated Statements of Operations.

7.8. Earnings Per Share

The following is a reconciliation of the average shares outstanding used to compute basic and diluted earnings per share.

For the three and nine months ended September 30,March 31, 2006 and 2005, 0.3 and 2004, no common shares and 0.20.4 million of common shares, respectively, issuable upon the exercise of stock options were anti-dilutive and were excluded from the calculation of diluted earnings per share.

During both the three months ended March 31, 2006 and 2005, the company paid a quarterly dividend of $0.035 per outstanding common share.

8.9. Guarantees

The company periodically enters into transactions with customers that provide for residual value guarantees and buyback commitments. These transactions are recorded as operating leases for all significant residual value guarantees and for all buyback commitments. These initial transactions are recorded as deferred revenue and are amortized to income on a straight-line basis over a period equal to that of the customer’s third party financing agreement. The deferred revenue included in other current and non-current liabilities at September 30, 2005March 31, 2006 and December 31, 20042005 was $119.6$124.0 million and $124.1$128.5 million, respectively. The total amount of residual value guarantees and buyback commitments given by the company and outstanding at September 30, 2005March 31, 2006 was $138.8$146.6 million. This amount is not reduced for amounts the company maywould recover from repossessing and subsequent resale of the units. The residual value guarantees and buyback commitments expire at various times through 2010.

2011.

During the ninethree months ended September 30,March 31, 2006 and 2005, and the year ended December 31, 2004, the company sold $4.4$11.5 million and $25.8$0.9 million, respectively, of its long term notes receivable to third party financing companies. The company fully guarantees some percentage, up to 100%, of collection of the notes to the financing companies. The company has accounted for the sales of the notes as a financing of receivables. The receivables remain on the company’s Consolidated Balance Sheet, net of payments made, in other current and non-current assets and the company has recognized an obligation equal to the net outstanding balance of the notes in other current and non-current liabilities in the Consolidated Balance Sheet. The cash flow benefit of these transactions, net of payments made by the customer, are reflected as financing activities in the Consolidated StatementsStatement of Cash Flows. During the ninethree months ended September 30, 2005March 31, 2006, the customers have paid $4.4$1.7 million of the notes to the third party financing companies. As of September 30, 2005,March 31, 2006, the outstanding balance of the notes receivables guaranteed by the company was $23.2$47.3 million.

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The company also hashad an accounts receivable factoring arrangement with a bank. Under this arrangement, the company iswas required to repurchase from the bank the first $1.0 million and amounts greater than $1.5 million of the aggregate uncollected receivables during a twelve-month period. During the first quarter of 2006, the company terminated the factoring agreement with the bank. The company’s contingent factoring liability, net of cash collected from customers, was $26.5$0 million and $39.4$23.6 million at September 30, 2005March 31, 2006 and December 31, 2004,2005, respectively.

In the normal course of business, the company provides its customers a warranty covering workmanship, and in some cases materials, on products manufactured by the company. Such warranty generally provides that products will be free from defects for periods ranging from 12 months to 60 months. If a product fails to comply with the company’s warranty, the company may be obligated, at its expense, to correct any defect by repairing or replacing such defective products. The company provides for an estimate of costs that may be incurred under its warranty at the time product revenue is recognized. These costs primarily include labor and materials, as necessary, associated with repair or replacement. The primary factors that affect the company’s warranty liability include the number of units shipped and historical and anticipated warranty claims. As these factors are impacted by actual experience and future expectations, the company assesses the adequacy of its recorded warranty liability and adjusts the amounts as necessary. Below is a

table summarizing the warranty activity for the ninethree months ended September 30, 2005March 31, 2006 and 2004.2005.

9. Restructuring and Plant Consolidation10. Accounts Receivable Securitization

The company has an accounts receivable securitization program whereby it sells certain of its domestic trade accounts receivable to a wholly owned, bankruptcy-remote special purpose subsidiary which, in turn, sells participating interests in its pool of receivables to a third-party financial institution (Purchaser). The Purchaser receives an ownership and security interest in the pool of receivables. New receivables are purchased by the special purpose subsidiary and participation interests are resold to the Purchaser as collections reduce previously sold participation interests. The company has retained collection and administrative responsibilities on the participation interests sold. The Purchaser has no recourse against the company for uncollectible receivables; however, the company’s retained interest in the receivable pool is subordinate to the Purchaser and is recorded at fair value. Due to a short average collection cycle of less than 60 days for such accounts receivable and the company’s collection history, the fair value of the company’s retained interest approximates book value. The retained interest recorded at March 31, 2006 is $46.5 million, and is included in accounts receivable in the accompanying Consolidated Balance Sheets.

The securitization program’s capacity is $60 million, and includes trade account receivables from its domestic Crane segment businesses. Trade accounts receivable sold to the Purchaser and being serviced by the company totaled $31.1 million at March 31, 2006.

Sales of trade receivables from the special purpose subsidiary to the Purchaser totaled $75.0 million, for the three months ended March 31, 2006. Cash collections of trade accounts receivable balances in the total receivable pool totaled $130.5 million for the three months ended March 31, 2006.

The accounts receivables securitization program is accounted for as a sale in accordance with FASB Statement No. 140 “Accounting for Transfers and Servicing of Financial Assets and Extinguishment of Liabilities—a Replacement of FASB Statement No. 125.” Sales of trade receivables to the Purchaser are reflected as a reduction of accounts receivable in the accompanying Consolidated Balance Sheets and the proceeds received are included in cash flows from operating activities in the accompanying Consolidated Statements of Cash Flows.

The table below provides additional information about delinquencies and net credit losses for trade accounts receivable subject to the accounts receivable securitization program.