MANITOWOC CO INC annual report, FY2020

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The Manitowoc Company, Inc. — FY2020 Form 10-K

Business context and reporting period. Manitowoc designs, manufactures, sells and supports mobile, tower and crawler cranes and related parts and services. This annual filing covers the fiscal year ended December 31, 2020; amounts below are in millions of dollars unless stated otherwise. The company reports Americas, Europe and Africa (EURAF), and Middle East and Asia Pacific (MEAP) segments.

Financial performance and position

  • Revenue: Net sales were $1,443.4, down 21.3% from $1,834.1 in 2019. New crane sales were $1,065.3; used cranes, aftermarket parts and other sales were $378.1.
  • Profitability: Gross profit was $254.7, with a 17.6% margin, compared with $344.1 and 18.8% in 2019. Operating income was $38.6 versus $108.4. The company reported a net loss of $19.1, or $0.55 per diluted share, compared with net income of $46.6, or $1.31 per diluted share.
  • Cash flow and investment: Cash used in operating activities was $35.1, versus $53.3 used in 2019. Capital expenditures were $26.3; reported free cash flow, a non-GAAP measure, was negative $61.4. Cash and cash equivalents fell to $128.7 from $199.3.
  • Debt and liquidity: Total debt was $310.9, including $300.0 of 9% secured notes due 2026; debt was $312.2 at year-end 2019. No ABL revolver borrowings were outstanding at year-end. Reported total liquidity was $411.7, including $128.7 cash, $243.8 revolver capacity, and $42.2 other debt availability, less $3.0 of letters of credit.
  • Other metrics: Orders declined 7.8% to $1,511.4, while year-end backlog increased 14.3% to $543.2. Adjusted EBITDA, a non-GAAP measure, was $83.1 versus $156.6. Goodwill and other intangible assets totaled $356.7; no impairment was recorded in 2020.

Material changes versus 2019

  • The sales decline chiefly reflected COVID-19-related demand weakness across most end markets, compounded in the Americas by lower beginning backlog and fewer shipments. Favorable currency changes partly offset the decline.
  • Americas sales fell 35.4% to $626.1 and segment operating income fell to $32.1 from $113.4. EURAF sales fell 7.2% to $598.7, while segment operating income rose to $12.0 from $3.8, helped by mix and lower expenses. MEAP sales were nearly flat at $218.6; operating income rose to $30.4 from $22.6, largely on lower expenses.
  • Lower factory utilization reduced gross margin through under-absorption of facility costs. Lower discretionary spending, incentive compensation and restructuring costs partly reduced operating expenses.
  • Other expense was $10.0, compared with $9.8 of other income in 2019. The 2020 amount included foreign-currency losses and a legal settlement charge; 2019 included a legal settlement benefit and a gain on property sale. 2019 also included a $25.0 debt-extinguishment charge, absent in 2020.
  • Fourth-quarter sales were $430.3 versus $463.4 in the prior-year quarter; fourth-quarter operating income was $22.8 versus $17.8, and net income was $1.8 versus $9.2.

Outlook, risks and unusual items

  • The filing provides no specific numeric revenue, earnings or cash-flow guidance. Management said available cash, revolver capacity, future operating cash and capital-market access were expected to meet capital and debt needs for the foreseeable future, while noting the uncertainty of COVID-19’s continuing effects.
  • Key risks include pandemic-related demand, operating and supply-chain disruption; cyclical construction and crane markets; raw-material costs and supplier availability; international, currency and competitive pressures; high leverage and debt covenants; and the ability to execute cost savings and convert orders into sales.
  • The $300.0 secured notes carry a 9% coupon and mature in 2026. The company reported compliance with debt covenants at year-end and expected to remain compliant over the next twelve months, subject to business and economic conditions.
  • Buyback commitments were $31.7 at year-end, and maximum loss guarantees were $31.8; these amounts are not reduced for expected proceeds from repossession and resale. Product-liability reserves were $9.2, and warranty reserves were $63.2. Management did not expect pending litigation, including asbestos-related claims, to have a material adverse effect, but estimates may change.
  • The company recorded a $19.1 annual net loss despite a $17.1 income-tax provision. Tax valuation allowances increased, and unrecognized tax benefits were $20.1. Goodwill impairment testing was identified as a critical audit matter because it depends on management’s revenue-growth and operating-income assumptions.
  • Management and the auditor concluded internal control over financial reporting was effective; the auditor issued an unqualified opinion on the financial statements and controls.

Important facts for investors to verify

  • Whether demand, orders and backlog recover sufficiently to restore shipment volumes and manufacturing utilization, particularly in the Americas.
  • Whether negative operating cash flow and the decline in cash are temporary, and how receivables, inventory and supplier payments affect working capital.
  • Capacity under the asset-based revolver, covenant headroom and the company’s ability to service the 9% notes through maturity.
  • The assumptions supporting goodwill and intangible-asset valuations, and whether prolonged market weakness could trigger impairment.
  • Potential cash exposure from buybacks, guarantees, warranties, product-liability claims and tax matters.
  • How management’s non-GAAP adjusted EBITDA and free-cash-flow calculations reconcile to GAAP results and cash flows.